The Fiscal Advisory Council of Austria: Strategies to Foster Sound Fiscal Policy in the Medium and Long Term

Transcription

1 The Fiscal Advisory Council of Austria: Strategies to Foster Sound Fiscal Policy in the Medium and Long Term Bernhard Felderer President of the Austrian Fiscal Advisory Council Vienna, April 17,

2 Part 1: The Austrian Fiscal Framework 2

3 The Austrian Fiscal Framework in compliance with international standards Domestic (EU) fiscal rules Austrian Stability Pact 2012: EU-rules to all levels of government(nominal and structural budget rule, debt rule, expenditure rule) Different structural deficit targets, starting 2017: (-0,45% of GDP in total) -0,35% of GDP: central government -0,1% of GDP: state and local government Correction mechanism, starting 2017: max. deviation: 1,6% of GDP Multi-annual budgetary planning Federalmedium-term expenditure framework (4 years) for the adoption in Parliament Mid-term budget plans of state governments Guarantee limits (central, local and state government) fiscal watch-dog for (EU and domestic) fiscal rules Budgetary procedures Preparation, approval and implementation of budget plans (i. g. Federal Budget Law) Coordination committees between subsectors Austrian Fiscal Advisory Council (FISK) 3

4 But still some weaknesses of the Austrian fiscal framework Federalism: reform of responsibility for tasks, expenditure and financing of public services is needed (e.g. in the areas of education, childcare, health, social affairs and agriculture). Complexity: The fragmentation and heterogeneity of the public sector has increased the extra-budgetary entities already account for around 20% of public expenditure. Transparency: No harmonized and accrual-based accounting rules at the regionaland local levels up to now. New Federal Budgetary Framework only at the central government. At regional and local level: medium-term budgetary frameworks hardly integrated with the yearly budget procedures. still very strong cash-data basedapproach, while all fiscal rules for general government based on ESA data, Restricted room for fiscal maneuver in the medium to long term : additional expenditure on pensions, long-term care and health care triggered by the changing demographic structure and population growth. No comply-or-explain principle or memorandum of understanding concerning FISK 4

5 The role and tasks of fiscal councils in general Principles (OECD 2014): Local ownership Independence and non-partisanship Clear Mandate Resources Access to information Transparency Communication External evaluation Relationship with the legislature Tasks: Improving policymakers incentives by raising reputational and electoral costs of unsound policies Raising public awareness to address fiscal illusion and contribute to a stability culture Independent forecasts/assessments and analyses Evaluating compliance fiscal rules Normative statements on fiscal policy Closing technical loopholes through independent expertise etc. Fiscal Councils = important independent watch-dogs to strengthen fiscal discipline 5

6 The Austrian Fiscal Advisory Council: Tasks Reflecting national co-ordination and advisory body (pre-ifi-tasks): Assess current fiscal situation including outlook Analyze sustainability and the quality of fiscal policies Analyze economic effects of public debt Written recommendations on fiscal policies Ex-post documentation/evaluation of fiscal policy Shape public opinion [fiscal policy issues] Reflecting European fiscal framework ( new -IFI-tasks, as of ): Monitor compliance with national/eu fiscal rules in a timely manner Provide recommendations on medium-term budget objectives 6

7 FISK products Fiscal Rules Compliance Report: published in May; evaluates compliance of AT Stability Programmewith European/national fiscal rulesand results from the FISK-forecasting-exercise (new product). Report on the FISK-Budgetary Outlook for t and t+1: published in December; evaluates AT budgetary developments of t and t+1 based on FISK-forecasting-exercise (new product) FISK Annual Report: published in July; ex-post documentation and evaluation of fiscal policyand main fiscal policy indicators (deficit, debt, their structure, etc.), including extra-budgetary liabilities. Recommendations: published bi-annuallyin July and December; includes a macro economic outlook. Other products: press releases and press conferences, workshops, ad hoc analyses etc. 7

8 Part 2: Fiscal Forecasting 8

9 Principle challenges of medium-term fiscal forecasting Frequent revisionsof macroeconomic forecasts, not only a problem for fiscal balance but also for structural balances Good medium-term forecast has to build on good short-run forecast How to (ex-post) evaluatea forecast? Isolate fundamental fiscal forecasting error. Break down of forecast error into macro based revision based discretionary measure based (no-policy change) residual as fundamental fiscal forecast error 9

