## _wp0562

## Source details

**Canonical URL:** [_wp0562](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp0562.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp0562.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp0562.pdf.json)

---

### I. INTRODUCTION
- Since the 1980s, some OECD member countries shifted from input- and compliance-based budgets to performance-oriented budgeting systems emphasizing results, outputs and/or outcomes, and decentralized management in responsible organization units.
- Leading reform countries also changed government accounting systems, personnel management systems, and internal organizational arrangements.
- The literature on “new public management” (NPM) is substantial, but comparative studies on legal amendments or new laws providing legislative backing for public management reforms are scarce.
- Structure of the study:
  - Section II: scope of NPM and purposes of public management laws and legal changes needed.
  - Section III: non-exhaustive review of OECD member countries—extent to which legal frameworks changed to support NPM and cases where NPM reforms were introduced without changing the law.
  - Section IV: conclusions.

### II. ARE CHANGES IN THE LEGAL FRAMEWORK NEEDED TO SUPPORT REFORMS IN PUBLIC MANAGEMENT?

#### A. The Scope of New Public Management
- Operational definition cited: NPM “consists of deliberate changes in the structures and processes of public sector organizations, with the objective of getting them to run better” (Pollitt and Boukaert, 2000, p. 46).
- Three main reform areas:
  - (1) improved performance;
  - (2) decentralized budget and management authority;
  - (3) greater transparency and accountability.
- Box 1 — Components of Public Management Reform:
  - A. Improved performance
    - 1. Reformulating and simplifying budget nomenclature: away from inputs, towards outputs and outcomes
    - 2. Emphasizing economy, efficiency, and effectiveness, including introducing performance indicators
    - 3. Improving financial management, including the use of accrual accounting instead of cash-based accounts
    - 4. Improving delivery of government services to citizens
    - 5. Introducing market mechanisms and allowing alternative suppliers of government services (contracting out)
  - B. Decentralized budget and management authority
    - 1. Creating “arms-length” government agencies with managerial autonomy
    - 2. Disengaging the State from productive activities (privatization)
    - 3. Replacing controls of central ministries with decentralized control and audit by responsible managers, including delegation of recruitment of staff and setting of pay scales by decentralized managers
  - C. Greater transparency and accountability
    - 1. Clarifying roles and responsibilities of all players in public management
    - 2. Providing Parliament and the public with more financial and nonfinancial information on government intentions, transactions and performance
    - 3. Enhancing the accountability of the executive to parliament, and of agencies within the executive to the “center”
    - 4. Strengthening the independence and functioning of external audit bodies
- Note: Strengthening macro-fiscal performance (for example, modification of budget systems laws to introduce quantitative fiscal rules in response to large fiscal deficits or public debt, e.g., those contained in the EU’s Growth and Stability Pact) does not necessarily require systemic changes embodied in NPM.

#### B. The Purpose of Laws for Public Management
- “Legal framework” here refers primarily to constitutions and laws adopted by parliaments; ordinances, decrees, regulations and instructions are part of the framework but the study focuses mainly on parliamentary law.
- Constitutions generally include provisions regarding:
  - the legislature—its competencies and organization;
  - the executive—its role and structure;
  - sub-national governments—their establishment and competencies;
  - constitutional bodies such as an external Audit Office or an independent Public Service Commission.
- Purposes of laws relative to public management:
  - Laws supplement written constitutions.
  - Two major reasons for adopting public management laws:
    - specify sound general principles; or
    - address specific problems.
  - Legal traditions vary:
    - Continental European “public law” and “administrative law” traditions favor codifying principles in formal law.
    - The United Kingdom tradition emphasizes remedies over general laws, relying on conventions and executive prerogative.
  - Motivations for laws include enhancing executive powers or enabling bureaucrats who feel powerless without legal underpinning.
  - Risks: laws can become overly detailed, or, where implementation/enforcement capacity is weak, become “dead documents.”

#### C. The Traditional Legal Framework for Public Management
- No single “traditional” legal framework exists across OECD countries; variations include:
  - strict legal hierarchies with high-level (“organic”) laws under which ordinary laws sit;
  - “framework laws” providing principles for laws at different government levels.
- Common legal principles integrated into frameworks: authoritativeness, accountability, transparency, stability and performance (or efficiency and effectiveness).

### Box 2 — Principles Underlying the Belgian Budget Preparation System
- Core principles:
  - Annual basis of budget.
  - Universality—the budget and accounts cover revenues and expenditures comprehensively; expenditure are recorded on a gross basis—revenues are not earmarked for specific expenditures.
  - Unity—one common pool for all revenues authorized by parliament in a single document.
  - Specialization—expenditures authorized only for specific purposes, traditionally based on inputs.
  - Publication—of the budget and its accounts.
- Problems with a “legislate-the-principles” approach:
  - General principles usually have exceptions; laws often specify allowable exceptions, adding complexity and rigidity.
  - Example: France’s 2001 Organic Budget Law contains articles relating to earmarked funds and budget annexes that violate unity and universality.
- Two contrasting legal-administrative models and a third variant:
  - “Administrative law” (continental European) model: codified administrative procedures; centralized authority; legalistic, less managerial flexibility.
  - “Westminster” countries: Cabinet and ministers powerful; pragmatism and flexibility; piecemeal public management laws with details delegated to secondary legislation.
  - “Third way” (Northern European/Scandinavian): de-juridification, emphasis on consensus, coalition agreements and informal arrangements can substitute for formal laws.

