THE SETTING UP OF THE FISCAL COUNCILS AND THE PERSPECTIVES FOR THE NATIONAL PARLIAMENTS. COMPARING BELGIUM, GERMANY AND THE UK

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1 THE SETTING UP OF THE FISCAL COUNCILS AND THE PERSPECTIVES FOR THE NATIONAL PARLIAMENTS. COMPARING BELGIUM, GERMANY AND THE UK Cristina Fasone (Post-Doc Fellow in Public Law LUISS Guido Carli) Elena Griglio (Senior Parliamentary Official Senate of the Republic)

2 The Fiscal Council, a new national body to be established in the Member States of the EU First examples of Fiscal Councils (FCs) in the 1970s aiming to maintain sound public accounts From voluntary to compulsory establishment of a technical and independent body, the FC, to ensure the compliance with EU and national fiscal rules, in the aftermath of the financial crisis. Up to February 2012, 10 Member States of the EU had already set up a FC. A complex European legal framework for FCs that is becoming more and more demanding for the Member States in terms of institutional requirements.

3 Basic assumptions and research questions Literature focused on the financial impact of FCs and on their independence. However, FCs also play an important role in improving the democratic legitimacy of financial and budgetary decisions by strengthnening the position of Parliaments, particularly affected by the reform of the economic governance. Research questions tested in three case studies: 1. How can FCs contribute to the enhancement of the position of national Parliaments in the European economic governance, in particular with regard to the relationship with the Executive? 2. How can the establishment of a solid cooperation between the FC and the national Parliament strengthen the independence of the first and its effective functioning?

4 Power and institutional features of FCs, according to the legal framework of the European economic governance (I) POWERS The first reference: FCs shall provide independent analysis to fiscal authorities to monitor the compliance with country-specific fiscal rules (Directive 2011/85/EU) The TSCG: FCs responsible at national level for monitoring the compliance with the balanced-budget clause and with the convergence towards the country-specific medium term objective (Art. 3.2). Reference to common principles to be defined by the Commission and duty to respect the prerogatives of national Parliaments. Who will check if the powers of national Parliaments are preserved? Communication from the Commission (COM (2012) 342): FCs shall oversee the proper functioning of the correction mechanism at national level and shall issue binding recommentations to fiscal authorities, which in case of deviation from them, have to justify publicly their conduct (Principle 7). On the one hand, risk of politicisation of FCs; on the other, constraints on Parliaments. Draft Regulation from the two-pack (and amendments of the EP): FCs entitled to the ex ante and the ex post assessment of financial and budgetary decisions. Possible problems at national level, FCs v. Courts of Auditors, both accountable to Parliaments? No reference to macroeconomic forecasts

5 Power and institutional features of FCs, according to the legal framework of the European economic governance (II) INSTITUTIONAL FEATURES of FCs: independence or functional autonomy from fiscal authorities, particularly from the Executive, respecting the already existing institutional setting. Statutory regime provided by ordinary legislation (not in the Constitution, case of Hungary) Nomination procedures based on experience and competence: parliamentary involvement (EP amendments to the draft Regulation)? Accountability to the Parliament: reports, parliamentary hearings etc. Non-renewable term lenght to exceed the parliamentary term Transparency of the activity and autonomous channels of communication with public and media Adequacy of resources Staff selected on the basis of a public competition and subject to the regime of civil servants

6 Overview of the existing FCs in the European Union POWERS - most existing FCs in the EU only enjoy advisory and informative powers. A few examples of FCs adopting also policy recommendations. INSTITUTIONAL FEATURES - Government -centered FCs are the overall majority in the EU (except for Italy and Hungary). The form of government is influential, but does not seem to be decisive. Elements that run in favour of the establishment of Parliament -centered FCs at the EU level: 1. After the Treaty of Lisbon, national Parliaments contribute actively to the functioning of the Union and the position taken by some Constitutional Courts confirms this point 2. In the new national-european budgetary procedures a strong link between FCs and national Parliaments can improve the democratic legitimacy of these procedures. 3. The TSCG, the Communication from the Commission and the EP amendments to the draft Regulation on draft budgetary plans, in referring to FCs always stress the conditions of their accountability to Parliaments and the respect of the current prerogatives of parliamentary institutions. But problems with existing FCs

7 A reinterpretation of the 'independence' factor Effective independence (from the Government; from the Parliament) is usually considered as a necessary prerequisite for making the Council contribute to improved fiscal performances BUT: the assumption can be shared if referred to the relationship with Governments, not with Parliaments Functional reasons Structural reasons Towards a different approach to the Fiscal Councils - representative assemblies relationship, based on the idea that such interaction would not invalidate the fulfillment of the Council's mandate but rather enrich the overall functioning of the ex ante and ex post scrutiny circuit

