Why are fiscal councils needed? The executive power (Government) is empirically proven to be biased toward politically desirable decisions, which may lead to the creation of budget deficits. Since the legislative power (the Parliament) also consists of representatives of the political parties it is useful for the institutional framework of economic policy to include an institution which provides independent views on the directions of fiscal policy, checks the compliance with fiscal rules and analyses medium- and longer-term consequences of their non-compliance. The same motives have led to granting the independence of central banks in leading the monetary policy over 300 years ago.
How can fiscal councils impact the fiscal policy? Fiscal councils do not exert a direct impact on fiscal policy. However, considering the opinions of fiscal council may serve as a support to the government when politically undesirable decisions need to be adopted, while a disregard of the opinions heightens their (political) responsibility for the deviations from ensuring sustainable public finances. Fiscal councils achieve their goals mainly by informing and raising awareness of the general public, public opinion makers and other stakeholders about the need to ensure long-term sustainability of public finances.
Why the fiscal councils do not participate in the governing of fiscal policy? The decisions on the various parameters which define the fiscal policy always reflect political orientation of current governments. The inclusion of fiscal councils into these decisions would inevitably reduce a trust of public about their independence by which a cornerstone of their existence would vanish. Thus, fiscal councils in the EU do not propose single measures of economic policies, but rather provide general views on the impact of measures within budgetary documents on compliance with fiscal rules and on the long-term public finance sustainability.
How is the work of Fiscal Council related to the National Assembly and the Government? Fiscal Council’s views on budgetary documents and public finance developments are addressed to the Government as well as the National Assembly. The non-partisan analysis of economic and public finance developments, performed by the Fiscal Council, can indirectly offer support to the MP’s decisions on budgetary guidelines and public finance topics. The Fiscal Council also takes part in sessions of the Parliamentary Committee on Finance and Monetary Policy, where its opinions are faced with the Government’s views. When the Fiscal Council provides an opinion on compliance of budgetary documents with fiscal rules, the Government has to explain how the opinions are to be taken into account or why it will not be taken on board (so called »comply-or-explain« principle). As an independent institution, the Fiscal Council is also invited to certain sessions of the Parliamentary Commission on Public Finance Supervision, where it presents opinions related to current topics from its field of expertise.
What are the fiscal councils in other countries like? Fiscal councils exist in all EU countries and also in many other, predominantly developed, countries. The solutions regarding the institutional framework of fiscal council operations differ to a large extent. Fiscal councils in the EU mostly operate as independent institutions, although in some cases they operate as part of the Parliament (Italy, Croatia) or within the Courts of Audit (Finland, Lithuania). Independent fiscal institutions within the parliament are typical of countries outside EU (Canada, USA, Australia, South Korea,…) and are usually older and larger bodies compared to fiscal councils within the EU. They also differ regarding the tasks performed: while within the EU the fiscal councils are mostly tasked with assessing the compliance with fiscal rules, the independent institutions operation within parliaments usually provide non-partisan views about public finance impacts of legislation in the legislative process.
Why do we need fiscal rules? The result of multi-year cummulation of budget deficits is higher general government debt, which is not problematic in normal circumstances at low debt level. However, the persistence of such behaviour may lead to unsustainable developments, when debt can not be financed, and the government is faced with high costs of remedying such position. Fiscal rules thus take care of guiding economic policy towards stability and medium- to longer-term sustainability of public finances.
Are fiscal rules the same in all countries? There are different kinds of fiscal rules. They include rules on structural budget balance, debt and maximum expenditure. Countries follow different rules according to their institutional framework and national specifics.
What are the characteristics of the fiscal rule in Slovenia? Following the revision of the EU economic governance framework and the subsequent alignment of national legislation, Slovenia has brought its domestic fiscal rules in line with those of the EU. When general government debt exceeds 60% of GDP, fiscal policy must comply with EU rules as set out in Regulation (EU) 2024/1263. These rules require Member States to limit the growth of net expenditure in a way that ensures debt reduction and medium-term fiscal sustainability. In addition, the Fiscal Rule Act stipulates that general government debt must remain at prudent levels below 60% of GDP, and that the general government deficit must remain below -3% of GDP. Also when the debt falls below the 60% threshold, the Fiscal Council regularly assesses whether it remains prudent and sustainable over the medium-term.
