The third sub section of the third section suggests the following set of ways of financing a delivery of social services alternative to the esti mate based one: standardized – targeted, contractual financing and subsidizing the consumer.
The normative targeted financing is understood as reimbursing for the costs of provision of specific services to specific categories of consumers according to uniform standards of financial costs of provi sion of the respective services that are set by administrative proce dures. This way of financing can be applicable to the organizations for which the government has the right to set mandatory targets of provi sion of social services – that is, budget and autonomous institutions.
This particular way of financing does not conflict with the Budget Code of RF and can be applied to the institutions in question without their re organization. Standards of financial costs can be simple (i.e. uniform for all the consumers) or complex (i.e. differentiated depending on the consumer's specificity or conditions of provision of services, or other factors). The financing according to the standards uniform to all the customers is usually called standardized per capita financing.
It allows saving budget funds on coverage of unjustified costs in curred by service suppliers (as the standards are computed proceeding from the average statistical costs of their provision). However, the nor mative targeted financing hampers competition between suppliers:
first, once standards are set by administrative means, the competition does not impact their costs; second, the possibility to set standards at a level lower than the costs of provision of services discourage the sup plier from attracting customers.
The mandatory requirement to the efficient organization of the nor mative targeted financing is to carry it out by means of a solitary chan nel or to ensure the transparency of principles of allocation of funds across accompanying channels of financing.
The normative targeted financing does not suggest the necessity of control over directions of spending funds a given institution receives as payment for provided services, which in the future should be substi tuted by the control over the volume and quality of its services.
The contractual financing, or social order is understood as the financing of provision of social services under a contract between the government and the their supplier, provided the parties are free to enter into the respective agreement. Contractual financing can be applied to PANOs and organizations belonging to the private sector.
The social order system allows a greater level of competition be tween suppliers of services vis vis the normative targeted financing, but the government fails to exercise the administrative control over the costs of social services. The method aimed at diminishing them are tender based procedures of placement of the social order, which, how ever, is efficient only in competitive markets. This constrains the em ployment of social order in the areas in which the government has com pulsory obligations on provision of free services to all the consumers, i.e. the general, primary and secondary vocational training, and health care.
The transition to the provision of services on the contractual basis should be gradual and providing there are several organizations that deliver such services within a given territory. That implies that in the process of budget planning one can hold tenders on the right to con clude agreements on provision of social services between budget insti tutions and private organizations that operate in the given territory. The initial price at such tenders should be formed by the standard of finan cial costs of the provision of given services computed for the year to come proceeding from the fiscal capacity. Should bids be in excess of the starting price, the tender is recognized null and void. In the event it becomes impossible to place the social order on the basis of a tender, one should resort to the normative targeted financing.
To establish prerequisites of intensification of competition between suppliers under the normative targeted and contractual financing, it is critical to provide the consumer with the right to choose a supplier of the services. That suggests the refusal of fixing a certain contingent of customers with the suppliers of services. The contract (order) on provi sion of social services should determine, accordingly, the price or stan dard of financing per unit of services and limitation of the volume of ser vices per consumer. Given that, the allocation of budget expenditures on the provision of services between their specific suppliers should be made proceeding from the price for the services (or standard of finan cial costs of their provision) stipulated in the contract and the actual volume of their provision.
Subsidizing the customer implies providing citizens with budget funds to partly compensate for their costs of purchasing certain ser vices. While to ensure the targeted use of the subsidy it is transferred in favour of the supplier of the services he has picked, the difference be tween this particular approach and the normative targeted one and contractual financing with the use of vouchers lies in the fact that it is the consumer that is the recipient of budget funds. Given that the risk of the choice of the supplier lies on thee consumer, the government does not guarantee him price for and quality of the services, with its obliga tions limited to paying the customer a fixed sum. This particular method can be applied to finance the services which the government consider it possible to provide under the terms of citizens' cost sharing and in the lack of the public control over their quality.
In the course of development of the 2005 draft federal budget the government, for the first time ever in the contemporary Russian history, attempted to employ the performance based budgeting arrange ments. All the federal ministries and agencies used a uniform methodo logical basis to draft their budget reports that highlighted on their per formance over the past three years and set medium term goals and objectives of their operations, as well as the system of indicators to as sess its effectiveness. The bulk of expenditures on maintenance minis tries and agencies’ operations have now been allocated across the so called departmental targeted programs, i.e. linked to specific areas of operations of the agencies’ structural divisions and to envisaged out puts. In parallel with that, a legal base was created to integrate in the national budgeting process the practices of medium term targeted planning and improve the institution of budget reporting.
The extension of the length of the budget planning period and con sideration of earlier assumed obligations in the course of budgeting should benefit from the inclusion in the perspective budget plan of allo cation across subjects of the budget planning of funds on fulfillment the current expenditure obligations and newly assumed ones for a three year period. In the process of building the budget for next year there should be developed justifications for departures from earlier approved parameters of the perspective financial plan. Meanwhile, the perspec tive financial plan is not subject to a legislative approval, which ensures a necessary degree of adjustment of the financial policy to changes in the socio economic situation.
