Budget Rules and Flexibility in the Public Sector: Towards a Taxonomy

• Author: Michael Di Francesco,John Alford
• Date: 01 May 2016
• Published date: 01 May 2016
• DOI: http://doi.org/10.1111/faam.12087

Financial Accountability & Management, 32(2), May 2016, 0267-4424

Budget Rules and Flexibility in the

Public Sector: Towards a Taxonomy

MICHAEL DIFRANCESCO AND JOHN ALFORD∗

Abstract: The practices and norms of public budgeting have often been seen

as a brake on the flexibility needed of government organisations. This remains

true despite historically significant financial management reforms designed around

budgetary devolution. Seeing flexibility as operating along two dimensions –

devolution and discretion – this paper revisits the underlying features of traditional

public budgeting to develop a taxonomy of six generic ‘budget rules’. By isolating

key properties of budget control, the paper uses two of the more prominent rules –

annuality and purpose – to illustrate how the rules interact to generate control

capacity, as well as the scope for rule variability in promoting increased flexibility.

Keywords: public sector budgeting, control, flexibility, collaboration, public sector

reform

Every criticism of traditional budgeting is undoubtedly correct . . . Why, then, has traditional budgeting

lasted so long? Because it has the virtue of its defects . . . it is simpler, easier, more controllable, more

flexible than modern alternatives . . . (Wildavsky, 1978, p.508).

INTRODUCTION

In the field of public management today more ‘flexibility’ is usually regarded as

a desirable feature in the design of public institutions, a necessary antidote to

the assumed ‘inflexibility’ that in the popular consciousness is synonymous with

government. This is particularly the case in policy environments characterised

by highly complex problems and increasing political and economic turbulence.

Enhancing flexibility is seen as a means of enabling organisations in the public

sector to more effectively meet their accountability for achieving results.

∗The authors are both from The Australia and New Zealand School of Government and The

University of Melbourne.

Address for correspondence: Michael Di Francesco, The Australia and New Zealand School

of Government, Level 4, 204 Lygon Street, Carlton, Victoria 3053, Australia.

e-mail: m.difrancesco@anzsog.edu.au

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BUDGET RULES AND FLEXIBILITY IN THE PUBLIC SECTOR 233

However, flexibility can also be contrasted in the public sector context with

another concept of enduring significance: ‘consistency’. Its guiding value is the

most common form of fairness – the equitable treatment of citizens – typically

manifested in a focus on procedural fairness. This has been sustained historically

through a cultural orientation to ‘rule following’, but more fundamentally also

rests on constitutional foundations about the accountability of governments.

Because they prescribe and enforce rules as to the allocation, transfer and

spending of public money, budget systems are perhaps the key means of

operationalising this accountability.

Against this backdrop, budget processes in government are inevitably

caught between contending institutional imperatives for responsiveness and

consistency, such that the practices and norms of public budgeting are often seen

as a brake on organisational flexibility. These types of claims tend to discount

over thirty years of public sector budget modernisation fervently prosecuted in

the name of managerial and resource ‘devolution’, the so-called ‘new public

financial management’ (Olson et al., 1998; see also Schick, 2013). In this paper,

therefore, we revisit the traditional model of public budgeting and financial

management – which emphasises control of and accountability for financial

inputs – so as to better understand why its practices and cultural orientation

remain so prevalent in government. Our aim is to identify which features of

public budgeting can be made more ‘flexible’ in order to better balance the

central oversight need for standardisation and the local situational need for

flexibility. To do this, we develop a taxonomy of ‘general rules’ of budget

control that can assist in mapping how the traditional model operates and

assessing the prospects for expanding flexibility through the notion of rule

variability.

The paper proceeds in four steps. First, we briefly survey the centrality of

budgeting to organisational control, and compare and contrast approaches to

budgeting in the public and private sectors. Second, we outline how budget

practices are said to inhibit flexibility in the public sector by focussing on

the ways in which collaboration between organisations can be impeded. Third,

we explore the concept of ‘flexibility’ in more detail and seek to define it as

operating along two dimensions of devolution and discretion. Fourth, we develop

a taxonomy to characterise the generic ‘budget rules’ that define operations in

the public sector, and seek to explain how they operate through key properties

of control. We focus our analysis on two of the most prominent rules, the

‘annuality’ and ‘purpose’ of spending. We demonstrate how these rules have been

internalised by relevant institutional actors and how, in the face of historically

significant efforts to modernise budget processes, the rules continue to exert

strong influence on budgetary behaviour. Our focus here is on government

in Westminster-type parliamentary systems, but we believe the taxonomy has

broader application and relevance.

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2016 John Wiley & Sons Ltd