State of Public Finances 2015: Restoring, Consolidating, Growing
Ronnie Downes Deputy Head – Budgeting & Public Expenditures
Senior Budget Officials, Rome – 11 June 2015
Taking Stock of Public Finances
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• country experiences of fiscal policy management? – Not just “consolidation” and “correction” – Not just 2013-15, but over entire period of the crisis
• challenges? – Not just fiscal – thematic, cross-governmental, ‘budgetary governance’
• collating and presenting country cases • can we go further: “Lessons from the crisis?”
Approach
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• Country questionnaire – Details of scale and nature of consolidation – Broad “budgetary governance” aspects
• Collection and presentation of findings • Distillation of policy messages
Context: OECD Economic Outlook
• Slow, lack-lustre recovery – range of uncertain risks • No easy solution to challenges of fiscal correction
(i) Low or no consolidation needs
public finances: consolidation2007 2010 2014 needs
Norway
Korea
Turkey –
Switzerland ▌Luxembourg – – ▌New Zealand – – – – ▌▌▌Chile
Denmark – – – ▌Estonia –
Germany – – –
Mexico – – ▌Czech Republic – – – – – – –
(ii) Moderate-to-high consolidation needs
public finances: consolidation2007 2010 2014 needs
Sweden – – ▌▌▌Finland – – – – ▌▌▌Australia – – – – – ▌▌Slovenia – – – – – – – – ▌▌▌Belgium – – – – – – ▌▌▌Canada – – – – – – – ▌▌Ireland – – – – – – ▌▌Austria – – – – – – – – – ▌▌Netherlands – – – – – ▌▌▌Slovak Republic – – – – – ▌▌Poland – – – – – – – – – ▌▌Hungary – – – – – – – – – – – ▌▌
(iii) Very high consolidation needs
public finances: consolidation2007 2010 2014 needs
Japan – – – – – – – – – – – ▌▌▌▌France – – – – – – – – – – ▌▌▌▌United Kingdom – – – – – – – – – – ▌▌▌▌United States – – – – – – – – – – ▌▌▌▌Italy – – – – – – – – – ▌▌▌Greece – – – – – – – – – – – ▌▌▌▌Portugal – – – – – – – – – – ▌▌▌▌Spain – – – – – – – ▌▌▌▌
The moral of this story…?
• Healthy pre-crisis, healthy post-crisis • Weak pre-crisis, weak post-crisis…
• But what is ‘healthy’?
– Refinement of analysis based on structural balance – Is structural balance a ‘real-time’ tool for policy-makers?
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Fiscal rules and fiscal objectives
Euro area / European
Compact
Clear Domestic Rule
Commonwealth model
National model
Hybrid model
Fiscal rules and fiscal objectives
• EU rules – more “binding”, or just more complex? – Is the fiscal path clearly laid out? Tests lie ahead
• Simple rules – Simple results – Switzerland, Germany – Complex results? - Sweden
• “Commonwealth” model – Stabilisation over the cycle – Australia, NZ, Canada – Focal point for medium-term consolidation – UK
• Which comes first: Fiscal Virtue or Fiscal Rules?
Independent Fiscal Institutions - functions
• Technical – e.g. structural fiscal balance
• Policy costings – quality of election-time debate
• Transparency and accountability – esp. parliament
• Fiscal watchdog – counterpart to Fiscal Rules
• Fiscal policy comment, advice and/or critique
– Should an IFI enter into “political territory?”
Protecting economic growth
fiscal stimulus / relaxed stance
fiscal stimulus + structural reforms
structural reforms + fiscal correction
Involving parliaments and citizens
• Half of OECD countries have some progress to report • None (but US) can report “strong engagement”
• Progress includes:-
– “citizen’s budgets” – Web portals – open budget data – Phone / tablet apps – Some civic engagement initiatives
• Note: “citizen literacy” (and “parliament literacy”) seem
to be related to performance-budgeting shortcomings
Sub-national government (SNG) finances
• SNG debt is 13% of GDP (UWA) or 23.8% (WA) – Special chapter of the State of Finances 2015 report
• Major “fiscal risk” issue tackled by ‘federal’ countries – Fiscal rules – Coordination bodies and procedures – Expenditure efficiency initiatives (esp. health sector) – ‘Rainy day funds’ – effective for cyclical stabilisation
• Why not used more at national level?
Human Resource Management – reform ‘bundles’
average no. of HR reforms per bundle per country, 2008-2013
Qualitative conclusions on HRM reforms
• Austerity-related workplace measures can adversely affect workplace attitudes – Job satisfaction, trust in leadership
• Positive side-effects – More scope for strategic workforce / HRM planning
• Need for balance between – “technical” HRM (cost-reduction, efficiency) and – “behavioural” HRM (motivation, competences,
employee engagement)
Intensity of budget reform
intensive / broad-based reforms
moderate / focused reforms
no significant reform activity
Key areas of budget reform
• Performance-related budgeting • Medium-term frameworks • Spending review • Evaluation focus • Top-down budgeting
• “Outliers” (or “Pioneers”?)
– Welfare spending cap – UK – Gender budgeting - Austria – Inter-generational equity principle - NZ
Preliminary conclusions?
• Counter-cyclical fiscal policy – now an imperative – but the existing tools, incentives seem inadequate
• Fiscal rules: simpler and clearer – but how to instil a culture of compliance, enforcement?
• IFIs are a potential positive factor – but where on the spectrum from technical to critical?
• MTBFs / MTEFs are a potential positive factor – but only as a way of operationalising a fiscal target / rule
• Can national budget practices learn from SNGs? – “Rainy day funds” as a complement to fiscal targets / rules
• Not enough attention to multi-dimensional budget reform – OECD Budgetary Governance Recommendation – a point of reference
• The way to balance growth with fiscal correction is…?
Next steps for State of Public Finances 2015
• Additional analysis on structural balance – Refine the narrative on “country clusters”, cyclicality of fiscal
policy and growth-supportive policies – Possible further analysis on efficacy of fiscal rules
• Additional analysis on tax/spending responses over time • Scope for additional country comments until 30 June
– e.g. update the tables on budget reform, growth strategy • “Policy Conclusions” chapter to be refined in light of SBO
discussion
• Publication: early autumn 2015
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