Performance budgeting: A means to improve EU spending

Written by Magdalena Sapała,

performance conceptual meter indicate maximum, isolated on white background

© fontriel / Fotolia

In 2015, the European Commission launched an initiative entitled, ‘The EU budget focused on results’. The initiative is aimed at changing spending culture and making results a horizontal priority for the EU budget, by paying as much attention to funds’ performance, efficiency and effectiveness as to their absorption and compliance with financial rules. The initiative builds on earlier EU efforts in this respect, but also takes a more consistent and coordinated approach to results-oriented spending.

The actions encompassed in the initiative are based on the concept of performance budgeting. This budgetary method considers what can be achieved with the funds available, seeks to measure the results of spending, and links the results to budgetary decision-making. The concept has a long history and is complex in nature, but it is still seen as a promising budgetary innovation and attractive to many countries and organisations around the world, including most EU Member States and the EU itself.

The method is especially appealing at times of economic crisis and constraints on public spending, as it promises to increase value for money (i.e. the efficiency, effectiveness and performance of public expenditure) and to enhance the transparency and democratic accountability of the budget. It is perceived not only as a useful method to improve budgetary management, but also as a way to strengthen the performance orientation of other aspects of management of the public sphere.

Numerous examples from literature, however, indicate that performance budgeting is not easy to implement, and requires extensive preparation, the right strategy, and determination from the authority that tries to apply it. In the context of the EU budget, there are additional challenges. The significant complexity of the EU budgetary system, multiplicity of entities responsible for budget implementation at different levels, profusion of strategies and programmes with different time perspectives, and relative rigidity of financial planning do not favour the comprehensive and smooth implementation of performance budgeting. Although much has been done to make the EU budgetary system performance-oriented, there remains much room for improvement. This concerns, in particular, the quality and quantity of performance information and its role in budgetary decision-making.

The EU institutions’ support for the idea gives grounds to believe that efforts will continue. The circumstances will be particularly conducive to making changes in the coming months. The principles of performance budgeting can be enhanced in the EU’s new financial architecture, which consists of the revised Financial Regulation, the post-2020 Multiannual Financial Framework and a reformed system of own resources, as well as the new generation legislative framework for EU spending programmes. A solid understanding of performance budgeting is, therefore, needed, as it could increase the chances of successful reform. This paper thus aims to improve understanding of performance budgeting. It presents the origins and evolution of the concept, and seeks to clarify the terminology and the main models applied. It also considers the benefits, challenges and typical problems encountered in its implementation, with reference to the example of the EU budget.

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Figure 2 – OECD index of performance budgeting practices

OECD index of performance budgeting practices

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