Multiyear forecasts not up to date or correct

The Netherlands Court of Audit concludes from an audit of five cases that multiyear forecasts in the ministries’ budgets are sometimes based on incorrect or dated assumptions. Parliament is therefore inadequately informed about how much money is needed to continue existing policy. It is also uncertain how much money is available in the short and the long term for alternative expenditure options in the budgets. In the Court of Audit’s opinion, this makes it difficult for parliament to debate the amounts in the budgets with the government and compromises its right to approve the budget.

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A forecast is an estimate of the obligations, cost and revenue of existing policy. The draft budgets that are sent to the House of Representatives on Budget Day state the budget to be authorised for the year. Multiyear forecasts show the estimated expenditure in the next four financial years. The Court of Audit looked at five cases to determine how multiyear forecasts are prepared, how much leeway is available in the budget if the forecasts are too low or too high and the information that parliament receives on the budgetary leeway. 

Parliament’s right to approve the budget

To exercise its right to approve the budget correctly, members of parliament must know how much money is needed to implement existing policy and how much is available in the short and the long term to fund alternative expenditure. But it does not receive enough information from the government about the consequences if a  forecast is too low or too high. It also has little insight into the assumptions ministries make to align their forecasts with budget agreements.

Assumptions and data are dated or inaccurate

The assumptions ministries make in their multiyear forecasts are not always up to date. The Ministry of Education, Culture and Science’s forecast of the cost of universities, for instance, was based on the timesheets dating from 1984, and the information the Ministry of Justice and Security used to forecast the cost of the justice system was so out of date that for a long time the estimates produced by the forecasting model were deemed unusable.

Ministries also base their forecasts on incorrect assumptions. This, too, can lead to inaccurate forecasts. The Ministry of Infrastructure and Water Management, for instance, does not include deferred maintenance in its multiyear budget forecast for the management and maintenance of the main waterway network. Deferred maintenance of bridges and locks must be carried out at some point but not including it in estimates of maintenance costs meant the forecasts were systematically too low. The Court of Audit observed in 2019 that this represented a risk to the efficient maintenance of the main waterway network.

Inaccurate estimates affect public services

One potential consequence of inaccurate estimates is that the budget is lower or higher than the estimated cost of agreed policy. If the budget is lower than the estimate there is a risk that policy has to be adapted if it is to remain affordable, for instance by performing less maintenance work, lowering targets or cutting public services. If a budget is higher than the estimate, there is a risk of inefficient expenditure.

Recommendations to parliament and the Minister of Finance

The Court of Audit recommends that parliament ask ministers direct questions about the assumptions and underpinnings of multiyear forecasts more frequently and examine forecasts in the budgets every year. To improve the quality of multiyear forecasts and provide more information on the budgetary leeway, the Court recommends that the Minister of Finance formulate clearer requirements on the ministries’ preparation and maintenance of multiyear forecasts and periodically check that assumptions are still up to date.