What is the medium-term fiscal-structural plan? The medium-term fiscal-structural plan is the cornerstone of medium-term budgetary planning in the EU. As a rule, each Member State prepares such a plan for a period of four or five years, depending on the mandate of its national parliament. The plan sets out the government’s fiscal policy commitment in terms of net expenditure growth. Based on fiscal rules and debt sustainability analyses, it provides a framework for maintaining a sustainable level of public debt over the medium-term. The plan may only be revised ahead of schedule in the event of a change of government or the occurrence of objective circumstances – although these are not explicitly defined in Regulation (EU) 2024/1263.
What is net expenditure? Next expenditure refers to General government expenditure excluding interest payments, national co-financing of EU-funded programmes, expenditure on EU programmes fully financed by EU funds, cyclical components of unemployment benefit expenditure, discretionary revenue measures and one-off measures.
What is a debt sustainability analysis? A debt sustainability analysis carried out in accordance with the EU methodology as part of the revised economic governance framework, assesses whether, projected public debt is on a trajectory that ensures long-term fiscal sustainability. The analysis also includes elements of statistical probability.
What is a control account? The control account is a virtual account maintained by the European Commission for each EU Member State to monitor compliance with fiscal rules. It records annual and cumulative deviations -both upward and downward- from the planned path of net expenditure growth. If these deviations exceed predefined thresholds, the Member State may be subject to corrective measures under the excessive deficit procedure.
What is the budget balance and what is the primary budget balance? The budget balance is calculated as the difference between total budget revenues and expenditures in a certain year. The positive difference is shown as a surplus and the negative as a deficit. Within the budgetary surveillance framework of EU, data on general government is used (ESA2010 methodology). Primary budget balance excludes interest paid on debt financing.
What is the structural budget balance? The budget balance, excluding impacts of economic cycle (cyclical part of the budget balance) and one-off measures.
What are one-off and temporary measures? Measures and transactions, which impact the budget only temporary and do not contribute to its permanent change.
What is public debt? Consolidated gross debt of the general government. It includes total nominal value of debt of all institutions of general government, with the exception of the debt for which these institutions are liable to public institutions in the country itself. Net debt represents the liabilities of the general government sector reduced by its financial assets (e.g. government account balances, granted loans, cash, etc.).
What is included in the general government sector? This sector includes the government sector, local government, social security funds and public institutions, funds and agencies. The general government sector excludes corporates owned by the state. This definition of general government is used by EU in the budgetary surveillance within The Stability and Growth Pact.
What are the Maastricht Treaty values for the debt and budget balance of general government?
General government debt: 60 % of GDP
General government deficit: 3 % of GDP
Both reference values were determined by The Treaty on European Union (Maastricht Treaty), which established the European Union (1992).
What is the Excessive Deficit Procedure? In this procedure, the European Commission surveys changes in general government budget and debt with a goal of estimating and/or eliminating the risk of excessive deficit in member countries.
What is an escape clause? An escape clause is a mechanism allowing a temporary deviation from fiscal rules at both national and EU level, provided that medium-term fiscal sustainability is not jeopardised. It may be triggered in exceptional circumstances beyond the control of economic policy, particularly when such events significantly affect public finances. The fiscal rules remain in force during the application of the escape clause, but only for aspects not directly related to the triggering events.
What is counter-cyclical fiscal policy? Fiscal policy orientation, which improves structural primary balance when economy grows fast, or which seeks to increase economic growth in adverse economic situation by worsening the structural primary balance. The opposite is a pro-cyclical fiscal policy. It additionally supports economic growth in favourable economic times by worsening the structural primary balance or improves structural balance, when economic growth is low. Since excessive volatility of economic cycle is not desirable, fiscal policy is supposed to act counter-cyclically.
What is a Draft Budgetary Plan? Presentation of the main orientation and elements of targets and measures at the general government level and of its subsectors for the forthcoming year before being passed in the national assembly. Draft Budgetary Plan has to be delivered by member states for the assessment by the European Commission and Eurogroup by 15 October each year.
Slovenia has committed itself to establishing the Fiscal Council by ratifying the international Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, based on which the fiscal rule was integrated into the Constitution in 2013, while in 2015 an implementing act – the Fiscal Rule Act – was adopted.
The Fiscal Council is an independent and autonomous state authority supervising the management of the fiscal policy. Its fundamental task is to monitor the compliance with the fiscal rule, the medium-term balance between revenue and expenditure without borrowing, except in exceptional circumstances, and to monitor the implementation of the EU legislation regulating the economic governance in Member States.
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