Thailand: Defining the goals of zero-based budgets
Zero-based budgeting (ZBB) is one of the policies included in the 23-point memorandum of understanding signed by leaders of eight political parties seeking to form a new coalition government following the general election.
The Move Forward Party (MFP) proposed the implementation of ZBB to replace the current budgeting practice, arguing that the existing system does not respond to people’s needs because of bureaucratic obstacles.
What is zero-based budgeting?
The ZBB process calls for state officials to justify expenses for a new period rather than starting with the previous year’s budget and adjusting it as needed.
The process aims to increase the efficiency of budget usage, starting from a “zero base”, with every function within an organisation analysed based on needs and costs.
Budgets are built around what is required, responding to urgent needs and challenges every year. This ensures budget allocation is appropriate and offers maximum efficiency and demand.
A government expenditure official who requested anonymity said the Budget Bureau has applied the ZBB concept when preparing budgets, particularly new investment budgets that are not tied to existing projects.
According to the Annual Budget Expenditure Act, the head of the government agency that is requesting the project must answer who, what, when, where, why, and how questions about the project, including an explanation of how people would benefit from such a project.
What are the pros and cons of ZBB?
ZBB offers a number of advantages over traditional budgeting, including lower costs, budget flexibility, and alignment with national strategy and the country’s needs. It provides an opportunity for the government to review last year’s budget and helps to prevent the misallocation of resources that often occurs when a budget grows incrementally over time.
While ZBB can be an effective budgeting strategy, it can also be quite challenging to implement. As budgets are created from scratch, the process is much more time-consuming than traditional budgeting.
This process may cause budget spending to be delayed for a given year, which could mean stimulus schemes have less time to pump up the economy.
Because the budgeting system affects all sectors, including central government agencies, local spending systems, as well as educational and healthcare institutions, the earliest the ZBB process is projected to be implemented is fiscal 2025 or 2026.
How is ZBB different from traditional budgeting?
Traditional or incremental budgeting, which calls for incremental increases over the previous budget, is deemed to be inefficient and was discontinued by the Budget Bureau some time ago.
The bureau now prepares budgets based on a performance-oriented budget system that focuses on the output and outcome, as well as alignment with national strategies.
In the ZBB process, the proposed project budget of each government agency must be justified in terms of cost efficiency and effectiveness. For example, the Ground Water Resources Department should be able to explain the social impact and outcome if its water well drilling projects were halted.
Similarly, the Highways Department should be able to show how construction of the Bang Pa-in-Nakhon Ratchasima motorway would reduce travel time from the capital to the province.
How does the budget process vary for different government agencies?
If ZBB is used for public welfare, the eligibility criteria may need to be redefined. For example, the government may need to provide employment for groups ineligible for welfare because their annual income exceeds 100,000 baht.
Given its detail-oriented nature, ZBB requires accurate information to support its implementation. For example, the school lunch budget requires the financial situation of each school as well as the actual number of students enrolled to determine the budget allocation.
Current expenditure, particularly compensation for civil servants, may be difficult to reduce as there is a specific number of government officials in the Office of the Civil Service Commission.
For example, if a government agency has a workforce limit of 100 employees and it currently has 80, the agency can submit a budget request for 20 additional employees with the expectation it can recruit the workers within the fiscal year. The agency may hire fewer than 20 new staff that year, but the agency’s budgeted needs were real.
However, this would incur an opportunity cost for another project.
Regarding expenditure on medical care for government officials, state enterprise employees usually receive a premium service compared with civil servants, and a proposal to equalise these budgets to reduce the budget burden is still under scrutiny.
Policy proposals by the MFP to the Office of the Election Commission would use a total budget of 1.28 trillion baht.
Pension payments for the elderly of 3,000 baht per month per person account for the largest proportion of the budget, some 500 billion baht per year.
The MFP said the funding would come from a new form of tax collection and tax reform, which would increase the government’s income by 650 billion baht per year.