The document discusses various tools used for spending review in Japan, including national audits, policy evaluations, budget execution surveys, and administrative program reviews. It provides details on each tool, such as the organizations that conduct them and how the results are used. The document also discusses key performance indicators and gives examples of potential KPIs in areas like social security, social infrastructure, and education. It emphasizes clarifying the timing, targets, and organizations responsible for reforms and establishing quantitative benchmarks to evaluate effects on expenditures and growth.

1. Tools for Spending Review in Japan
and
Key Performance Indicator (KPI) utilization
Toshiaki Hiromitsu
Director of Research Division
Budget Bureau
Ministry of Finance, JAPAN
26th November 2015
11th Annual Meeting of the OECD Senior Budget Officials Performance and Results Network

2. Outline of Presentation
I. Tools for Spending Review in Japan
a. National Audit
b. Policy Evaluation
c. Budget Execution Survey
d. Administrative Programs Review
(Reference) Relation to Budget Process
II. Key Performance Indicator (KPI) Utilization
III. Comments
1

3. I. Tools for Spending Review in Japan
a. National Audit (External Audit)
• Board of Audit (established in 1880), an independent body, audits state
accounts
• Examines legal compliance, efficiency, and effectiveness in project
implementation
*In FY2014 report on the results of settlement audit, 570 projects amounting to 157 billion yen was pointed out.
b. Policy Evaluation (Self Assessment)
• Ministries set organizational policy goals and assess achievements (since 2001-)
• Results are reflected in budget requests by line ministries
c. Budget Execution Surveys (Internal Audit)
• MOF (Budget Bureau and regional agencies) conducts surveys on selected on-
going individual programs (since FY2002-)
• Examines necessity, effectiveness, and efficiency
• Results are reflected in budget requests by line ministries
*In FY2014, 75 programs examined, of which 6 programs were abolished in whole or part.
Reflected in the FY2015 budget (Expenditure cuts in the FY2015 budget: 37.9 billion yen.
2

4. I. Tools for Spending Review in Japan
d. Administrative Programs Review (i)
 Line ministries make self-evaluation on individual programs (all programs in the central
government (over 5,000 programs)).
 Experts outside the government evaluate about 1,000 programs in 5,000 programs
intensively.
 The discussions by experts are open to the public .
1st Phase: Experts outside the government discuss whether the budgets of
some programs were used properly in the previous year. The
results of the discussion are reflected in the budget request for the
next fiscal year. The discussion is open to the public.
2nd Phase: Programs further needed to be reviewed are discussed by experts outside
the government and officials in the government. Then, experts evaluate
whether programs are necessary or not in terms of its clarity and
effectiveness. The discussion is open to the public and the results are
reflected in the budget formulation for the next fiscal year.
3
(Autumn Review)
Every November
Every June

5. d. Administrative Programs Review (ii)
 The results of administrative Programs Review in FY2014
About 100 billion yen was reduced at the budget formulation
process through the discussion at Autumn Review, compared to the
budget request process.
(Examples)
- Reduction in reward for nursing care
FY2015 budget request: 2,756 billion yen ⇒ FY initial budget: 2,631 billion yen (minus 125 billion yen)
- Reduction in subsidies for the regional revitalization
FY2015 budget request: 6 billion yen ⇒ FY initial budget: 3.8 billion yen (minus 2.2 billion yen)
- Reduction in the programs for developing human resources in
science area
FY2015 budget request: 5 billion yen ⇒ FY initial budget: 0.1 billion yen (minus 4.9 billion yen)
4
I. Tools for Spending Review in Japan

