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The Role of National Fiscal Bodies State of Play - January 2020

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The Role of National Fiscal Bodies State of Play - January 2020 IN-DEPTH ANALYSIS The role of national fiscal bodies State of play - January 2020 This briefing provides an overview of the advisory role played by independent national fiscal bodies in the preparations of the budgets of the EU Member States. The briefing is updated regularly. The objective of the analysis is twofold: 1) to give an overview of the set-up and functioning of these independent fiscal bodies based on the most recent assessments by the European Commission. 2) to give an overview of the extent to which the latest Stability or Convergence Programmes and the Draft Budgetary Plans contain information about the involvement of independent national fiscal bodies in the preparation of these programmes/plans. Summary of the findings Set-up of the national frameworks The latest available information indicates that the implementation of the EU legal framework relating to independent fiscal bodies is overall well advanced throughout the EU. All but one signature Member States of the Treaty on Stability, Cooperation and Governance (TSCG) have one or several operational independent fiscal bodies in place, the exception being Poland (consequently Poland has no member in the EU network on independent fiscal institutions). It seems that these bodies are also operationally independent in the countries where they are formally attached to the government (Belgium, Luxembourg, Slovakia, Slovenia, the Netherlands and Finland). The latest available information by the European Commission (COM) on the set-up of the national frameworks of independent fiscal bodies is notably included in the European Semester country reports of February 2019. These reports shows that notably three countries have made progress on the set-up: (1) The autonomy of the High Council of Finance of Belgium has been reinforced; (2) in Germany, legislation ensuring that macroeconomic forecast underlying the budgetary projections of the government came into effect in the second half of 2018; (3) in the Czech Republic, the independent fiscal institution became operational (despite the fact that the country is - until it joins the euro - not bound by the Fiscal Compact); (4) In Sweden, revised rules further strengthening the mandate of the independent Fiscal Policy Council to Economic Governance Support Unit (EGOV) Authors: J. Angerer and M. Sabol Directorate-General for Internal Policies EN PE 634.368 - January 2020 IPOL | Economic Governance Support Unit monitor fiscal rules and evaluate the official macro- forecasts came into force in 2019 and (5) in Croatia, the Box 1: Recent report by European Court of new Fiscal Responsibility Act is aimed mainly at Auditors on EU fiscal governance reinforcing the set-up and mandate of the independent The European Courrt of Auditors published in fiscal body; there were delays in the appoinmtent of the December 2019 a report entitled “EU chairperson. requirements for national budgetary frameworks: need to further strengthen them Recently, the European Court of Auditors published a re- and to better monitor their application on EU port which analyses whether the EU requirements for na- fiscal governance” which focuses to a large extent tional budgetary frameworks are adequate and well im- on the assessments of compliance with EU fiscal plemented. It focuses on the EU fiscal rules and the asses- rules carried out by national independent fiscal sments of compliance carried out by independent bodies, the European Fiscal Board and the COM. national fiscal bodies, the COM and the European Fiscal The report identifies a risk of divergence between Board (see Box 1). It does not provide an assessment of the COM’s and the Independent Fiscal Institutions’ the legal and operational capacities of the independent assessments, which could reduce the effectiveness fiscal bodies and of their assessments of the macro- of the EU fiscal framework. According to the report, economic forecast of their respective governments. a major reason is that that the COM makes “extensive use of its margin of discretion when A country-specific screening (please see the annex of this assessing compliance with the EU fiscal rules (i.e. briefing for details) shows that the use of independent compliance with the adjustment path towards the forecasts in the preparations of the 2020 Draft MTO)”. The report also assesses that the ef- Budgetary Plans (DBPs) was as follows: fectiveness of the European Fiscal Board is limited by its current institutional set-up and notes that the • All euro area Member States have operationally COM can ignore its advice without providing ap- independent fiscal bodies in place producing or propriate explanation. It recommends that the endorsing