FISCAL COUNCILS IMPROVE NATIONAL BUDGET PARAMETERS, AGREED PARTICIPANTS AT AN INTERNATIONAL CONFERENCE IN PRAGUE

FISCAL COUNCILS IMPROVE NATIONAL BUDGET PARAMETERS, AGREED PARTICIPANTS AT AN INTERNATIONAL CONFERENCE IN PRAGUE

The Czech Fiscal Council, along with the European Commission’s Representation in the Czech Republic, organised a professional conference on the role of independent fiscal councils in EU countries, which was held on Monday 18 November.

The words of introduction by the Czech Fiscal Council Chairman, Eva Zamrazilová, and deputy head of the Representation of the European Commission in the Czech Republic, Zdeněk Čech, were followed by a panel devoted to presentations by representatives of the European Fiscal Board (EFB).

Former Minister of Finance of the Republic of Poland and current EFB member Mateusz Szczurek first noted the objectives of budgetary rules, which include, in particular, long-term sustainability of public finance, anti-cyclic effects of fiscal policy aimed at stabilising the economy and increasing the quality of public finance administration.  As concerns adherence to fiscal rules, Szczurek stated that it has improved in the last ten years, but there is still a group of countries with high indebtedness that is not being successfully reduced.  Furthermore, the fiscal policies of many countries remain pro-cyclic too frequently.

As the main disadvantages of budgetary rules, Szczurek listed that they are usually too complicated and complex, and in addition it is difficult to enforce sanctions for their breach and hence countries often diverge from them.  The suggestion put forward for improvement included, for example, a simplification of the rules or the idea that individual countries could fulfil different debt objectives depending on their national specifications.

After Mateusz Szczurek, the head of the EFB Secretariat, Martin Larch, took the floor.  He introduced this year’s Annual Report of the EFB to the audience.  One of his main messages was that, even though economic growth in Eurozone countries did slow down last year as compared to 2017, it was still relatively robust.  According to Larch, a number of excessively indebted countries did not take advantage of the adverse conditions to form a budgetary “cushion” for worse times.

In the second block of the conference, devoted to the Czech and Slovak experience with independent fiscal institutions, a member of the Slovak Council for Budget Responsibility, Juraj Kotian, spoke first.  He stated, on the basis of Slovakia’s seven years of experience with a fiscal council, that, for example, the debt brake, whereby measures aimed at debt reduction are activated automatically after it is reached, is currently the only efficient budgetary rule.  Furthermore, Slovakia, which, according to Kotian, experienced attempts at loosening the debt brake rules in 2017, lacks expense limits.  Kotian stated that their introduction before the parliamentary election in 2014 will require strong engagement on the part of the Parliament.

The Slovak fiscal council member also pointed to the same things as the speakers before him.  To attain the desired effect of the existence of an independent fiscal institution, adequate communication with media and the public will be required in addition to good-quality and precise analyses. 

The presentation of Juraj Kotian was followed by a presentation of the head of the Fiscal Policy and Sustainability Department of the Ministry of Finance of the Czech Republic, Jindřich Marval.  In his contribution devoted primarily to the institutional anchoring of independent fiscal bodies in the Czech Republic and budgetary responsibility rules arising from Act No. 23/2017 Coll., he, among other things, compared the original expectations of the Ministry of Finance with the reality.  He mentioned, for example, the duplication that he sees, in that the contents of reports on the long-term sustainability of public finance authored by the Czech Fiscal Council overlaps in part with similar documents of the Ministry of Finance of the Czech Republic, the Ministry of Labour and Social Affairs, the European Commission, and the OECD.

According to the main analyst of the Office of the Czech Fiscal Council, Michal Hlaváček, evaluation of the long-term sustainability of public finance by several independent institutions is, rather, beneficial, because, among other things, each of them employs its own independent methodology.  Furthermore, the Chairman of the Czech Fiscal Council, Eva Zamrazilová, noted that the obligation to draw up reports on the long-term sustainability of public finance is imposed on the Czech Fiscal Council by the law.

In his lecture that followed, the Deputy Chairman of the Committee on Budgetary Forecasts, Jakub Sedler, described the first experience of this independent body with the evaluation of macroeconomic and fiscal forecasts of the Ministry of Finance.  Seidler mentioned, for example, that the Committee may only work with information that is publicly accessible and he also discussed specific procedures employed by the Committee in its work.

The second block of the conference was closed by the Chairman of the Czech Fiscal Council, Eva Zamrazilová, by describing the work of the institution of which she is the head, in its first two years.  She also mentioned some of the main findings produced by the Czech Fiscal Council models – for example, the long-term unsustainability of public finance, arising primarily from future imbalances in the pension system due to the ageing of the population.

The end of the conference was devoted to a lecture by Professor Fredrik N. G. Andersson, of Lund University, in Sweden.  Sweden is often referred to as the country with the most successful fiscal framework in all of the EU.  Professor Andersson offered the audience a detailed view of how Sweden managed to reduce its debt from 75% to 35% of GDP in the last 25 years.  According to Andersson, the success is due, for example, to the fact that his country set its own fiscal rules, without accepting them from the outside.  Another important factor is that, in Sweden, budgetary rules are regularly reviewed and that many people in the country still remember the crisis of the first half of the 1990s.  Furthermore, according to Andersson, the Swedish fiscal council enjoys the confidence of the public and has a strong position in the media.

The Swedish route shows that, even though a significant debt reduction is difficult, it is not impossible to attain.  Fiscal institutions, such as the Czech Fiscal Council, have a role to play in that.  After all, there was general agreement at the conference that fiscal councils improve parameters of national budgets through the level of their expertise and careful analytical work combined with effective communication. 

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