The introduction of result oriented budgeting to the Russian budget ing process creates prerequisites for development of targeting proc esses in the course of implementation of the budgetary policy and a more transparent comparison of costs with outputs, and making more rational decisions. However, the analysis of the practice of preparation of the Aggregate Budget Report of the Government and those of fed eral ministries shows that serious deficiencies in the targeted planning methodology generate the ministries’ formal attitude to the work on the reports, which diminishes the efficiency of the proposed instrument of budgeting.
While being theoretically correct, the requirement to ensure a match between targets and objectives the subjects of the budget planning set for themselves and quantitative indicators of their achievement, cou pled with a limited possibility for collecting the necessary statistical in formation, resulted in the distortion of the logical sequence of the plan ning. The performance indicators that theoretically should be designed according to targets and objectives in practice have moved to the fore front, as while drafting their budget reports, ministries had to adjust tar gets and objectives to statistical indicators available. To remedy the in tensity of the problem, the government is in need for an alternative sys tem of data collection to assess the agencies’ quantitative performance indicators.
The problem of the mismatch between sets of targets the subjects of budget planning set for themselves and the volume of powers they ex ercise forms an equally pressing challenge. One of the ways to solve that may become tightening requirements to the description in budget reports of means by which the targets and objectives would be attained from the perspective of demonstration of a correlation between specific actions of subjects of the budget planning and a respective output.
Yet another problem lies with limited possibilities for conducting an independent external evaluation of numerical values of performance indicators cited in budget reports. That can be explained by the lack of the informational base that should cover both other economies and, as often happens, analogous domestic indicators of the past years, which makes the task of such a comparative analysis almost impossible. Thus, today the Government de facto cannot judge whether the indicators presented by agencies are high or low and, consequently, whether a given agency was sufficiently successful, or not. There also are other, minor deficiencies in the methodology of drafting the ministries’ budget reports.
With account of the above problems, at the present stage of intro duction of the result oriented budgeting (ROB) one should consider it correct to refuse the idea of allocation of funds across agencies on the basis of evaluation of their effectiveness. In the lack of adequate criteria of evaluation of outputs of the subjects of budget planning and ideas as to what level of costs can be considered economically justified to en sure the outputs, the liquidation of control over directions of their spending may result in a rise in budget expenditures.
The analysis given in the third section evidences the necessity of a long transition period to introduce the ROB principles to the national budgeting process.
The analysis of international reform experiences of systems of provi sion of health care and educational services to the population provided in the fourth section proves that despite different economic situations in the developed and transitional countries, their major reform avenues appear similar. Those are: abandonment of the practice of financing health care and education exclusively out of public funds, granting a greater autonomy to medical and educational institutions, extension of the set of possible instruments of financing the respective services, and introduction of competition in these areas.
Meanwhile, the developed economies display the health care reform prerequisites differing from those of the transition economies. In the post socialist world, the need for reforming the health care sector was determined primarily by limited budget opportunities for its financing, while the health care reform efforts in the developed countries were aimed at their adaptation to new challenges – that is, an uncontrollable or poorly controlled inflation of costs of provision of medical services, inefficiency of and/or failures on the markets for medical insurance, medicines, medical equipment, the rise of new, dangerous diseases.
The Canadian experience considered in this section allows singling out a number of issues that underlie the reform success: the necessity of a strict identification of the list and volume of medical services pro vided at the expense of public funds; the need for identification of com plementary, i.e. outside the budget, sources of financing of organiza tions of new organizational and legal forms; the need in a special regu lation of the tax regime with regard to the private medical insurance sector.
Nowadays, most countries worldwide recognize the importance of a valuable cooperation between the public and private sectors in the area of financing education. The public financing of the sector is needed where the social benefit exceeds the private one, as well as with respect to lower income citizens, while private capital plays a greater role wher ever private benefits prevail (this concerns, for instance, receiving the second higher education).
The overseas nations vigorously introduce the costs division mecha nism in the higher education area, under which students partly pay, in one way or another, for their education. The main instruments em ployed under such an arrangement are: traditional loans (the student repays the loan by fixed payments in certain periods of time); human capital contracts, under which the student pays for tuition with a part of his future salary over a certain period), etc. The overseas experiences show that the existence of a set of various financial instruments to se cure education and a vigorous contribution of the private capital boost the demand for educational services and allow a most efficient alloca tion of funds in the educational sector.
The fifth section contains reform proposals with respect to individ ual sub sectors of the budget sector.
In the area of health care, one of the reasons for the gap between public guarantees of medical assistance and their financial provision is an inefficient allocation of resources in the system of therapeutic and preventive care institutions, which requires its radical restructuring. The restructuring should be pursued along two main lines: by optimizing the budget network and introducing new organizational and legal forms for health care institutions.
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