IN-DEPTH ANALYSIS The role of national fiscal bodies State of play - April 2019 This briefing provides an overview of the role played by independent national fiscal bodies in the preparations of forthcoming budgets of 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 (the latest being of Feburary 2019). 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 The relevant Commission assessments of 2018 and 2019 indicate that the implementation of the EU legal framework relating to independent fiscal institutions is overall well advanced throughout Europe. All but one Member States of the Treaty on Stability, Cooperation and Governance (TSCG) have one or several operational independent fiscal councils in place, the exception being Poland (consequently Poland has no member in the EU network on independent fiscal institutions). It seems that the fiscal councils are also operationally independent in the countries where they are formally attached to the government (Belgium, Luxembourg, Slovakia, Slovenia, the Netherlands and Finland). Most recent developments identified in the European Semester country reports of February 2019 • Notably three countries have made recent progress on the set-up: (1): The autonomy of the High Council of Finance of Belgium has recently 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 in early 2018; (4) In Sweden, revised rules further strengthening the mandate of the independent Fiscal Policy Council to monitor fiscal rules and evaluate the official macro-forecasts came into force in 2019 and (5) in Croatia, the new Fiscal Responsibility Act is aimed mainly at reinforcing the set-up and mandate of the independent fiscal body. On the actual impact of the work of the independent fiscal bodies, the Commission 2019 country reports mention some problems for Latvia and Luxembourg: On Latvia they state that “the apparent breaches Economic Governance Support Unit (EGOV) Authors: J. Angerer and R. Segall Directorate-General for Internal Policies EN PE 634.386 - April 2019 IPOL | Economic Governance Support Unit of the fiscal discipline law requirements are flagged by the independent Fiscal Discipline Council, but this has not yet led to policy change “. 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.1 The use of independent forecasts in the preparations of the 2019 Draft Budgetary Plans (DBP): • All euro area Member States have independent fiscal bodies in place producing or endorsing the macro-forecasts used by the governments in the DBP. • In six eurea area countries, the forecasts were produced by the independant bodies: Belgium, Netherlands, Luxembourg, Austria, Slovenia and Finland. However, Belgium did not use the most recent forecast prepared by the independent body in its DBP and did therefore, according to the Commission, not fully comply with EU Regulation 473/2013. • In 12 euro area countries, the forecasts were endorsed by the independent bodies: Germany, Estonia, Ireland, Greece, 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 Estonia, Greece, France, Portugal and Slovakia. • It is the first time that the official forecast of Germany has been endorsed by an independent body, since it was not in place before the previous DBP and the latest Stability Programme of Germany. • The Italian independent body did not endorse the macro-economic forecast used in the revised 2019 DBP; it, however, endorsed the forecast used in the final budget law. The use of independent forecasts in the preparations of the 2018 Stability Programmes (SP): • Nearly all euro area Member States have used macro-economic forecasts prepared or endorsed by independent fiscal bodies according to Commission assessments and existing legal national provisions, the only exception being Germany, where the independent body was not yet in place.2 However, as for the preparation/endorsement of the forecasts underlying the 2019 DBP, the bodies preparing/endorsing the macro-economic forecasts of the 2018 SP, were formally attached to the government in Belgium, Luxembourg, Slovakia, Slovenia, the Netherlands and Finland. In Finland, the body was even located in the Ministry of Finance.3 • In six eurea area countries, the forecasts were produced by the independant bodies: Belgium, Netherlands, Luxembourg, Austria, Slovenia and Finland. • In 11 euro area countries the forecasts were endorsed by the independent bodies: Estonia, Ireland, Italy, Spain, France, Cyprus, Latvia, Lithuania, Malta, Portugal and Slovakia. Within this group of countries, 1 Luxembourg has indeed two independent bodies: The Institute of Statistics and Economic Studies (STATEC), which produces the forecasts used in the Stability Programmes and the Draft Budgetary Plans of Luxembourg, and the National Council of Public Finances, which is responsible for the surveillance of the application of the fiscal rules 2 In Germany, the official macroeconomic forecasts were produced by the Inter-departmental Macroeconomic Forecasting Group under the direction of the Federal Ministry for Economic Affairs and Energy, without being submitted for a formal endorsement by an independent body. However, a legal amendment, addressing this deficiency, was in the process of parliamentary adoption (see p. 7 of this briefing). 3 In Finland, the only euro area member where the independent body is located in the Ministry of Finance, the head of the department responsible for the forecasting has the final say on the macroeconomic projections and cannot be overruled by the Minister of Finance (Law No 79/2015). 2 PE 634.386 The role of national fiscal bodies - State of play - April 2019 the endorsements were often accompanied by some critical comments on the forecasts, notably in Estonia and Portugal. • Since Greece was still under a programme, no SP was prepared by the country. The use of independent forecasts in the preparations of the 2018 Convergence Programmes (CP): • Poland is the only EU Member State that has not established and does not have plans to establish an independent fiscal council. • 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 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 mid-March 2018“. A further result of the screening (as presented in the overleaf annex) is that Austria, Belgium, Luxembourg, the Netherlands, Slovenia and Slovakia have several national independent bodies. The main division of tasks for each of these countries is that one body is responsble for producing/endorsing the macro- economic forecast underlying the Stability or Convergence Programme (SCP) or DBP while another body is responsible for the assessment of the national fiscal rules. For further country specific information, please see the annex overleaf. Sources used for the country-specific screening The country specific screening of the role played by national fiscal councils presented in this document (see annex overleaf) is based on the recent Commission country reports of February 2019, information provided by the Member States themselves in their 2018 Stability or Convergence Programmes (SCP) and 2019 DBP and on the assessments by the Commission of these Member States’ programmes. In those cases where the SCP and DBP do not provide information on whether the macro-economic forecasts have been approved or endorsed by independent bodies (euro area Member States) or compared with the most updated forecasts from the Commission or independent fiscal bodies (non-euro area Member States), the screening in this document is supplemented by any information available on websites of the respective independent bodies. However, it is worth noting that the below screening of available information does not as such provide substantial information on the actual effectiveness of a given independent fiscal body. Such information can only be based on in-depth country specific assessments containing judgemental elements (see e.g.