Medium-term and top-down budgeting are two cornerstones of modern budgeting. Medium-term budgeting is designed to bring a multi-annual perspective to the budget process, helping policy makers consider the future fiscal implications of immediate policy decisions and provide greater predictability about the future availability and allocation of resources. The top-down approach aims to maintain fiscal discipline and ensure that budgets align with the government’s fiscal strategy and policy priorities.
According to the OECD Spending Better Framework (OECD, 2023), the effective implementation of medium-term and top-down budgeting requires setting multi-annual expenditure ceilings to define future spending levels and prioritise fiscally responsible expenditure. Ideally, the ceilings should be binding for at least the first two years and assigned to each ministry to foster ownership and accountability. Ceilings for later years may be aggregated and become more indicative. Multi-annual expenditure ceilings should either be aligned with the government's term of office or updated annually on a rolling basis.
Most of the OECD countries that responded to the 2023 OECD Senior Budget Officials Survey on Budget Frameworks use such multi-annual top-down expenditure ceilings (26 out of 36 survey respondent countries, 72%). Of the ten countries which do not, seven use expenditure ceilings only for the upcoming budget year and instead rely on forecasts to anticipate fiscal developments and inform planning decisions. The remaining three countries do not use top-down expenditure ceilings at all (Figure 9.1).
OECD countries use a variety of practices to set their expenditure ceilings. Most of those with multi-annual expenditure ceilings set them for a 3-5 year period (25 out of 26 countries, 96%) and have binding ceilings for at least the upcoming budget year (22 out of 26, 85%). Of these, nine use binding ceilings over the full period of the medium-term framework, while three use them only for a two-year period. Slightly more than half the countries (14 out of 26, 54%) use only indicative ceilings beyond the upcoming budget year (Figure 9.2).
Most OECD countries with multi-annual expenditure ceilings use a rolling medium-term framework (20 out of 26 countries, 77%), meaning that each year the ceiling is extended by one year to include the next outer year. Six countries (23%) use a fixed period framework, meaning that new ceilings are set only once the initial set period has been completed. A majority of OECD countries with top-down expenditure ceilings set them at the organisational level, such as line ministries or agencies (19 out of 26, 73%). Only one country solely uses aggregate ceilings for the entire period covered by the expenditure ceilings (Figure 9.2).