the macro-forecasts used by the COM reviews EU requirements for national governments in the DBP. budgetary frameworks, enhances its assessments of how Member States implement these • In six euro area countries, the forecasts were requirements, improves cooperation with produced by the independant bodies: Belgium, Independent Fiscal Institutions and strengthens Netherlands, Luxembourg, Austria, Slovenia and the European Fiscal Board. The COM accepts all but Finland. The DBPs of alle these countries used the one recommendations: it does not accept the most recent forecasts prepared by the respective recommendation to strengthen the European Fiscal Board, since it considers that it is analytical independent body, so that all euro area Member and functional independent. Furthermore, while States complied now with EU Regulation 473/2013. accepting the recommendation to take into • In 12 euro area countries, the forecasts were account international standards and best practices, endorsed by the independent bodies: Germany, it notes inter alia “some of the principles/features promoted by the IMF and OECD are sometimes very Estonia, Ireland, Greece, Spain, France, Cyprus, Latvia, granular or operational as those are meant to be used Lithuania, Malta, Portugal and Slovakia. Within this as detailed guidance, as opposed to legally binding group of countries, the endorsements were often requirements.” accompanied by some critical comments on the forecasts, notably in Portugal, Latvia, Estonia, Ireland, France and Greece. The use of independent forecasts in the preparations of the 2019 Stability Programmes (SP): • For the first time, all euro area Member States have used macro-economic forecasts prepared or endorsed by independent fiscal bodies, now also Germany, where one year before the independent body was not yet in place. However, as for the preparation/endorsement of the forecasts underlying the 2020 DBP, the bodies preparing/endorsing the macro-economic forecasts of the 2019 SP, were formally 2 PE 634.368 The role of national fiscal bodies - State of play - January 2019 attached to the government in Belgium, Luxembourg, Slovakia, Slovenia, the Netherlands and Finland. In Finland, the body was (and still is) even located in the Ministry of Finance.1 • In six eurea area countries, the forecasts were produced by the independant bodies: Belgium, Netherlands, Luxembourg, Austria, Slovenia and Finland. The Commission 2019 country report on Luxembourg and the 2019 SP of Luxembourg mentions some problems: On Luxembourg, one independent fiscal body (National Council of Public Finances) issued recommendations on the macroeconomic scenario underlying the budgetary projections, which were however rejected by the Finance Ministry as it argued that the macroeconomic projections are developed by the other independent body (STATEC) and was therefore not in the area of competence of the National Council of Public Finances.2 • In 12 euro area countries the forecasts were endorsed by the independent bodies: Germany, Estonia, Ireland, Italy, Spain, France, Cyprus, Latvia, Lithuania, Malta, Portugal and Slovakia. Within this group of countries, the endorsements were often accompanied by some critical comments on the forecasts, notably in Spain, Portugal, Estonia and Greece. The use of independent forecasts in the preparations of the 2019 Convergence Programmes (CP): • Poland is the only EU Member State that has not established and does not have plans to establish an independent fiscal body. • The UK is the only non-euro area Member State whose independent body has produced the macro- economic forecast used in its CP. • In no single non-euro area Member State, the CP is entirely based on macroeconomic and budgetary forecasts which have been, in accordance with EU Directive 2011/85, “compared with the most updated forecasts of the Commission and, if appropriate, those of other independent bodies. (...)”. However, the Swedish CP contains some forecast comparisons with the COM. Also, the Bulgarian CP contains at least “assumptions about key indicators of the external environment provided by the International Monetary Fund, the World Bank, the European Commission and the Ministry of Finance of the Republic of Bulgaria, as of March 2019“. Furthermore, the 2019 CP of Poland informs that Poland has enacted (in 2018) a law which stipulates that the draft budget needs to include the macroeconomic scenario and its comparison with the most recent forecasts of the European Commission and other independent institutions and that the “the provisions of the amending Act entered into force on 31 July 2018 and were applied to the draft Budget Act for 2019.” The CP does however not include such comparisons. • Concerning Croatia, the 2019 country report and COM assessment of the CP inform that mandate and set-up of the independent body has been
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