Public Management and Administration - Owen E.hughes

174 Public Management and Administration
successful reform. In Australia, for example, Forward Estimates have been prepared
since 1972, but since 1983, their format has been greatly improved and
published in time to assist the following year’s budgetary process. Forward
Estimates provide the government and the public with information on the level
and composition of spending over the next three years and with quite comprehensive
forecasts of spending and revenue beyond that. Rather than comprising
‘wish lists’ from departments, they now represent an assessment of government
spending, both overall and on particular programmes, that will occur in the
absence of policy changes. This enables the long-term costs of programmes to
be better estimated.
Accounting reforms
Traditional budgeting is based on cash, that is, revenue received and outlays
paid out and in the one year. Accrual accounting is more sophisticated as it
includes the value of assets in a more comprehensive way. Its major objective
is to compare the total of economic costs incurred during a reporting period
against the total economic benefit accrued in that period. In other words, the
value of assets is included as well as their depreciation, so that a complete picture
of the government’s financial position is known in a way similar to that
of the private sector. This system has the advantage of the full position being
known and to provide a more meaningful comparison of financial inputs to
policy outcomes.
Accrual accounting was implemented as early as 1991 in New Zealand, but
it was only during the late 1990s that other jurisdictions tried it. In Australia the
federal government started in 1999–2000 as did the state governments at
around the same time (Carlin and Guthrie, 2001). Such accounting reforms are
‘an important part of the process of transforming spenders into managers’;
a manager needs to be accountable for costs (OECD, 1997, p. 25). An OECD
paper argues there are conditions for it to work (1997, p. 25):
Two conditions must prevail for accrual accounting to be more than a bookkeeping exercise:
managers must have genuine choice in deciding whether to bear the costs; and the
costs they are charged must have an impact on the financial resources available to them …
The second condition is that costs affect the resources available to the agency. If an agency
were charged for depreciation, this cost should reduce the resources otherwise available
for operations.
Accrual accounting requires that the full costs be charged to operating units,
including accommodation and assets used, in other words, the full economic
cost of operating that unit.
In principle, accrual accounting would by itself drive substantial reform.
However, accrual accounting, or what Carlin and Guthrie term ‘accrual outputbased
budgeting’ (AOBB) is difficult to bring about and, if implemented badly,