In recent years, governments worldwide have been contending with a complex mixture of fiscal challenges, from responding to exceptional events such as the COVID-19 pandemic, to mounting pressures on public spending from longer-term factors such as population ageing and the climate transition. This has resulted in a renewed international policy focus on fiscal sustainability, as countries emerge out of a period of unforeseen economic, revenue, and spending shocks, and seek to return to a stable and purposeful long-term fiscal trajectory.
Like many international counterparts, the Welsh Government has expressed its intention to strengthen its approach to incorporating a medium- and long-term perspective in fiscal and budgetary decision-making. In June 2024, it announced that the next Welsh Spending Review would extend ‘beyond short-term priorities to focus on the key medium to longer term challenges and opportunities’, helping to embed a whole government approach to identifying priorities and delivering outcomes.
To support this programme of work, the Wales Centre for Public Policy (WCPP) was asked to synthesise evidence on international best practice for adopting a medium- to long-term perspective in fiscal and budgetary policy making. Specifically, our research addressed the following research questions:
1. How are governments internationally adopting public financial management (PFM) processes and frameworks to enable a medium- to long-term approach to fiscal and budgetary policy making?
2. Which PFM processes and frameworks have been effective in helping governments to:
- anticipate and plan for public spending pressures over a longer time horizon; and
- better mobilise nearer-term fiscal and budgetary decision-making towards medium- and long-term policy outcomes?
3. What key lessons and best practices can be identified from these approaches, with a particular focus on:
- case studies of how governments have tackled significant public spending challenges through longer-term planning; and
- international examples that are comparable to Wales in terms of fiscal levers that are currently or potentially available to the Welsh Government?
To respond to these questions, we conducted a synthesis of research on PFM processes that have been used internationally to support medium- to long-term approaches to fiscal and budgetary policy making. Our report outlines key lessons and best practice principles, including published case studies from a range of countries including the Netherlands, Australia, France, Belgium, Denmark, and New Zealand.
PFM tools and practices used globally to help governments adopt longer-term approaches to fiscal and budgetary policy making include:
- analysing long-term spending trends and pressures;
- strengthening the strategic phase in the budget process;
- spending reviews;
- medium-term budget frameworks (MTBFs); and
- strategic budget initiatives.
Implementing one, or several, of these tools can support governments to forecast and prepare for future events, align financial resources with long-term policy goals and enhance resource allocation, policy coherence and decision-making transparency.
Effectively implementing one or more of these tools requires consideration of several key factors. The literature emphasises the importance of building sufficient capacity to adopt new PFM tools and approaches. Maximising political commitment to longer-term approaches (including cross-party commitment), strong institutional, legal and administrative frameworks, transparency and stakeholder engagement are also highlighted as important for success.
The report is be accompanied by two in-depth policy briefings on spending reviews and medium-term budget frameworks.