If data that permit the evaluation of public spending are not published, much discussion on value for money will be ill-informed and/or vacuous, writes Jim O'Leary

We in Ireland tend to mythologise government budgets. We also tend to greatly exaggerate the significance of "budget day". Why this is so is a matter of speculation. The explanation may lie in our experience of budgetary policy during the 1970s and 1980s, when the public finances were taken to the brink of bankruptcy and then turned around in an extraordinary manner. We speak about that transformation in almost epic terms: budgetary policy is painted first as a tool of self-destruction and then as an instrument of redemption.

In telling the story of the 1990s, too, budgetary policy looms large. In some versions, successive governments are represented as discovering the Holy Grail of economic management - sound public finances and low taxes - and one of the key ingredients of the Celtic Tiger. In other versions, focused more on the latter years of the Celtic Tiger period, budgetary policy is seen as straying once more into self-destruct territory. The budgets of 2000 and 2001, in particular, have been indicted by some for being irresponsibly expansionary.

In all of this there is a preoccupation with the budget balance, the difference between government spending and government revenue. That focus has been motivated by different concerns at different times. Throughout the 1980s, the preoccupation with budget deficits was based on the need to cut government borrowing and reduce the ratio of government debt to GNP from an unsustainably high level. Concern on this front is no longer warranted since the debt/GNP ratio has now been reduced to the point where it doesn't matter a whole lot whether we add a little to it.

Another reason for focusing on the budget balance derives from the view that budgetary policy can and should be designed to stabilise demand. The by now familiar idea here is that the government should "pump-prime" the economy by raising spending and/or reducing taxes in periods of weak growth, and by reducing spending and/or raising taxes when output and employment are growing vigorously. Even in big and relatively closed economies, this type of policy is very difficult to operate reliably. In a small open economy like Ireland, it is a blunt and unpredictable instrument that is probably best avoided altogether.

Does this mean that budgets don't matter? No, of course they do and to see why, it is worth going back to the definition of what a budget is: a statement of planned expenditure and income. The annual budget of the government then, is a statement of what it is that the government plans to spend and raise in revenue in the year ahead. A moment's reflection on the orders of magnitude involved should be enough to persuade anyone that this matters a great deal. Last week's Book of Estimates unveiled plans by the government to allocate €38 billion to current spending and almost €6 billion to capital spending in 2005. Taken together, this amounts to the equivalent of about 34 per cent of GNP.

Clearly, there is enormous scope here for doing good and for achieving worthwhile goals. Equally, there is enormous scope for waste and inefficiency.

It is in this respect more than any other that the budget matters. What does this mean for commentary and analysis? It means that attention should be focused primarily on spending programmes: what their objectives are; what strategies are being deployed to meet those objectives; whether the strategies are effective; what resources are being expended in pursuing the objectives; and how efficiently those resources are being used. In order to facilitate this kind of analysis each spending programme should have attached to it a set of indicators, by reference to which performance can be evaluated relative to target and relative to the resources that the programme is consuming. Analysis of this sort is necessary to distinguish between effective and ineffective programmes and between efficient and inefficient ones.

There's nothing revolutionary in any of this. In 1981, John Bruton published a paper called A Better Way to Plan the Nation's Finances, in which a framework for budgetary policy incorporating these ideas was set out.

Seven years ago, in 1997, a piece of legislation called the Public Service Management Act became law. It requires all government departments to publish tri-annual strategy statements and prepare annual progress reports. The strategy statements are supposed to clearly set out the departments' objectives and targets alongside a range of indicators for evaluating effectiveness and efficiency. The annual reports are in essence supposed to monitor progress towards achieving the targets.

These strategy statements and annual progress reports should contain precisely the kind of data that would inform rational resource allocation decisions by government and permit interested citizens to evaluate how well their money is being spent.

Do they measure up? Do they enter into public discussion of government expenditure? Is there any evidence to suggest that they form an input into the annual estimates campaign? The brief unvarnished answer to all of these questions is a resounding "no". An analysis of departmental annual reports carried out by Richard Boyle of the IPA in 2001 amounted to a sad catalogue of serious deficiencies and concluded that "the reports are little more than promotional documents outlining activities undertaken by departments and offices". One's overwhelming impression is that nothing much has changed in the meantime. Indeed, it seems that the reforming spirit that animated the 1997 legislation has been greatly dissipated.

Nor is there much evidence that departmental strategy statements and annual reports inform government spending decisions. One might imagine that, if they did, departments would be penalised for inefficiency and ineffectiveness. At a minimum, one would expect that departments not in compliance with the Public Service Management Act would face sanctions, but this does not appear to be the case. One of the biggest "winners" in the 2005 Book of Estimates is the Department of the Environment, Heritage and Local Government, with an 11 per cent increase in current expenditure allocation, but has yet to publish its annual progress report for 2003. (It's not alone in this respect.)

If data that permit the evaluation of the effectiveness and efficiency of government programmes are not collected and published, much public discussion about value for money in the public sector and the adequacy of public spending is condemned to being ill-informed and/or vacuous. One of the results is a dysfunctional polity where debate about these issues is reduced to the exchange of meaningless slogans and epithets. Is this the kind of public discourse we are content to have?

This is a modestly revised version of an article published in The Irish Times on November 24th 2003. The author can be contacted at jim.oleary@may.ie