### Why the legal framework may require changes to introduce NPM reforms
- Improved performance
  - Different structure for budget appropriations: replace input classifications with performance-oriented appropriation structures; introduction of “net appropriations” if agencies retain “own” revenues.
  - Emphasizing economy, efficiency, effectiveness: new laws or revamping existing laws needed to introduce private-sector principles.
  - Changed basis for government accounting: accrual accounting may require legal change to specify format of accrual-based statements; introduction of accrual budgeting would certainly need a new law.
  - Improved delivery of public services: decoupling production and funding may require legal frameworks enabling competitive tendering, contracting-out, vouchers, or public-private partnerships.
- Decentralization of budget and management authority
  - Political decentralization: transfer of functions to local governments almost certainly requires a new decentralization law or constitutional change.
  - Administrative decentralization and “agencification”: deconcentration can be introduced without law changes; agencification requires new laws to specify governance, especially if agencies’ “own” revenues are no longer incorporated into State budget revenues.
  - Privatization: highly political, requires parliamentary debate; changes could take the form of a new general framework for commercialization/privatization and/or revisions to specific laws for particular public enterprises.
- Enhanced transparency and accountability
  - Clarifying roles of ministers and heads of ministries/agencies: far-reaching clarifications would require a complete revamp of legal frameworks, especially if contractual arrangements between ministers and chief executives are introduced.
  - Providing Parliament with more information: desirable disclosures include quantified and binding medium-term targets for public debt and/or fiscal balances, rationale for new policies, reasons for deviations from prior strategies, assumptions underlying budget projections, statements of fiscal risk and contingent liabilities, and performance indicator results; fundamental modifications of budget systems laws are needed to introduce such fiscal transparency requirements.
  - External audit: INTOSAI’s “Lima Guidelines” recommend five principles for SAIs be embodied in Constitutions; under NPM audit emphasis shifts from financial compliance to value-for-money audits and private-sector auditors may compete with SAIs; legal revisions likely needed for timely SAI reporting.

### III. COUNTRY EXPERIENCE: CHANGES IN THE LEGAL FRAMEWORK AND PUBLIC MANAGEMENT

- Changes in Constitutions
  - Political decentralization: constitutional changes in Belgium 1989; Spain 1979; Germany 1990 (incorporation of the eastern Länd). Decentralization by law in France 1982 and additional laws in 2004; Ireland 1991; Italy various years; Sweden 1991; United Kingdom Local Government Act 1992 and regional devolution 1998. Sweden’s Local Government Act, 1991 imposed new demands for financial planning and accounting in exchange for autonomy.
  - External audit: constitutional amendments and new laws in Finland (State Audit Office Act, 2000), Sweden (Auditing of State Activities Act, 2002; Swedish National Audit Office Terms of Reference Act, 2002), and Norway (National Audit Office Act 2004); Denmark’s Auditor-General Act amended 1991 and 1996. Modifications aimed to strengthen parliamentary oversight, reinforce auditor independence, clarify governance, and emphasize the three Es.

- Introduction of special new laws to modernize public management
  - Performance-oriented budgeting:
    - United States: Government Performance and Results Act (GPRA), 1993—requires multi-year strategic plans, annual performance plans, and annual performance reports.
    - Sweden: State Budget Law, 1996—formalized performance-oriented budget procedures and emphasizes “a high level of effectiveness and good economy in government operations” and government reporting to Parliament on objectives and results.
    - France: Organic Law relating to annual budget laws, August 2001—starting 2006 annual budgets to be adopted by about 160 programs; annual budget showing objectives and results will replace traditional input-based budget (about 850 line items); accrual accounting introduced to accompany budget reform.
  - Improved financial management and/or accrual accounting:
    - Australia: Financial Management and Accountability Act and Companies and Commonwealth Authorities and Companies Act, 1997.
    - Finland: State Budget Act, 1988.
    - United Kingdom: Government Resources and Accounting (GRA) Act, 2000—endorsed accrual accounting; certain sections of the 1866 Exchequer and Audit Act were repealed.
    - United States: Chief Financial Officers Act, 1990; Government Management Reform Act, 1994; Federal Financial Management Improvement Act, 1996—require audits of agencies’ accounts according to federal government accounting standards.
  - Contracting out:
    - United Kingdom: Deregulation and Contracting Out Act, 1994 and the GRA Act.
    - United States: following the National Performance Review in 1993, 85 laws to “simplify” government and encourage outsourcing (including Government Management Reform Act, 1994) were passed by 1998.
  - Greater transparency and accountability:
    - Fiscal responsibility and “honesty”:
      - New Zealand: Fiscal Responsibility Act, 1994—increases transparency, brings long-term focus to budgeting, discloses aggregate budget impact in advance, ensures independent assessment and reporting of fiscal policy.
      - Australia: Charter of Budget Honesty, 1998—requires costings of publicly announced pre-election policies for Government and Opposition.
      - United Kingdom: Code of Fiscal Stability, 1998—based on five principles: transparency, stability, responsibility, fairness and efficiency.
    - New external audit arrangements:
      - Australia: Auditor-General Act 1997; 2000.
      - New Zealand: Public Audit Act, 2001.
      - United Kingdom: Audit Commission Act, 1998.
    - These Acts were adopted at least a decade after the “main wave” of NPM reforms in many cases.

