2.1. The spending review
The spending review aims at improving the effectiveness and cost-efficiency of public spending
programmes (introducing a spending revision by functions, defining priorities for public spending,
evaluating outcomes and outputs).
It can create fiscal leeway for meeting new spending priorities, while further reducing the general
government deficit and debt.
In addition, it can increase the transparency of the allocation of budgetary resources and the value that
the public gets from their taxes in terms of public goods, services and transfers.
The spending review will enable the Government to take action on the mechanisms of funding reallocation, so as
to save money to be reinvested in priority areas.
The Government’s draft budget for 2008 will already show the first results that will enable such funding
reallocation.
The spending review entails a shift away from a system in which the budget is drawn up incrementally
based on marginal changes to historical spending towards a Zero Base Budget criterion in which needs
and priorities are periodically reviewed.
Spending programmes are reviewed on a regular and systematic basis with a view to assessing their
ability to respond to their original objectives as well as new priorities.
An analysis and evaluation of central government spending is carried out by identifying critical issues,
options for resource reallocation, possible strategies to improve the results that can be obtained with the
allocated resources on the basis of quality and cost-effectiveness criteria.
Depending on the critical areas that may be revealed by the spending review reallocation proposals
(possibly through the identification of new priorities) and programmes are put forward that may increase
the efficiency of spending.
Therefore the purpose of the review is not just to define standard criteria for budget chapters, but to
prepare a series of initiatives that can adequately reduce spending, thereby allowing a new reallocation or
redefinition of priorities, deciding the allocation of new resources and ensuring the ongoing fiscal
consolidation with a view to delivering standard fiscal discipline, efficient allocation and operation while
ensuring that spending is promptly curbed.
This issue is also linked to fiscal federalism domain, as the problems of the efficiency of public spending
directly affect the latter in its entirety and not just central government spending.
As far as fiscal federalism issue is concerned, the government believes the regional, provincial and
municipal authorities play a key role in spending and is therefore committed to fully implementing Title
V of the Constitution in order to achieve true fiscal federalism by undertaking - together with the regional
and local authorities - a sweeping review of the funding system of regional and local authorities,
whereby the spending requirements of the authorities are no longer determined on the basis of historical
spending but on the standard costs of the services provided.
State transfers will basically depend on spending requirements and the costs sustained by the most
efficient authorities.
The action aimed at reducing and rationalising spending focuses first and foremost on four major parts of
spending:
a) general government, through a rationalisation aiming at increasing its efficiency and
effectiveness;b) decentralised agencies, through a new formulation of the Internal Stability Pact;