6. Budget process
Apr. Fiscal year starts
May
Jun.
Jul.
Aug.
Budget requests submitted to MOF
Sep.
Oct.
Nov.
Dec.
Draft budget decided by Cabinet
Jan. Draft budget submitted to the Diet
Feb.
Mar.
Budget approved
Policy Evaluation
Budget Execution
Surveys
Review of Administrative
Programs
National Audit
Reflect performance informationinbudget requests
Publicationof ReviewSheets
Budget formulation
(MOF)
Set organizational policy
goals
Assess achivement of
organizational policygoals
in the previous fiscal year
Publicationof the results
Publicationon expenditure
cuts in the draft budget
reflectingthe budget
executionsurveys
Use performance information inbudget formulation
Budget ExecutionSurveys
(MOF,Regional agencies)
Work on ReviewSheets
(line ministries)
For all projects;
Interim publication of
review sheetsand open
Through a whole year:
Implementationofaudits
* Settlementreportby MOF
also submitted
MeetingwithMOF
MeetingwithMOF
MeetingwithMOF
Report on the results of
settlement audit
to the Diet and the Cabinet
(Reference) Relation to Budget Process
5
Use Performance information in budget formulation
Autumn Review by
Administrative Promotion
Council (Open to the public)

7. • The commitments of the government
1) Primary Balance: to be in surplus by FY2020
2) Public debt (to GDP): to be steadily reduced beyond FY2020 over the medium- to long-term
• Mid-term review
In FY2018, progress will be assessed against the following benchmarks.
– PB deficit: approx. -1% of GDP in FY2018
– Size of expenditure: extending the recent 3-year trajectory of the expenditure* of the
Central Government towards FY2018, that is, the total rise of 1.6 trillion for the 3 years,
taking into account the economic and price development.
* excluding the expenditures for (i) national debt service and (ii) local allocation tax grants, etc.
– The government will consider additional measures in expenditure and revenue, if
needed, to achieve the FY2020 target.
6
The Fiscal Consolidation Plan ---- main points ---- (June 30, 2015)
II. Key Performance Indicator (KPI) Utilization

8. Primary Balance of central and local governments (in percent of GDP)
▲ 6.6
▲ 5.7
▲ 4.4
▲ 3.0
▲ 2.5
▲ 2.3
▲ 1.7
▲ 1.4
▲ 1.0
▲ 2.5
▲ 2.1 ▲ 2.2 ▲ 2.2
▲ 7
▲ 6
▲ 5
▲ 4
▲ 3
▲ 2
▲ 1
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
In percent of GDP
FY
Notes: FY2010-2013: from “Annual Report on National Accounts,” FY2013-2020: from “Economic and Fiscal Projections for Medium to Long Term Analysis.”
FY2015 primary deficits of central and local governments will be presented in “Annual Report on National Accounts” in December 2016.
■
Target to halve the primary deficit (-3.3%)
⇒Expected to be achieved
Target of Primary Surplus
■
-6.2 trillion
yen
-11.9 trillion
yen
“Baseline Case”
(July 2015)
“Economic Revival Case”
(July 2015)
Current plan
period
Base year of target to
halve the primary
deficit
7
II. Key Performance Indicator (KPI) Utilization

9. 8
1． In order to implement the fiscal consolidation plan steadily, the reform process and KPI need to be embodied.
The government is currently discussing about it.
2． Contents, scales, and timing need to be clarified about the major 8o items for the expenditure reform in the
fiscal consolidation plan.
3． It is important to make the reform process easy to understand. “Visualization” of the reforms is required so that
the public and private companies can implement the reforms properly.
≪Implementation of the fiscal consolidation plan≫
・Approximately 1% of the primary deficit to GDP ratio in FY2018, and
the primary surplus in FY2020
・Basic principle for major expenditure reforms (80 items)
- Social security area : 44 items
- Area other than social security : 19 items
- Local government administrative and fiscal reform : 17 items
・Clarify contents, scales, and timing of the reforms
・ Establish KPI in terms of macro and micro perspectives
・Clear commitment to the expenditure
control and economic growth
・Visualization of the reform process
・ Establishment of the evaluation and checking
systems
・ Evaluate and check the progress every fiscal year
・ Develop the policies based on quantitative estimation
and evidence
Fiscal consolidation plan
The reform process, KPI
Materialization of the reform process PDCA in the intensive reform period
II. Key Performance Indicator (KPI) Utilization

