Share

Spending reviews

 

Spending reviews are tools for developing, assessing, recommending and adopting policy options by analysing the government’s existing expenditure. They enable governments to manage their aggregate expenditure levels and align them with their priorities while improving policy effectiveness.

The purposes of a spending review include:

  • Enabling the government to manage the aggregate level of expenditure.
  • Aligning expenditure according to the priorities of the government.
  • Improving effectiveness within programmes and policies.

Key Issues

As countries look to develop and improve spending review processes, the OECD can bring together country experiences to help governments design and implement relevant approaches to spending reviews.

This includes:

  • Assisting countries in developing and refining country spending review frameworks and strategies.
  • Advising countries on integrating spending reviews into the budget process.
  • Providing recommendations to introduce and pilot spending reviews.
  • Identifying appropriate methodologies used for different spending review objectives (e.g. spending cuts, reallocation and programme effectiveness).

Data

What are OECD countries doing?

Most OECD countries practice spending reviews. This includes countries with longstanding practices such as the Netherlands, Denmark and Canada and countries that have introduced spending reviews in recent years, such as Chile and Estonia.

 

Use of spending reviews across OECD countries1

 

 

The wide use of spending reviews across OECD countries demonstrate its importance for budgetary governance. Country approaches to spending reviews are not homogenous, but founded upon the unique circumstances, priorities and needs of the local context. 


[1] Based on 38 country responses from the 2020 OECD Spending Review Survey. 

 

Main objectives of spending reviews (2008 – 2020)

 

Spending reviews may be comprehensive in nature and focus on the total government expenditures, or they may be more specific and focus on expenditures in specific sectors or areas. They also vary in frequency and duration.

 

Scope of spending reviews (2017 – 2020)

 

 

Draft OECD Best Practices for Spending Reviews

The draft OECD Best Practices for Spending Reviews highlight core features to the successful use of spending reviews. They are drawn from the experiences of OECD member countries and focus on how to successfully carry out spending reviews. 

1. Formulate clear objectives and specify the scope of SRs

  • The objectives of a spending review must be clear
  • Clearly specify the scope of a review

2. Identify distinct political and public service roles in the review process

  • Political leadership to ensure the viability and sustainability of spending reviews
  • Public servants carry out spending reviews

3. Set up clear governance arrangements throughout the review process

  • Clear roles and responsibilities across all stakeholders

4. Ensure integration with the budget process

  • Alignment with the budget process
  • Alignment with medium term frameworks
  • Alignment with evaluations and performance budgeting

5. Implement recommendations in an accountable and transparent manner

  • Recommendations from spending reviews should be clear
  • Monitor implementation of spending review decisions

 6. Ensure full transparency of spending review reports and the review framework

  • Conclusions of spending reviews are available publicly
  • The governance arrangements and guidance materials are available publicly

7. Update the spending review framework periodically

  • The framework should be updated according to ever-changing challenges

Country Experiences

Canada flag

Canada: Evolving objectives of spending reviews

The Canadian government has used spending reviews since the 1990s and the objectives of those reviews have changed alongside changes in the economic environment. During the fiscal crisis in the 1990s, reviews aimed to address budget deficits through expenditure reductions. In 2003, the expenditure reviews focused on results during a time of greater economic prosperity. This focus continued until the late 2000s when the focus moved to strategic reviews with an emphasis on gaining oversight and understanding of expenditure outcomes.

Denmark flag

Denmark: Informing budget negotiations and medium-term frameworks

Spending reviews have been undertaken for more than 20 years in Denmark. They are led by the Ministry of Finance, with the government using them to reallocate resources and increase efficiency. The spending reviews inform budget negotiations and decisions on multi-annual budget agreements. The reviews are conducted over a relatively short period, where the decision on which reviews to conduct is taken in January or February and the reviews are undertaken over the ensuing months with the aim of having the findings available by the beginning of May. This ensures the findings of a spending review are available when the government decides on budget priorities in June.

Estonia flag

Estonia: Introducing spending reviews

In Estonia, the government introduced spending reviews into its public financial management processes in 2016. After undertaking two reviews covering almost 3% of the national budget, the government has recently conducted several spending reviews covering both the activities of a single ministry and multiple ministries. As such, the objective is to scale up the use and scope of spending reviews and make them a standardised instrument in the budget process.

