Federal Medium-Term Expenditure Framework
Based on an amendment of the budget law that was part of the 2007 reform package, the first stage of the Austrian budget reform was implemented in 2009. It consisted of two main elements: the introduction of a medium-term expenditure framework (MTEF); and more flexibility for line ministries.
Legally binding expenditure ceilings
The MTEF contains legally binding expenditure ceilings four years in advance on a rolling basis. The ceilings apply to groups of chapters (so-called “rubrics”). Each of the five rubrics has its own expenditure ceiling, which add to one ceiling for the federal budget. The five rubrics represent the following budget clusters:
- Law and security (ministries for justice; interior; defence; foreign affairs; the administration of the MoF; Chancellery).
- Employment, social services, health and family (self-explanatory).
- Education, research, art and culture (self-explanatory).
- Economic affairs, infrastructure and environment (ministries for economy; agriculture, forestry, water and environment; infrastructure; part of MoF).
- Financial management and interest (part of MoF).
A visual illustration of the budgetary relevance of the five rubrics and their chapters for the budget 2016 is available here:
Two kinds of ceilings
The Austrian system distinguishes between two different expenditure ceilings:
- One is a nominal fixed ceiling, expressed in euros, which applies to most (75%) of the expenditure.
- The other is a variable ceiling that oscillates along defined parameters. This ceiling applies to expenditure related to the business cycle, and therefore ensures, that the automatic stabilisers can work accordingly and exerts a countercyclical influence on the economy. Other applications of the variable ceiling are expenditure related to reimbursements from the EU, expenditure directly related to revenue (e.g. shares of value-added tax [VAT] for financing hospitals) or expenditure for guarantees. Variable ceilings therefore apply to expenditure which cannot be sufficiently calculated in advance. Most of the variable expenditure is contained in Rubric 2. Rubrics are divided into chapters; each of them is clearly assigned to one specific line ministry.
New Budget Process
The draft of the MTEF shall be presented to Parliament by 30 April, accompanied by a budget strategy report that explained the budget priorities of the government. The debate on the MTEF in Parliament focuses on the macro level of the budget, as figures are only provided for big budget clusters (rubrics and chapters) and do not go into the details. It is possible to change the expenditure ceilings only by amending the MTEF legally. In this case, the government has to go to Parliament and explain to the public why it wants to change the planning assumptions for the budget. The Parliament then decides on the requested changes.
In autumn, the annual budget bill, which must respect the boundaries of the MTEF, shall be presented to Parliament, and contain the details for each chapter. The MTEF with its legally binding multi-year approach helps the MoF and the line ministries to improve budget planning.
More flexibility for line ministries
While the MoF is interested in enforcing restrictive expenditure ceilings and sticking to them even in difficult times, the line ministries do have their part of the deal: if they save money within the expenditure ceilings, they are allowed to build reserves (and use them in later years – even for different purposes). This is a huge advantage for the line ministries, as up to 2008 only in exceptional cases were they allowed to build reserves and these could only be used for their original purposes. In the reform discussion, the MoF always cited one principle, “Every minister his/her own finance minister.” The respective philosophy is clear: each line ministry should develop an interest in saving money. Each minister is in a position to finance special projects, which were not foreseen when the MTEF was decided on, via savings within the ministry’s envelope. This new flexibility for line ministries also allows ministries to treat certain (not all) extra revenue that exceeds the amount according to the budget planning, as reserves and use them. Therefore reserves (saved money or some extra revenue) are, by definition, part of the respective expenditure ceiling.
Former Director General for Budget and Financing Gerhard Steger in OECD Journal on Budgeting, Austria’s Budget Reform: How to Create Consensus for a Decisive Change of Fiscal Rules, Volume 1/2010.