10. 【Social Security area】
 Outpatient treatment: indicators measuring the difference in outpatient treatment fees among
local regions
 Medicine, pharmaceutical: indicators measuring usage ratio of generic drugs
 Behavior of patients: number of patients suffering from lifestyle diseases, indicators measuring
medical examination frequency
【Social Infrastructure Improvement】
 Promotion of PPP/PFI： number of public-private joint committees in the central and local
governments
【Education, Science, Technology】
 R&D: Research investment from private companies to universities and public research institute
【Local government’s administrative reform】
 IT and work restructuring: indicators measuring optimization, reduction in operational costs
9
II. Key Performance Indicator (KPI) Utilization
1. Clarify i) timing of reform implementation, ii) quantitative target, iii) organization in charge.
2. Quantitative benchmark which evaluates the effects for curving expenditures and strengthening growth is
especially important.
Examples

11. 10
III. Comments
Compared with other countries, the scale of social security expenditures is placed at the middle level but the scale of
tax revenue is placed at the lowest level.
In addition, the scale of expenditures not relating to social security is placed at the lowest level.
International Comparison of Fiscal Scales
32.8
31.2
30.3
28.0
26.8
26.8
26.7
26.6
25.6
25.4
25.3
24.8
24.0
24.0
23.8
23.0
23.0
23.0
22.1
20.4
20.3
18.5
17.7
17.7
17.2
16.4
16.0
14.5
7.9
0 20 40
1Denmark
2France
3Finland
4Austria
5Greece
6Italy
7Belgium
8Sweden
9Germany
10Slovenia
11Japan
12Norway
13United Kingdom
14Portugal
15Netherlands
16Ireland
17Luxembourg
18Spain
19Hungary
20Czech Republic
21Poland
22Iceland
23Estonia
24Slovak Republic
25United States
26Turkey
27Israel
28Switzerland
29Korea
23.0
22.0
21.9
21.7
21.7
21.7
21.6
21.2
20.9
20.5
19.9
19.7
19.3
19.3
19.2
19.1
18.5
18.5
18.4
18.4
18.3
18.1
18.1
18.0
17.6
16.6
16.5
15.5
14.8
0 20 40
1Hungary
2Iceland
3Belgium
4Israel
5Sweden
6Slovenia
7Denmark
8Finland
9Netherlands
10France
11Poland
12Portugal
13Estonia
14Czech Republic
15United States
16Spain
17Slovak Republic
18Luxembourg
19Austria
20United Kingdom
21Ireland
22Greece
23Norway
24Korea
25Turkey
26Italy
27Switzerland
28Germany
29Japan
General Government Expenditures
not Relating to Social Security
(as a percentage of GDP)
General Government Tax Revenue
(as a percentage of GDP)
General Government Social Security
Expenditures (as a percentage of GDP)
CY2011
 Small and effective government?
 Social security reform?
 Revenue reform?
46.7
34.3
33.0
31.9
31.8
31.1
29.9
29.5
28.7
27.8
27.4
27.0
26.6
26.5
26.0
24.3
23.7
23.7
22.7
22.7
22.1
21.6
21.6
20.9
20.4
20.1
20.1
19.9
19.8
19.5
18.5
16.9
16.8
16.5
0 20 40 60
1Denmark
2Sweden
3Norway
4Iceland
5New Zealand
6Finland
7Belgium
8Italy
9United Kingdom
10Austria
11France
12Israel
13Luxembourg
14Australia
15Canada
16Hungary
17Netherlands
18Portugal
19Ireland
20Germany
21Slovenia
22Switzerland
23Greece
24Poland
25Estonia
26Spain
27Turkey
28Chile
29Korea
30Czech Republic
31United States
32Mexico
33Japan
34Slovak Republic