10 Real GDP growth forecast by the EC for Austria over time change in % Spring 10 Autumn 10 Spring 11 Autumn 11 Spring 12 Autumn 12 Spring 13 Autumn 13 Spring 14 Autumn 14 Source: European Commission. Downward revisionsfor the years (EC fall forecast 2011 to EC fall forecast 2014). Upward revision for Fall 2014: application of new ESA 2010 for all years 10

11 Forecast errors of fiscal balance - International comparison Average forecast errors of fiscal balance, , of current year (EC spring forecast) - cross EU countries comparison Source: Gilbert andde Jong (2014), DNB Working Paper No451. In contrast to most EMU countries forecast of fiscal balances tend to be too pessimistic in Austria. 11

12 Forecast errors of fiscal balance of Austria - forecast of current year t First FISK forecast in comparison % of GDP 0.8% 0.6% 0.4% 0.2% 0.0% -0.2% -0.4% -0.6% -0.8% -1.0% -1.2% Forecast error of fiscal balance of Austrian general governement in fall for same year MoF WIFO EC FISK Notes: MoF(latestSP ordbp in yeart), WIFO (Fall forecastin yeart), EC (fall forecastin yeart) 12

13 FISK fiscal forecast for Austria Principles Independenceof the FISK fiscal forecast: existing forecasts by the federal government, international organizations, etc. serve as sources of information but do not preempt the outcome. Prudence no policy change assumption : no policy reaction function used. Discretionary measures are taken into account only if details of implementation are already known or implementation is highly likely Transparency:disclosure of guidelines, methods and detailed results to the public. 13

14 Approach, Forecast Period and Timeline Approach Forecast of individual revenue and expenditure ESA items Done the general government (break down into sub-sectors at later point in time) Forecast period Currently only forecasts for years t and t+1 is published Forecasting methods for t+2 to t+4 would however not differ Timeline April/May: subsequent to the publication of the Stability Programme (SP) by the MoF October/November:subsequent to the publication of the Draft Budgetary Plan (DBP) by the MoF 14

15 Building blocks of the FISK fiscal forecast Macroeconomic indicators and past budget results Discretionary measures Item-by-item projections (trends, elasticities, etc.) Item-by-item budget forecast cyclical adjustment adjustment for one-off measures stock/flow adjustments Assessment of compliance with national and international fiscal rules; evaluation of official budget estimates 15

16 FISK forecast methods (1/3) Forecast is based on bottom-up approach: About 60 revenue and expenditure itemsare forecasted individually Pragmatic approach:every item is forecasted with the most adequate method Most adequate method defined based on three criteria: Unbiasedness: average forecasting error close to 0 (i.e. no systematic over- or underestimation) Precision: mean squared error (MSE) as small as possible Simplicity: in case of doubt simpler method is used. 16

17 FISK forecast methods (2/3) Mapping of discretionary measures(if available) to individual budget items (for past and forecast period) Forecast of an individual budget itemis based on the following equation = budget item in year budget item in previous year growth rate based on chosen method discretionary measure 17

18 FISK forecast methods (3/3) Different methods for budget item forecasting Trend: = past trend growth adjusted for discretionary measures Random walk : =0, =0. (i.e. carried-forward without change). Ad hoc: directly based on inquiry, expert judgment, etc. Elasticity: =,. Growth of budget item connected to growth of base. Elasticity, measures the strengthof the interrelation. Different waysof choosing/finding, Based on other forecasts, suggestions in the literature, Microsimulation Estimation using macro data (error-correction model using different specifications, ) 18

19 First evaluation of our work (1/2) Accomplishments A well-known independent institution in Austria Good relationship to opinion leaders (e.g. social partners, economists) FISK fiscal forecast for 2014 outperformed other official forecasts (MoF, EC, WIFO). Maybe even more important: FISK fiscal forecast is the first transparent and fully documented fiscal forecast for Austria*) High visibility in the public/media Press statements, recommendations and press conferences are usually covered in all important daily newspapers *) 19

