The global financial crisis put public financial management in Europe under a new level of political and public scrutiny. Government finance leaders have risen to the challenge, but they need to keep up momentum.
In 2008, the global financial crisis hit Europe’s economic, social and political landscape hard. For the people who manage government finances, the years since the crisis may have been the most challenging of their careers. They did not cause the financial or sovereign debt crises. But the major reductions in public spending that followed – as part of wider fiscal consolidation packages – put the management of taxpayers’ money under a new level of scrutiny from politicians and the public.
At Deloitte, we wanted to explore what people in government finance thought about the financial crisis, their current challenges and their aspirations for the future. So we spoke to more than 30 senior government finance professionals in 19 European countries. Our aim was to bring a personal dimension to the reform discussions underway within governments and through supranational bodies. Those conversations point to five pan-European themes.
The first theme is that the crisis triggered an intense period of analysis and improvement in government finance functions. Our interviewees told us that the crisis had profoundly affected the finance function. Many confirmed that their teams were now doing more with less. But almost all told us about significant improvements that have occurred since the advent of austerity measures.
While austerity has kick-started improvement, our conversations suggest that the appetite for change has grown and that some of the most ambitious finance leaders now aspire to take their functions to a new level. They told us that they want to make the move from ‘bookkeepers to strategists’, evolving the finance function into a central part of government policy making and decision making.
The second theme is that governments have not changed their revenue mix as a response to the crisis. Government revenue has been surprisingly robust and bounced back to pre-crisis levels relatively quickly. And few interviewees told us that their government revenue mix had changed with the introduction of new taxes. Most said that their governments had focused on improving administration and compliance rather than changing tax policy fundamentally – and that focus would continue.
The third theme is that many governments are struggling to exploit their own information, and that their technology is either inadequate or underused. Many people we spoke to told us that financial information was collected inconsistently across departments. They also told us that IT systems differ between departments as a result of years of departmental-level buying choices, and so they are unable to integrate information. Those IT buying decisions, taken in isolation over many years, risk perpetuating isolated approaches to data.
As a result, governments’ abilities to create consistent, pan-government management information are limited. Some interviewees added that as a consequence of this limitation, the financial implications of policy decisions – and certainly the long term impact - are not clearly understood by government decision makers.
The fourth theme is that public sector employment restrictions are limiting the pool of talent available to the government finance profession across Europe.
Many of the finance leaders we spoke to had seen reductions in staff numbers through redundancies – and some pointedly added that their function’s workload had remained the same or increased.
They also told us of their frustration with public sector employment policies. Most notably, they spoke about the public sector’s lower salaries, inflexible pay increments and inability to offer performance-related bonuses as a barrier to attracting new talent.
The fifth theme is that the passive publication of material in the interests of transparency is not enough to engage the public in really understanding their government’s finances.
Our conversations suggest that governments want to improve the way that the state engages the citizen with information about public spending, either to recast the relationship between the citizen and the state, improve tax compliance or create a firmer connection between tax and public spending priorities in citizens’ minds.
Our research is testament to a profession that has done well in a difficult period and is focused on the future. Continuing this government finance renaissance – and improving the quality of government – will require ambition from leaders in public finance to maintain the momentum of change. Judging from the conversations that inform this new report, they are up for the challenge.
Richard Doherty is public sector leader, Europe, Middle East & Africa, at Deloitte Touche Tohmatsu Limited.
Government finance renaissance: conversations across Europe is available online at www.deloitte.com/governmentfinancerenaissance.