- Privatization
  - Example: Korea established three governing principles and a Privatization Steering Committee to coordinate the privatization process; subsequently, laws were enacted or amended to deal with post-privatization issues.

### C. Changing Existing Public Management Laws — Overview
- Reforms required either substantial amendments to existing laws or more cautious, limited amendments.
- Annuality of budget appropriations remains, but many countries now require the annual budget to be placed in a medium-term macro-fiscal framework.
- Changes in laws were most pronounced in Anglo-Saxon countries; continental European countries generally made fewer fundamental legal changes.

- Budget system laws — findings
  - New Zealand (1989): modified the Public Finance Act to change legal basis for annual appropriations from inputs to classes of outputs.
  - Netherlands: 1976 Government Accounting Law replaced in 2001; revised Act lays framework for budget preparation and accounting/audit issues; specifies ministers are responsible for “the effectiveness of the policy underlying their budgets” and for “conducting regular operational efficiency audits.”
  - Spain: 1977 General Budgetary Act replaced in 2003 by a law aiming to introduce a performance-oriented budget system; complements budgetary stability acts adopted in 2001 incorporating the principle of stability of the EU’s Stability and Growth Pact into domestic law.
  - Germany: Federal Budget Code, 1969, amended in the late 1990s to allow greater freedom to reallocate expenditures and carry over expenditures; overall few changes to budget systems laws; annual budget still based on inputs with thousands of detailed line items.

- Public service laws — findings
  - Countries that revamped public service laws include: Australia—Public Service Bill, 1999; Canada—Public Service Reform Act, 1992; Finland—State Civil Servants Act, 1994; Germany—Public Service Reform Act, 1994 and amendments to Federal Civil Servants Law, 1996; New Zealand—State Services Act, 1988; Sweden—modifications to Public Employment Act, 1990; United States—1978 Civil Service Reform Act and the Federal Workforce Restructuring Act, 1994.
  - Anglo-Saxon trend: private sector norms adopted as standard for public servants; introduction of fixed-term contracts for senior civil servants; promotion and salary increasingly merit-based; elimination of a uniform centralized civil service in many cases.
  - United Kingdom: Civil Service (Management Functions) Act, 1992, permitted delegation of authority to the Executive to allow flexible and decentralized personnel management.
  - Codes of Conduct adopted in many countries; United Kingdom adopted a Ministerial Code in 1997.

- Public procurement laws — findings
  - Many European countries replaced procurement laws mainly due to EU procurement directives: Denmark (1995), Germany (1998), Hungary (1999), Italy (1998, by legislative decree), Netherlands (1993, by Resolution), Poland (1994), Spain (1995), Sweden (1994).
  - In the United Kingdom, the EC procurement regime is given effect by four regulations.

### D. Reforms Introduced Without Changes in Law — overview
- Some NPM reforms introduced without new laws; reliance on executive powers, regulations, decrees, or informal arrangements.
- Examples:
  - Creation of agencies in the United Kingdom: “Next Steps” agencies do not have their own legal personality (remain under a Department); framework documents between chief executives and sponsor departments are not legally binding.
    - Observation: in administrative-law European countries it would be inconceivable for 75 percent of civil servants in ministries/departments to be moved under chief executives of agencies without new legislation.
    - New Zealand adopted a Crown Entities Act in December 2004 to address governance weaknesses; agencies’ governing boards will be more accountable to ministers, who will have greater powers to appoint and dismiss.
  - Performance contracting and purchaser–provider separation:
    - Enforceable contracts between public sector entities may be inefficient due to high transactions costs.
    - In Westminster countries, high-level administrative courts to enforce legally-binding performance agreements are not in place; funding relationships may be governed by informal long-term relational contracting rather than strict legal contracting.
    - In general, performance contracting and separation of purchaser from provider have not been embodied in law.
  - Accrual accounting and GAAP:
    - Recent laws in several countries require “generally accepted accounting standards (GAAP)”; implementation often left to executive decrees.
    - Introducing accrual accounting involves collaboration with external audit offices and sometimes independent Accounting Standards Boards.
  - Performance-related pay:
    - Laws often amended to introduce greater flexibility, but details of performance-related pay and promotion are frequently introduced by regulation or decree.
    - Decentralized managers given latitude for deciding employees’ performance-related salary supplements; centralized systems still govern broad frameworks.

