Performance-based budgeting in Canada: Assessing the association between past performance and subsequent resource allocation

Date

2023-11-28

Authors

Whittla, Curtis

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Abstract

Performance-based budgeting (PBB) is a common performance management practice throughout OECD countries where performance information is directly or indirectly linked to resource allocations in the budgetary process. Canada has had various systems of PBB in place since at least 1969, with the most recent changes being implemented in 2016. Despite these recent changes, few studies have examined the allocative efficiency of Canada’s PBB system, which purports to allocate resources in a way that optimizes performance (TBS, 2016). Using panel data spanning eight fiscal years from 2014-15 to 2021-22, this study aims to measure the correlation between past performance and subsequent resource allocation at the organizational level and provide recommendations to improve PBB processes. The analysis found that for every one percentage point increase in average organizational performance, an additional 0.23 percentage points of spending was allocated in the subsequent budget, demonstrating a modest but statistically significant level of allocative efficiency. This result was not found for staffing allocations. These analyses provide some preliminary findings in the Canadian government context which support theories about the allocative efficiency of PBB. These findings differ from the results of an earlier study of PBB in Canada conducted by the Office of the Parliamentary Budget Officer (PBO) in 2014, which found no statistically significant correlation between performance and resource allocation at the organizational level. This study concludes by providing some recommendations to strengthen Canada’s PBB systems, including recommending Canada’s approach to PBB as an example of creating allocative efficiency, promoting the use of performance information in budgetary decision-making and politics, providing consistent and full public data to scholars and budgetary oversight bodies like the PBO for better analysis, and maintaining more consistent indicators across multiple fiscal years.

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Keywords

performance-based budgeting, public administration, public budgeting, fiscal policy, public economics, performance budgeting

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