Germany flag

Germany: Building capacity over time

The first two spending reviews took place in 2015 in Germany. These reviews had a limited scope while the Ministry of Finance and the relevant line ministries accumulated experience in undertaking spending reviews. In subsequent rounds of spending reviews, the scope of the review was increased, as did the complexity of the reviews by analysing the inter-relationships between several expenditure programmes within a given area of policy.

Ireland flag

Ireland: Setting clear objectives

 In Ireland, spending reviews aim to improve the allocation of public expenditure across all areas of government. The Department of Public Expenditure and Reform is responsible for spending reviews and the way in which spending reviews integrate with the annual budget process. The Irish Government Economic and Evaluation Service (IGEES), established in 2012, supports the Department in this role in conjunction with the departments being reviewed and external experts. Through the IGEES, the government is systematically assessing the efficiency and effectiveness of government expenditure by applying dedicated resources to spending reviews. The objectives of spending reviews specifically consider the extent to which the government is achieving its goals through the expenditure committed from any given activity. The scope of the Spending Review 2020-2022 has broadened from the previous approach adopted from 2017-2019 to encompass policy analysis and evaluation in addition to the focus on expenditure re-prioritisation.

Latvia flag

Latvia: Improving processes over time

Latvia implemented spending reviews as an integrated part of the 2016 State Budget. Latvia has since looked at how to improve the process by carrying out deeper analysis of spending and the possible ways to reduce the administrative burden. A separate division (Budget Development Division) was established within the Budget Department in mid-2018 dedicated to spending review.

Netherlands flag

The Netherlands: Strong political leadership

In the Netherlands, during the formation of government following general elections, the coalition agreement includes a statement on spending reviews. The statement identifies the priority and focus of the spending review programme over the four-year term of the new government. The coalition agreement is politically binding but is an instrument for the executive of the government and does not have a legal status through parliament. Political leadership is demonstrated through key stages of the spending reviews:

  • The Cabinet determines the topics and/or areas of government to review based on government priorities and the politics of the day.
  • The Cabinet approves the terms of reference of a spending review and publishes the terms in the Budget Memorandum along with guidance information on the conduct of the review.
  • The Cabinet determines which recommendations from the spending review it will approve.

The analysis underpinning a spending review occurs through a non-political working group, co-ordinated by the Ministry of Finance. Both the report by the working group and the Cabinet’s decisions are released publicly.

Norway flag

Norway: Alignment to budget process

In Norway, spending reviews are closely aligned with the budget process and is a routine part of budget planning. In 2017, the Norwegian government initiated a budget strategy conference in early fall, as the first of three budget conferences. At that conference, the economic outlook over the medium-term was discussed. Based upon that discussion, the government decided its priorities and guidelines for the budget process for the following year. Mandates for spending reviews were an important part of the discussion, and the results of previous spending reviews are reviewed. Soon after the final spending review report was delivered, the Ministry of Finance, in close cooperation with line ministries, presented the recommendations to the government for approval at a budget strategy conference. Thus, recommendations that had a direct effect on spending were an integral part of the budget process.

United Kingdom flag

United Kingdom: Monitoring the results of spending reviews

The UK is well known for undertaking comprehensive spending reviews. The UK has used the spending review process to set fixed three-year Departmental Expenditure Limits and through Public Service Agreements, defined the key improvements that the public can expect from these resources. Thus in the UK, the term spending reviews refers to a more general process of budgeting than what the term implies in other countries, as spending reviews are the main mechanism through which departmental budgets are set and in that sense identical to what some other countries might call the budget setting process. After the publication of a spending review, the Treasury is responsible for overseeing its implementation, including spending controls during the year, and monitoring potential risks (e.g. savings that have been identified in the spending review but may fail to materialise) through regular engagement by the Treasury’s spending teams with spending departments.

Further reading

OECD Best Practices for Spending Reviews (forthcoming)
This report highlights the best practices for Spending Reviews based on the experience of OECD countries.

Data from the 2020 OECD Spending Review Survey

Contact us

For more information about our work in this area, please contact:

Álfrún Tryggvadottir
Lead, Spending Review
Public Management and Budgeting Division
OECD Directorate for Public Governance

Alfrun.TRYGGVADOTTIR@oecd.org