### E. Neither Change in Law nor Introduction of NPM — findings
- Several EU countries (Austria, Belgium, Germany, Italy, Spain, Portugal) prioritized macro-stability and respect for Maastricht criteria; adopted new laws for macro-fiscal management and domestic “stability pacts” to apply EU directives at sub-national levels.
- Political constraints, strong regional autonomy, federal-regional tensions, and powerful public sector trade unions limited adoption of performance-related budgeting and personnel reforms in some countries.
- Japan and Korea: reorganized ministries/public bodies but moved cautiously toward performance-oriented reforms; multiplicity of special funds constrained budgetary transparency and accountability.
  - Japan: Fiscal Structural Reform Act adopted in 1997; suspended in late 1998 to allow a large fiscal stimulus package.
  - Korea: National Assembly rejected a draft Fiscal Responsibility Bill in June 2001 over definitional disputes about government-guaranteed debt; in 2003 a performance management system (PMS) requiring line ministries to set performance goals and indicators was introduced without a new law; PMS to be progressively implemented with all ministries planned to be covered by 2008. A National Budget Bill was drafted requiring annually-updated national fiscal plans covering more than three years; in October 2004 a 5-year national fiscal management plan was submitted to Parliament prior to formal adoption of the Bill.

### IV. CONCLUSIONS — KEY FINDINGS AND IMPLICATIONS
- Fundamental public management reforms typically require either revisions to existing laws or introduction of new laws.
- Parliaments sought greater clarity and strength in their role over transparency and accountability, and in the information they receive.
- Changes in laws have been greatest in Anglo-Saxon countries; Australia, New Zealand, and the United Kingdom have radically changed legal frameworks compared with 30 years ago.
- Autonomous agencies represent a far-reaching reform; in some Westminster systems they were introduced without law, but New Zealand adopted new law to clarify responsibilities when parliamentary oversight was perceived as insufficient.
- “Legislate-the-principles” continental European countries have made fewer fundamental legal changes; legalism and political risks (e.g., strong unions) may constrain reforms.
- “Third way” countries (e.g., Finland, Norway, Sweden) made targeted constitutional or legal changes to enhance independence of external audit offices and clarify budgetary powers; in Nordic countries much public management is left to regulations or informal arrangements (Denmark and Norway do not have a formal law to govern the budget system).
- Law often lags experimentation in Nordic and Westminster countries; in continental Europe law tends to lead reform.
- International convergence of legal frameworks for public management is possible in some elements, but full globalization of such legal frameworks appears improbable given differing political systems, policy preoccupations, administrative arrangements, societal attitudes, constitutional roles, hierarchical legal structures, and administrative capacity to enforce laws.

*Source — Excerpt from the provided PDF content unit.*

### References..............................................................................................................

### References

### I. INTRODUCTION
- Since the 1980s, some OECD member countries shifted from input- and compliance-based budgets to performance-oriented budgeting systems emphasizing results, outputs and/or outcomes, and decentralized management in responsible organization units.
- Leading reform countries also changed government accounting systems, personnel management systems, and internal organizational arrangements.
- The literature on “new public management” (NPM) is substantial (see Mathiasen, 1999), but there is a dearth of comparative studies on the extent to which laws were amended or newly adopted to provide legislative backing for public management reforms.
- This study:
  - Section II discusses the scope of NPM and purposes of public management laws and the changes that may be needed in the traditional legal framework governing NPM.
  - Section III examines, based on a non-exhaustive review of OECD member countries, the extent to which the legal framework has been changed to support NPM and the degree to which NPM reforms have been introduced without changing the law.
  - The paper’s conclusions are presented in section IV.

### II. ARE CHANGES IN THE LEGAL FRAMEWORK NEEDED TO SUPPORT REFORMS IN PUBLIC MANAGEMENT?

#### A. The Scope of New Public Management
- Operational definition cited: NPM “consists of deliberate changes in the structures and processes of public sector organizations, with the objective of getting them to run better” (Pollitt and Boukaert, 2000, p. 46).
- This study subdivides the three main areas of reform into:
  - (1) improved performance;
  - (2) decentralized budget and management authority; and
  - (3) greater transparency and accountability.
- These emphases have been grafted onto “traditional” public sector administration.

Box 1. Components of Public Management Reform

A. Improved performance
- 1. Reformulating and simplifying budget nomenclature: away from inputs, towards outputs and outcomes
- 2. Emphasizing economy, efficiency, and effectiveness, including introducing performance indicators
- 3. Improving financial management, including the use of accrual accounting instead of cash-based accounts
- 4. Improving delivery of government services to citizens
- 5. Introducing market mechanisms and allowing alternative suppliers of government services (contracting out)

B. Decentralized budget and management authority
- 1. Creating “arms-length” government agencies with managerial autonomy
- 2. Disengaging the State from productive activities (privatization)
- 3. Replacing controls of central ministries (of Finance and of the Civil Service) with decentralized control and audit by responsible managers in ministries and/or agencies. This includes delegation of recruitment of staff and setting of pay scales by decentralized managers.

C. Greater transparency and accountability
- 1. Clarifying roles and responsibilities of all players in public management
- 2. Providing Parliament and the public with more financial and nonfinancial information on government intentions, transactions and performance
- 3. Enhancing the accountability of the executive to parliament, and of agencies within the executive to the “center”
- 4. Strengthening the independence and functioning of external audit bodies

- Note: Strengthening macro-fiscal performance (for example, modification of budget systems laws to introduce quantitative fiscal rules in response to large fiscal deficits or public debt, e.g., those contained in the EU’s Growth and Stability Pact) does not necessarily require systemic changes embodied in NPM.

