Restoring Public Finances: Fiscal and Institutional Reform Strategies

Transcription

1 Restoring Public Finances: Fiscal and Institutional Reform Strategies Ronnie Downes Deputy Head Budgeting & Public Expenditures Rio de Janeiro October 2015

2 Studies by OECD Senior Budget Officials

3 Fiscal Consolidation Not just consolidation but reform How public finances are steered and managed Fiscal rules Fiscal adjustment New budgeting processes and institutions Protecting economic growth during consolidation Fiscal relations across levels of government OECD country cases Can we go further: Lessons from the crisis? 3

4 Approach Country questionnaire Details of scale and nature of consolidation Broad budgetary governance aspects Collection and presentation of findings Distillation of policy messages 4

5 Context: OECD Economic Outlook Slow, lack-lustre recovery range of uncertain risks No easy solution to challenges of fiscal correction

6 Fiscal balance

7 Structural fiscal balance %

8 Gross debt

9 (i) Low or no consolidation needs public finances: consolidation needs Norway Korea Turkey Switzerland Luxembourg New Zealand Chile Denmark Estonia Germany Mexico Czech Republic

10 (ii) Moderate-to-high consolidation needs public finances: consolidation needs Sweden Finland Australia Slovenia Belgium Canada Ireland Austria Netherlands Slovak Republic Poland Hungary

11 (iii) Very high consolidation needs public finances: consolidation needs Japan France United Kingdom United States Italy Greece Portugal Spain

12 The moral of this story? Healthy pre-crisis, healthy post-crisis Weak pre-crisis, weak post-crisis Dangers of pro-cyclical fiscal policy But 5 of the 6 largest OECD countries had weak fiscal positions A problem of incentives?

13 Tax-Expenditure split,

14 Spending Reviews Before the global economic crisis Australia, Canada, Denmark, the Netherlands, UK After the crisis Over half of OECD member countries report that they have conducted, or are planning, spending reviews Becoming a standard tool of fiscal consolidation, fiscal space

15 Cutting public expenditure where to start? FUNCTIONAL BREAKDOWN 1 Public pay Social welfare Other

16 Cutting public expenditure where to start? FUNCTIONAL BREAKDOWN 2 Health Education Other

17 Cutting public expenditure where to start? FUNCTIONAL BREAKDOWN 3 Defence Agriculture Other

18 Cutting public expenditure where to start? FIXED VERSUS FLEXIBLE AREAS Constitutional Legal - fixed Legal - annual Contractual commitments Administrative commitments Political commitment Sensitive Discretionary

19 Spending Review as a decision tool There is no technocratic substitute for hard decisions But hard decisions need to be well-informed What is needed: solid, evidential basis for assessing and prioritising Standard, transparent analytical approach principles to guide and focus the analysis - IMPACTS clear recommendations political buy-in for the process direct linkage to the budget process

20 Designing a Spending Review Basic Choices Who? Outsiders OR In-house experts Central AND/OR line ministry Steering committee Balance between political and administrative viewpoints What? All spending OR Sector focus OR Specific areas Efficiency AND/OR strategic priorities Programmes OR Ministries Streamlining of agencies How? Expenditure baseline analysis Savings targets AND/OR ceilings Public / civic engagement Performancefocused analysis Policy options OR prescriptions

21 Focusing a Spending Review Strategic Choices Impacts on people? Income distribution Gini coefficient Wellbeing indicators Access to healthcare Access to housing Access to education Gender impacts Ethnic impacts Environmental Impacts on growth? Public investment Prioritising education Structural economic reforms Labour market reforms / activation Red tape reduction Liberalisation of professions Impacts on public sector? Staff numbers Staff efficiency and work practices Outsourcing Shared services E-Government Budgetary reform

22 Fiscal rules and fiscal objectives Euro area / European Compact Clear Domestic Rule Commonwealth model National model Hybrid model

23 Fiscal rules and fiscal objectives Simple rules Switzerland, Germany debt brake Complex rules EU model: Deficit reduction, structural balance, expenditure growth rule Objectives rather than rules More discretion for government: Commonwealth model Relies on trust in government to meet objectives International analysis: simple rules are most effective Which comes first: Fiscal Virtue or Fiscal Rules?

24 Public Finance reform: Institutional responses Role of parliament Effective engagement to enhance the budget process Role of Independent Fiscal Institutions Proliferation among OECD countries Range of different, complementary functions Role of audit institutions From promoting good financial governance to good public governance Role of government ministries and agencies Centre of Government; Budget Authority; Line ministries Translating visions and plans into resources and results

25 Independent Fiscal Institutions Established IFI role Limited / new IFI role No IFI role

26 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?

27 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

28 Protecting economic growth fiscal stimulus / relaxed stance fiscal stimulus + structural reforms uuuu uuuu uu structural reforms + fiscal correction

29 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 Internal 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?

30 Human Resource Management budget impacts number of HR reforms per country,

31 Human Resource Management reform bundles average no. of HR reforms per bundle per country,

32 Public employment downsizing changes in Central Public Admin. employment levels,

33 Qualitative conclusions on HRM reforms Measures can harm 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)

34 Intensity of budget reform intensive / broad-based reforms moderate / focused reforms no significant reform activity pppp rrrr rrrr rrrr

35 OECD Principles of Budgetary Governance STRATEGIC Budgeting within fiscal objectives Alignment with medium-term strategic plans and priorities Performance, evaluation & VFM Quality, integrity & independent audit Transparency, openness & accessibility Participative, Inclusive & Realistic Debate QUALITATIVE Fiscal Risks & Sustainability Capital budgeting framework Performance, Evaluation & VFM Comprehensive budget accounting Effective budget execution TECHNICAL

36 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? Stronger institutions, with clear mandates are a potential positive factor but where on the spectrum from technical to critical? Medium-term frameworks 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 Principles a point of reference The way to balance growth with fiscal correction is?