8 The relationship FCs-Parliaments in Uk, Belgium, Germany In order to assess the above mentioned thesis, four elements have been taken into account: a) Role of the Parliament in the Council s appointing procedures; b) FC s participation at parliamentary decision-mkg processes; c) Role of the Parliament in the Council s funding; d) Role of the Parliament in making the Council accountable. These four elements have been analysed considering at the same time the nature, intensity and main structural features of the parliamentary scrutiny of budgetary and fiscal policies

9 UK - Office for Budget Responsibility Nature of the parliamentary oversight of budget Type of parliamentary oversight of budget Parliamentary oversight of budget carried out by the Public Account Committee together with National Audit Office Extension of parliamentary oversight of budget Intense and consolidated parliamentary scrutiny Criteria for assessing the Council's independence (firewalls) Autonomy from Formal influence of the Council's funding politics in the Council in the budget and Council's members fiscal process appointment and staffing Accountability rules (in face of the Government - of the Parliament) HoC s Treasury The Government is constantly The Office depends Collective accountability Committee must give its under the Councils' trial from both the Treasury assessed: consent on the and the Parliament for a) by institutional bodies appointment (and Aptitude of the Office for its revenues as well as (the Treasury; the termination of mandate) serving as a source of for the Parliament) of information and analytical b) by an external three members of the studies to parliamentary reviewer Office committees Belgium National Accounts Institute and High Council on Finance The parliamentary Low-Medium oversight of budget development of involves both the Budget budgetary oversight and Finance committee and the Assembly of the Chamber of representatives NAI and HIC as - NAO intervenes mainly in the - NAI is financed by an Both agencies, as public "Government-oriented" ex ante stage; annual grant from the institutions, have agencies: relationship Federation, ministers overseeing with both the Federal - HCF's contribution is focused their activity and budget and the Regional both on the ex ante and on the - An indirect form of Governments) (plurality ex post stage. financial autonomy is of institutional provided also to the HCF interlocutors) Germany - Council for Economic Experts Parliamentary scrutiny of budget mainly carried out by the Budget committee of the Bundestag (and in particular by Auditing subcommittee) - Medium development of budgetary oversight The five members of the Council are selected among specialists in the field of economic theory and policy and appointed by the Federal President on the recommendation of the Government. The main duty of the Council consists in compiling and publishing an Annual Economic Report, presented to the Federal Government by November 15 th, which in its turn promptly submits it to the legislative bodies. Within eight weeks the Federal Government presents its comments on the report to the legislative bodies. The Council is endowed The Government- with financial autonomy and its remuneration and expenses are borne directly by the Federal Government centered nature of the body makes the Council responsible only in face of the Government. The role of political advisor prevails over that of scientific advisor, thus supporting the idea of the Council of experts as a parallel Government.

10 The Italian ongoing debate on the creation of an Independent fiscal body Italian Parliament s involvement in the budgetary and fiscal process traditionally based on the decisional stage (low level of parliamentary control of budget) Constitutional Law no 1/2012 in April 2012 (Art. 5, section 4 on parliamentary control; Art. 5, section 1, lett. f) on the creation of an independent fiscal body) Nature of the upcoming institution: strongly Parliament-centered fiscal agency with a solid, constitutional basis and a defined area of intervention Purpose of the upcoming institution: to serve as a research unit for the whole Parliament, favouring its specialisation in the ex ante / ex post scrutiny

11 From the future challenges that Fiscal councils will have to face 1) Time constraints / deadline for establishing such new institutions (Italy) or for adapting the existing ones (the UK, Belgium and Germany) Risk to establish Fiscal Councils that do not fully respect the new and forthcoming European requirements 2) Relationship between Fiscal Councils and existing institutions At National level, need to define FCs position towards the Court of Auditor/Constitutional Courts. At European level, which interaction with the EU Commission/CJEU 3) Adaptation of existing national Fiscal Councils to the increasingly demanding requirements for Fiscal Councils established at the European Union level How to implement FCs power to issue policy recommendations towards the national fiscal authority, which has to justify publicly any deviation from them

12 to some conclusions 4) Development of a solid relationship between Parliaments and Fiscal Councils Need to make Fiscal Councils accountable to Parliaments (especially for Governmentcentered Councils) 5) Crucial issue of independence of Fiscal Councils as a basic condition for their effective performance Difficult equilibrium between Scylla and Charibdis, i.e. between acting in full independence (and political irrelevance) and merely legitimising Government s plans To conclude embracing the idea that Fiscal Councils should be granted full independence from their Governments, but not necessarily from their Parliaments, enriches the traditional distinction between Government and Parliament -centered Fiscal Councils and possibly ensures full respect to EU requirements. The legal framework of the European economic governance seems to favour a Parliament -centered FC. But how to cope with the existing Government - based FC (case of Germany)?

13 Thanks for the attention Comments are welcome