#### B. The Purpose of Laws for Public Management
- “Legal framework” here refers primarily to the body of high-level and ordinary laws that support the public management system; ordinances, decrees, regulations and instructions are part of the framework but the study focuses mainly on constitutions and laws adopted by parliaments.
- Constitutions generally include provisions and principles regarding:
  - • The legislature—its competencies and organization, and, should a bicameral parliament exist, the respective roles and powers of the two chambers.
  - • The executive—its role and structure, which may be headed by a president or by a prime minister who in turn heads a Cabinet, whose powers may be established constitutionally.
  - • Sub-national governments—their establishment and competencies; in federations, the Constitution may include provisions for intergovernmental coordination.
  - • Constitutional bodies such as an external Audit Office or an independent Public Service Commission.
- Constitutions may also contain basic principles for budgeting and administrative structures, with important implications for laws governing public management.

Purposes of laws relative to public management
- Laws supplement written constitutions.
- Two major reasons why laws governing public management may be adopted:
  - • specify sound general principles; or
  - • address specific problems.
- Countries may adopt or modify laws for both reasons simultaneously; which dominates depends on legal traditions and the perceived need for a law versus internal regulations.
- Continental European “public law” and “administrative law” traditions often favor incorporating main principles in formal law; two broad categories of principles (attributed to Harlow, 1998) are those prioritizing control of administration and those prioritizing structuring and systemization of public administration while acknowledging control.
- The United Kingdom tradition emphasizes remedies over general laws, relying on conventions and the prerogative of the Executive (Daintith and Page, 1999); the distinction between private and public law is less marked.
- Motivations for adopting laws can include enhancing executive powers (for example, minister of finance and advisors) or enabling bureaucrats who feel powerless without legal underpinning (cited examples: Albania, Romania).
- Risks: laws can become overly detailed, or, where implementation/enforcement capacity is weak, “dead documents.”

#### C. The Traditional Legal Framework for Public Management
- No single “traditional” legal framework exists across OECD countries; countries differ in extent and manner of legislating principles.
- Examples of variations:
  - Some countries have a strict hierarchy of law: high-level (“organic”) laws under which ordinary laws sit.
  - Other countries have “framework laws” that provide principles for laws at different government levels.
- Two extremes of traditional frameworks are examined, followed by a “third way” (discussion continues beyond provided excerpt).
- Example noted: principles underlying budget preparation processes are well known in continental European countries; the example of Belgium is described in Box 2 (Box 2 contents not included in provided excerpt).
- Additional principles commonly integrated into legal frameworks: authoritativeness, accountability, transparency, stability and performance (or efficiency and effectiveness).

*Source: _wp0562 - References (excerpt).*

### Box 2. Principles Underlying the Belgian Budget Preparation System

### Box 2. Principles Underlying the Belgian Budget Preparation System

### Core principles of the Belgian budget preparation system
- Annual basis of budget.
- Universality—the budget and accounts cover revenues and expenditures comprehensively; expenditure are recorded on a gross basis—revenues are not earmarked for specific expenditures.
- Unity—there is one common pool for all revenues which are authorized by parliament at the same time as expenditures, in a single document.
- Specialization—expenditures are authorized only for specific purposes, which have traditionally been based on inputs.
- Publication—of the budget and its accounts.

### Problems with a “legislate-the-principles” approach
- General principles usually have a number of exceptions; laws often devote considerable space to specifying allowable exceptions.
- Example: the 2001 Organic Budget Law in France contains several articles relating to earmarked funds, other special accounts, and budget annexes, all of which violate the unity and universality principles.
- Legislating for exceptions adds complexity and rigidity in laws and accompanying regulations.

### Two contrasting legal-administrative models and a third variant
- “Administrative law” (continental European) model:
  - Administrative law governs the State and its interactions with citizens; underlying legal principles are codified (reference: Schwarze, 1993).
  - Some countries embodied administrative procedures into single laws (examples cited: Austria since 1925, Denmark 1985, Germany 1976, Spain 1958).
  - Civil service laws are widespread; written laws are supplemented by judge-made laws, fragmenting the administrative law system.
  - The State is viewed as the central integrating force; many senior civil servants are trained in law; bureaucratic stance emphasizes rule-following and legal control.
  - Centralization of authority is common; legal basis includes detailed executive decrees; rigid laws allow less flexibility in management.

- “Westminster” countries:
  - The State notion is replaced by “the Crown”; Cabinet and individual ministers are powerful and accountable to parliament.
  - Law is important but in the background; pragmatism and flexibility are prized over legal formalism.
  - Public management laws have been formulated piecemeal; details often delegated to secondary legislation by a powerful executive.
  - This allows more flexible management but can bypass Parliament more frequently; reforms may emanate from unelected civil servants supporting powerful Cabinets.

- “Third way” (Northern European/Scandinavian) countries:
  - Shied away from highly legalistic principles; e.g., Netherlands experienced conscious “de-juridification” after 1945.
  - Emphasis on broad-based consensus and use of independent Commissions of Enquiry.
  - Coalition agreements and informal arrangements can obviate the need for formal laws; decisions by government or parliament may substitute for laws in practice.