20 First evaluation of our work (2/2) Upcoming challenges Improve information-exchange with government / parliament Further products (planned) Publication on regional fiscal developments: Sub-sectoralfiscal forecasts incl. evaluation of compliance with national fiscal rules Publication on the quality of public finances: analyzes medium-and long-term developmentsand structure of public revenues and expenditures. Publication on the medium to long-term sustainability of public finances: Scenario analysis of debt and deficit dynamics until Impact assessment:evaluation of economic effects of fiscal policy changes. 20

21 Thank you for your attention! Contact: Bürodes Fiskalrates/ Office of the Fiscal Advisory Council c/o Oesterreichische Nationalbank Otto-Wagner-Platz Vienna P.O. Box 61 A-1011 Vienna, Austria office@fiskalrat.at 21

22 Appendix Some facts about the fiscal stance of Austria 22

23 Headline and structural budget balance in the euro area 2014 and 2015 (% of GDP) Germany Luxembourg Estonia Latvia Lithuania Greece Malta The Netherlands Euro-19 Finland Austria Belgium Slovakia Cyprus Italy Ireland Slovenia France Portugal Spain % of GDP % of GDP 0,4 Germany headline balance 0,9 headline balance 0,5 structural balance 1,4 Luxembourg structural balance -0,4-0,4-0,7 Estonia -0,6-0,8-1,5-1,1 Latvia -1,6-1,6-1,2-1,9 Lithuania -1,4-1,7-2,5 1,9 Greece -2,3-2,7 Malta -2,0-2,4-2,8-0,7 The Netherlands -2,2-0,9-2,6 Euro-19-2,2-1,0-1,0-2,7-1,0 Finland -2,5-1,0-2,9-1,1 Austria -2,0-1,0-3,2-2,8 Belgium -2,6-2,1-3,0-2,4 Slovakia -2,8-2,0-3,0-0,9 Cyprus -3,0-1,4-3,0 Italy -2,6-0,9-0,6-4,0 Ireland -2,9-3,9-3,4-5,4-2,5 Slovenia -2,9-2,3-4,3-2,9 France -4,1-2,6-4,6-1,2 Portugal -3,2-1,7-5,6-2,1 Spain -4,5-2,3 Source: Winter 2015 Forecast, European Commission (February 2015), Euro-19: own calculation. 0,2 0,7 0,4 1,1 1,7 23

24 Public Debt in the Light of the Crisis % of GDP Change of debt ratio 2008 to 2014 General Government Debt 2007 in % of GDP General Government Gross Debt 2014 in % of GDP 128,9 131, ,5 68,6 74,2 82,2 86,8 88,4 94,3 95,3 98,3 105,6 106,4 107,5 110, , , ,8 40,4 41, , , , ,3 +73 Source: European Commission (February 2015); IMF (Japan, USA; November 2014), national data (Switzerland; September 2014) and own calculations. 24

25 Taxes and Social Contributions*) of EU- Countries 2014 und 2015 (in % of GDP) Euro area % of GDP % of GDP Non-euro area Lithuania Latvia Slovakia Ireland Estonia Cyprus Spain Malta Portugal Slovenia Greece The Netherlands Germany Luxembourg Euro-19 Italy Austria Finland Belgium France ,2 27,2 28,4 28,2 30,3 30,1 30,9 30,5 32,6 32,9 33,2 33,0 33,8 34,0 34,8 35,3 36,7 37,0 37,1 37,0 38,3 38,2 38,6 38,7 39,6 39,7 40,4 40,2 41,4 41,4 43,3 43,2 43,7 43,9 44,5 44,6 47,5 47,4 47,8 47,8 Romania Bulgaria Poland United Kingdom Czech Republic Croatia Hungary EU-28 Sweden Denmark 51, ,7 37,7 38,9 38,3 40,0 39,9 44,3 44,7 46,9 32,6 32,9 34,5 34,4 34,4 34,2 27,2 26,7 28,3 28,5 *) Taxes and Social Contributions (including imputed Social Contributions; Receipts of General Government and the EU). Source: Winter 2015 Forecast, European Commission (February 2015), Euro-19 and EU-28: own calculation. 25