Excerpts from the Ministry's Weekly Web Release June 20, 2002.

Excerpts from the Ministry of Finance's Weekly Web Release
June 20, 2002

Treasury finances
Figures for Treasury finances in the first five months of 2002 are now available. They are on a cash basis and therefore not comparable to the Treasury accounts or the fiscal budget, both of which are presented on an accruals basis. According to these figures, the cash deficit from operations amounted to 8.9 billion kronur, compared to a deficit of 5.1 billion kronur by the end of May 2001. The net financial deficit amounted to 8.2 billion kronur compared with a deficit of 7.2 billion kronur at the same time last year. The less favourable outcome is due to a considerable increase in payments on health care, social affairs and social insurance as well as interest payments.

The Treasury's total revenue amounted to 92 billion kronur, an increase of about 6 billion kronur from last year or 6S%. The Treasury's tax revenue increased somewhat less, or by 5S%. In comparison, general price changes amount to 8% for this period, indicating that the economy is still contracting although the contraction is receding. As evidence of this, revenue from value-added tax for the first five months increased by close to 2 billion kronur from last year, or by 7S%, equivalent to a S% contraction in real terms, compared with a 7% contraction in the corresponding period last year. Tax revenues started to contract last year following a period of increasing tax revenues resulting from the upturn of 1999-2000. The contraction showed up in turnover taxes, especially value-added tax which is by far the Treasury's largest tax base. The contraction in turnover taxes has slowed down in recent months but it is too early to say whether the contraction period has run its course, although there are indications that this is the case.

The Treasury's total expenditure amounted to 100.7 billion kronur, increasing by close to 9S billion from last year or 10.5%. Social affairs expenditure amounted to 58.7 billion, or almost 60% of the Treasury's total expenditure. The main impact comes from a 3.1 billion increase in health care payments. Education and cultural affairs expenditure increased by 1.2 billion and administrative costs by 1.8 billion.

Foreign long-term borrowing increased by 21.6 billion kronur. In the coming months, the share of long-term debt will be increased and short-term loans are therefore expected to decrease. Domestic borrowing amounted to 9 billion. Borrowing is set off against repayments of Treasury debt amounting to 18.3 billion of which 10 billion constitute repayments of foreign debt. Furthermore, the Treasury remitted 3.8 billion to the Government Employees Pension Fund in order to lower future liabilities of the Treasury. The overall cash balance was negative by 1.9 billion, compared with a 1 billion kronur deficit at the end of May last year.

More efficient government operations
In recent years, the public sector has been working on a strategy formulation with the view of making better use of the Treasury's limited funds, making government operations more efficient and providing better services to customers. In light of this, an informal workgroup has been looking for ways to improve the performance criteria of government agencies. The aim was to draw up uniform criteria that simplified comparison between agencies and showed how far ministries and agencies were from their defined goals, such as those found in performance management agreements. The group suggests that each ministry provides a long-term strategy formulation of its main fields, sets goals for its agencies, and shows a breakdown of project costs. It is recommended that the main projects of each ministry and its agencies be treated over a period of four years. The discussion should aim at treating the field in its entirety with a view of several years at a time. Ministries should publish criteria that indicate the productivity of their most extensive projects including the role and aim of each field and related costs. Furthermore, an outline of the role of each agency within the field along with the performance in recent years according to defined goals should be provided. Finally, productivity should be measured in such a way that the total cost is divided between the defined measurement units of each project and the unit price calculated.

The above procedure would provide the benefit of a long-term account of performance and development within each field to be used as a comparison when prioritising the budget frames of ministries. Ministries would also be able to discern from information on performance which government agencies provide good value services and could direct their business accordingly. Hopefully, the arrangement would also encourage agencies to make their budget requests on the basis of performance, rather than cost as often is the case.



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Weekly Web Release, Arnarhvoll, 150 Reykjavik, Iceland