### Why the legal framework may require changes to introduce NPM reforms
- Parliament could adopt laws to strengthen its powers either to alter imbalances with the executive or to expand legislative control over public management.
- Specific areas where statutory change is likely required:

  Improved performance
  - Different structure for budget appropriations:
    - Traditional classifications by inputs (salaries, goods and services, transfers, investment) need replacement by performance-oriented appropriation structures.
    - Introduction of “net appropriations” would be needed if agencies retain “own” revenues for their services.
  - Emphasizing the three Es of economy, efficiency, and effectiveness:
    - Traditional administrative law did not emphasize performance management; either new laws or revamping existing laws required to introduce private-sector principles into public management.
  - Changed basis for government accounting:
    - Accrual accounting allows full costing and aligns government accounting with private-sector formats (operating statements and balance sheets in addition to cash flows).
    - A change in law may be needed to introduce an accrual accounting framework and to specify the format of accrual-based statements to be presented to parliament.
    - Introduction of accrual budgeting would certainly need a new law.
    - A separate Public Accounting Law is usually unnecessary—it risks introducing detailed technical concepts better confined to decrees and manuals.
  - Improved delivery of public services:
    - Decoupling public production and public funding requires legal frameworks to allow competitive tendering, contracting-out, vouchers, or public-private partnerships.
    - New legislation may be needed, though regulations may suffice in some areas.

  Decentralization of budget and management authority
  - Political decentralization:
    - Transfer of functions to local governments almost certainly requires a new decentralization law or constitutional change.
  - Administrative decentralization and “agencification”:
    - Distinction between (1) deconcentration (delegating authority within central ministries) and (2) agencification (creation of autonomous executive agencies).
    - Deconcentration could be introduced without law changes; agencification requires new laws to specify governance, especially if agencies’ “own” revenues are no longer incorporated into State budget revenues.
    - If agencies report only to “mother” ministries and not directly to Parliament, transparency is reduced; fragmentation is a risk of agencification.
  - Privatization:
    - Moving State commercial activities to private sector or corporatization is highly political and requires parliamentary debate.
    - Changes could take the form of (1) a new general framework for commercialization/privatization; and/or (2) revisions to specific laws for particular public enterprises.

  Enhanced transparency and accountability
  - Clarifying the roles of ministers and heads of ministries/agencies:
    - NPM focuses on policy outcomes; ministers are responsible to parliament for outcomes and must report results of ex ante agreements with chief executives.
    - Far-reaching clarifications would require a complete revamp of legal frameworks, especially if contractual arrangements between ministers and chief executives are introduced.
  - Providing Parliament with more information:
    - Traditional legal frameworks emphasize annuality and place undue emphasis on the year ahead; governments have not been legally required to propose medium term fiscal strategy.
    - Desirable disclosures include quantified and binding medium-term targets for public debt and/or fiscal balances, rationale for new policies, reasons for deviations from prior strategies, assumptions underlying budget projections, statements of fiscal risk and contingent liabilities, and performance indicator results.
    - Fundamental modifications of budget systems laws are needed to introduce fiscal transparency requirements embodied in international codes of good practices.
  - External audit:
    - INTOSAI’s “Lima Guidelines” recommend five principles for supreme audit institutions (SAIs) be embodied in Constitutions (establishment, independence—functional and organizational, independence of members including removal procedures, relationship with Parliament, and audit powers).
    - Under NPM, audit emphasis shifts from financial compliance to value-for-money audits and reviews of efficiency and effectiveness.
    - NPM introduces contestability allowing private-sector auditors to compete with SAIs.
    - Computerized information systems lead Parliament to demand more timely SAI final reports; legal revisions likely needed to introduce NPM-related reforms for SAIs.

### Country experience: changes in the legal framework and public management

- Changes in Constitutions
  - Political decentralization:
    - Some countries changed Constitutions to provide greater autonomy to sub-national governments (Belgium 1989; Spain 1979); Germany’s Constitution changed in 1990 to incorporate the eastern Länd.
    - These changes clarified central and sub-national roles but were not made specifically to introduce NPM.
    - In several unitary countries, decentralization initiatives occurred by law (France 1982 and additional laws in 2004; Ireland 1991; Italy various years; Sweden 1991; United Kingdom Local Government Act 1992 and regional devolution 1998). These laws mostly concern tax and expenditure competencies and intergovernmental transfers, not NPM per se, though examples (e.g., Sweden’s Local Government Act, 1991) imposed new demands for financial planning and accounting in exchange for autonomy.
  - External audit:
    - Constitutional amendments and new laws in Finland (State Audit Office Act, 2000), Sweden (Auditing of State Activities Act, 2002; Swedish National Audit Office Terms of Reference Act, 2002), and Norway (National Audit Office Act 2004); Denmark’s Auditor-General Act amended 1991 and 1996.
    - Modifications aimed to: strengthen parliamentary oversight of budget implementation; reinforce auditor independence from the executive; clarify governance structures; and emphasize the three Es.

