Development of phenomenon-based budgeting requires a shared understanding and commitment from the public administration

Finland is one of the first countries in the world to start developing so-called phenomenon-based budgeting to support sustainable development. The Finnish Governments have included sustainable development budgeting in their action plans. The issue has been discussed by a working group set up by the Ministry of Finance, and the Parliamentary Committee for the Future has underlined the need to promote phenomenon-based budgeting.

Many other countries have also adopted similar new kinds of approaches to supplement conventional budgeting. Several countries are taking their first steps in sustainable development budgeting. Some countries are developing wellbeing budgeting or equality budgeting. In addition to performance budgeting, the OECD has been developing tools to support governments especially in gender budgeting and green budgeting. The approaches taken by different countries differ from each other in their focus and scope. There are also differences between the methods of implementation. Moreover, the terminology is not yet fully established. “Phenomenon-based budgeting”, for example, is a translation from Finnish and not a term generally used internationally.

However, the different approaches have a common denominator. The aim of all countries is to respond to such complex societal questions or phenomena that cannot be solved by a single administrative branch – and to do this more comprehensively, systematically and in a manner that extends beyond the conventional sectoral boundaries of the budget structure. Such phenomena include, for example, wellbeing, social inequalities and the climate change.

Phenomenon-based budgeting can improve the overall picture and increase the efficiency of resource use

The benefits and challenges of phenomenon-based budgeting are understood quite similarly both in and outside Finland. Phenomenon-based budgeting can improve the knowledge base of decision-making as well as the overall picture. It can also promote policy coherence and increase the efficiency of resource use. It increases transparency and the Government’s and public administration’s accountability to citizens.

The biggest challenge to phenomenon-based budgeting, in turn, is caused by the “silo structure” of the public administration. The ministries do not necessarily have a common cross-sectoral knowledge base related to a phenomenon. There are territorial disputes and partial optimization related to common goals and the use of appropriations for the benefit of a single administrative branch. The new approach also requires commitment from the top-level senior public officials. In the early stages, in particular, it is also necessary to focus on the development of practices and capabilities.

The ministries have different perceptions of phenomenon-based budgeting

Although the ministries in Finland are familiar with the term “phenomenon-based budgeting”, they perceive it differently. For some ministries, it represents an ongoing procedure where each administrative branch describes in its budget text how its measures promote the sustainable development and gender equality goals. A cross-sectoral summary is also made of the budget appropriations that have either a positive or a negative impact on the selected phenomenon.

However, most of the actors that the NAOF has heard hope that phenomenon-based budgeting would not only compile information but would also steer the allocation and use of appropriations. Most of them are also of the opinion that it would be important to consider not only the additional funding granted to a certain phenomenon but also the more permanent, statutory appropriations. Therefore, promoting phenomenon-based budgeting requires a shared understanding. Ultimately, the Government should set policy lines regarding what kind of phenomenon-based approach is to be developed and how.

The decision on phenomena should be taken at a high political level and, if necessary, extend beyond government terms

Based on the domestic and international material compiled by the National Audit Office, it is possible to point out different ways of promoting the phenomenon-based approach in Finland.

  1. The decision on the phenomena selected for budgeting should be taken at a high political level, e.g. in the Government Programme. Only a few phenomena should be selected at the same time. Moreover, they should be examined over a longer period of time, if necessary, because difficult problems such as social exclusion or the climate change cannot be solved during one government term. This also underlines the importance of dialogue and a shared understanding between the Government and Parliament (including the Opposition). The process could utilize the parliamentary committees or working groups and the reporting procedure, for example.

  2. The targets set for the phenomena should be sufficiently concrete. The Government should define the phenomenon-related targets, measures, responsible actors, available resources and indicators sufficiently accurately so that they can be taken into account consistently in the preparation of the General Government Fiscal Plan and the budget proposal. This would also help the public administration to understand the Government’s ambition more coherently.

  3. A key role is played by the Ministry of Finance and the guidelines issued by it – as well as common tools. The guidelines for the preparation of the General Government Fiscal Plan and the budget proposal should be specified. The present guidelines are of a general nature, and the ministries interpret and apply them differently. From the perspective of sustainable development and gender equality, the budget documents are therefore rather varied. At the same time, it would be important to develop tools for phenomenon-based budgeting. In addition to electronic planning and monitoring tools, tools are needed, for example, for cross-sectoral budget analysis and assessment of the impacts of resource use.

  4. Even the present budget structure would enable phenomenon-based examination. Rebuilding the entire budget in a new way is regarded as too big a challenge. The objectives and indicators presented under the main titles could be linked more clearly to the actual appropriations. To support the preparation of the budget document, it would also be useful to develop different ways of publishing selected background information separately on a selected phenomenon. In addition, phenomenon-based objectives could be taken to the item level. Another option would be to create a shared item for a phenomenon. However, this would require common rules of competence and procedure.

  5. In budget preparation related to a phenomenon, the bilateral perspective should be replaced by a multilateral one. At present, the budget preparation at the ministries involves hardly any cross-sectoral examination or setting of shared goals. Instead of systematically considering cross-sectoral entities, the Ministry of Finance, too, has a somewhat sector-specific focus in its internal preparation.

  6. The budget reflects Parliament’s ambitions. Parliament has different ways of impacting the development of phenomenon-based budgeting. The phenomenon-based approach might also help the budget discussions in Parliament by making it possible to discuss not only individual items and euros but also phenomena and entities. It would also be useful to consider how Parliament’s present budget proceedings support the phenomenon-based approach.

  7. Modern technology can support cross-sectoral monitoring of the use of appropriations. The ministries and accounting offices have different operational steering systems and financial monitoring practices, which complicates the monitoring of resource use on the phenomenon level. Common monitoring and its implementation should be agreed on at an early stage, i.e. when the funding is planned. It is hoped that Buketti 2020 project of the Ministry of Finance will produce a modern tool that enables cross-sectoral monitoring of phenomenon-related cash flows by means of new technologies, artificial intelligence and digitalization.

  8. Monitoring and assessing the impacts cause special challenges to budgeting. This is a common problem in other countries as well. Monitoring is targeted at what has been done with the appropriations rather than at the impacts of the actions and measures taken. The monitored indicators are often sector-specific and do not form a uniform entity related to a certain phenomenon. For example, common criteria and indicators could be agreed already in the planning phase for measuring the success of budget objectives related to a phenomenon.

  9. The reporting on budget information should be developed. The challenges in the monitoring of phenomenon-based use of resources and the impacts are reflected in the reporting. The reporting does not necessarily provide a clear and sufficient overall picture of the use of appropriations allocated to a certain phenomenon and of the impacts. Each ministry and accounting office reports separately on its budget outturn from its own perspective in its final statements and annual reports. The Government’s annual reports and the website, which is provided by the Ministry of Finance and makes it possible to examine the budget, are examples of reporting practices or tools that could contain more phenomenon-based considerations in an easily accessible and easy-to-understand form.

As part of the project for examining phenomenon-based budgeting, a report commissioned by the National Audit Office will be published on the climate objectives and the sustainability of central government finances. The report discusses whether Finland’s international obligations and the EU’s obligations for climate change mitigation should be taken into account in the longer-term planning and sustainability assessment of central government finances.