- Introduction of special new laws to modernize public management
  - Performance-oriented budgeting:
    - United States: Government Performance and Results Act (GPRA), 1993—requires multi-year strategic plans, annual performance plans, and annual performance reports.
    - Sweden: State Budget Law, 1996—formalized performance-oriented budget procedures and emphasizes “a high level of effectiveness and good economy in government operations” and government reporting to Parliament on objectives and results.
    - France: Organic Law relating to annual budget laws, August 2001—starting 2006 annual budgets to be adopted by about 160 programs; annual budget showing objectives and results will replace traditional input-based budget (about 850 line items); accrual accounting introduced to accompany budget reform.
  - Improved financial management and/or accrual accounting:
    - Australia: Financial Management and Accountability Act and Companies and Commonwealth Authorities and Companies Act, 1997—comprehensive framework for managing public money and property.
    - Finland: State Budget Act, 1988—lays out budget and accounting principles and delegates considerable authority to the minister of finance.
    - United Kingdom: Government Resources and Accounting (GRA) Act, 2000—formally endorsed accrual accounting for government departments and whole-of-government accounts; certain sections of the 1866 Exchequer and Audit Act were repealed.
    - United States: Chief Financial Officers Act, 1990; Government Management Reform Act, 1994; Federal Financial Management Improvement Act, 1996—require audits of agencies’ accounts according to federal government accounting standards.
  - Contracting out:
    - United Kingdom: Deregulation and Contracting Out Act, 1994 and the GRA Act provided financial assistance to a body participating in public-private partnerships.
    - United States: following the National Performance Review in 1993, 85 laws to “simplify” government and encourage outsourcing (including Government Management Reform Act, 1994) were passed by 1998.
  - Greater transparency and accountability:
    - Fiscal responsibility and “honesty”:
      - New Zealand: Fiscal Responsibility Act, 1994—increases transparency of policy intentions, brings a long-term focus to budgeting, discloses aggregate budget impact in advance, ensures independent assessment and reporting of fiscal policy, and facilitates parliamentary and public scrutiny.
      - Australia: Charter of Budget Honesty, 1998—contains similar reporting obligations and requires costings of publicly announced pre-election policies for Government and Opposition.
      - United Kingdom: Code of Fiscal Stability, 1998—based on five principles: transparency, stability, responsibility, fairness and efficiency.
    - New external audit arrangements:
      - Australia: Auditor-General Act 1997; 2000.
      - New Zealand: Public Audit Act, 2001.
      - United Kingdom: Audit Commission Act, 1998.
      - These Acts were adopted at least a decade after the “main wave” of NPM reforms in many cases.

- Privatization
  - Example noted: In Korea the government (not Parliament) established three governing principles and a Privatization Steering Committee to coordinate the privatization process under way since [text ends].

*Source: van de Voorde and Stienlet, 1990.*

### 1998. Subsequently, laws were enacted or amended to deal with post-privatization issues. For

### _wp0562 - 1998. Subsequently, laws were enacted or amended to deal with post-privatization issues. For

### C. Changing Existing Public Management Laws — Overview
- Reforms required either substantial amendments to existing laws or more cautious, limited amendments.
- Annuality of budget appropriations remains, but many countries now require the annual budget to be placed in a medium-term macro-fiscal framework.
- Changes in laws were most pronounced in Anglo-Saxon countries; continental European countries generally made fewer fundamental legal changes.

### Budget system laws — findings
- New Zealand (1989): modified the Public Finance Act to change the legal basis for annual appropriations from inputs to classes of outputs.
- Netherlands: 1976 Government Accounting Law replaced in 2001; revised Act lays framework for budget preparation and accounting/audit issues; specifies ministers are responsible for “the effectiveness of the policy underlying their budgets” and for “conducting regular operational efficiency audits.”
- Spain: 1977 General Budgetary Act replaced in 2003 by a law aiming to introduce a performance-oriented budget system; complements budgetary stability acts adopted in 2001 incorporating the principle of stability of the EU’s Stability and Growth Pact into domestic law.
- Germany: Federal Budget Code, 1969, amended in the late 1990s to allow greater freedom to reallocate expenditures and carry over expenditures; overall few changes to budget systems laws which include the Law to Promote Stability and Growth, 1967 and the Budget Principles Law, 1969; annual budget still based on inputs with thousands of detailed line items (see Box 3 of IMF, 2003).

### Public service laws — findings
- Countries that revamped public service laws include: Australia—Public Service Bill, 1999; Canada—Public Service Reform Act, 1992; Finland—State Civil Servants Act, 1994; Germany—Public Service Reform Act, 1994 and amendments to Federal Civil Servants Law, 1996; New Zealand—State Services Act, 1988; Sweden—modifications to Public Employment Act, 1990; United States—1978 Civil Service Reform Act and the Federal Workforce Restructuring Act, 1994.
- Spain (1997): replaced “Organization and Functioning of the General State Administration” Act; specifies functions and structure of State administration, autonomous public organizations and public enterprises; specifies internal management structures from ministers down to deputy director generals.
- Anglo-Saxon trend: private sector norms adopted as standard for public servants; introduction of fixed-term contracts for senior civil servants; promotion and salary increasingly merit-based rather than by seniority; elimination of a uniform centralized civil service in many cases.
- United Kingdom: Civil Service (Management Functions) Act, 1992, permitted delegation of authority to the Executive to allow flexible and decentralized personnel management.
- Codes of Conduct adopted in many countries to lay out principles for integrity and impartiality of civil servants; United Kingdom adopted a Ministerial Code in 1997 following a House of Commons Resolution on Ministerial Accountability.

### Public procurement laws — findings
- Many European countries replaced previous procurement laws mainly due to EU procurement directives: Denmark (1995), Germany (1998), Hungary (1999), Italy (1998, by legislative decree), Netherlands (1993, by Resolution), Poland (1994), Spain (1995), Sweden (1994).
- In the United Kingdom, the EC procurement regime is given effect by four regulations.

### D. Reforms Introduced Without Changes in Law — overview
- Some NPM reforms introduced without new laws; reliance on executive powers, regulations, decrees, or informal arrangements.
- Examples include the creation of agencies in the United Kingdom and governance clarifications in New Zealand.

### Creation of agencies (United Kingdom) and governance issues
- “Next Steps” agencies: do not have their own legal personality (remain under a Department); framework documents between chief executives and sponsor departments are not legally binding.
- Observation: in administrative-law European countries it would be inconceivable for 75 percent of civil servants in ministries/departments to be moved under chief executives of agencies without new legislation.
- New Zealand adopted a Crown Entities Act in December 2004 to address governance weaknesses; agencies’ governing boards will be more accountable to ministers, who will have greater powers to appoint and dismiss.

### Performance contracting and purchaser–provider separation
- Argument exists that enforceable contracts between public sector entities may be inefficient due to high transactions costs (e.g., Petrie, 2002).
- In Westminster countries, high-level administrative courts to enforce legally-binding performance agreements are not in place; funding relationships may be better governed by informal long-term relational contracting rather than strict legal contracting.
- In general, performance contracting and separation of purchaser from provider have not been embodied in law.

### Accrual accounting and GAAP
- Recent laws in several countries require “generally accepted accounting standards (GAAP)”; implementation often left to executive decrees.
- Introducing accrual accounting within ministries/public bodies involves collaboration with external audit offices and sometimes independent Accounting Standards Boards.

### Performance-related pay
- Laws often amended to introduce greater flexibility in personnel management, but details of performance-related pay and promotion are frequently introduced by regulation or decree.
- Under NPM, decentralized managers are given latitude for deciding employees’ performance-related salary supplements; centralized systems still govern broad frameworks, with specifics set by decree.

### E. Neither Change in Law nor Introduction of NPM — findings
- Several EU countries (Austria, Belgium, Germany, Italy, Spain, Portugal) prioritized macro-stability and respect for Maastricht criteria; adopted new laws for macro-fiscal management and domestic “stability pacts” to apply EU directives at sub-national levels.
- Political constraints, strong regional autonomy, federal-regional tensions, and powerful public sector trade unions limited adoption of performance-related budgeting and personnel reforms in some countries.
- Japan and Korea: reorganized ministries/public bodies but moved cautiously toward performance-oriented reforms; multiplicity of special funds constrained budgetary transparency and accountability.
  - Japan: Fiscal Structural Reform Act adopted in 1997; suspended in late 1998 to allow a large fiscal stimulus package.
  - Korea: National Assembly rejected a draft Fiscal Responsibility Bill in June 2001 over definitional disputes about government-guaranteed debt; in 2003 a performance management system (PMS) requiring line ministries to set performance goals and indicators was introduced without a new law; PMS to be progressively implemented with all ministries planned to be covered by 2008. A National Budget Bill was drafted requiring annually-updated national fiscal plans covering more than three years; in October 2004 a 5-year national fiscal management plan was submitted to Parliament prior to formal adoption of the Bill.

### IV. Conclusions — key findings and implications
- Fundamental public management reforms typically require either revisions to existing laws or introduction of new laws.
- Parliaments sought greater clarity and strength in their role over transparency and accountability, and in the information they receive.
- Changes in laws have been greatest in Anglo-Saxon countries; Australia, New Zealand, and the United Kingdom have radically changed legal frameworks compared with 30 years ago.
- Autonomous agencies represent a far-reaching reform; in some Westminster systems they were introduced without law, but New Zealand adopted new law to clarify responsibilities when parliamentary oversight was perceived as insufficient.
- “Legislate-the-principles” continental European countries have made fewer fundamental legal changes; legalism and political risks (e.g., strong unions) may constrain reforms.
- “Third way” countries (e.g., Finland, Norway, Sweden) made targeted constitutional or legal changes to enhance independence of external audit offices and clarify budgetary powers; in Nordic countries much public management is left to regulations or informal arrangements (Denmark and Norway do not have a formal law to govern the budget system).
- Law often lags experimentation in Nordic and Westminster countries; in continental Europe law tends to lead reform.
- International convergence of legal frameworks for public management is possible in some elements, but full globalization of such legal frameworks appears improbable given differing political systems, policy preoccupations, administrative arrangements, societal attitudes, constitutional roles, hierarchical legal structures, and administrative capacity to enforce laws.

*Italic: Source — Excerpt from the provided PDF content unit.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp0562.pdf_