Sweden’s New Fiscal Council – helping assure credible fiscal policy
A lively debate about the government’s fiscal policies and the state of public finances puts pressure on transparency and the credibility of budget documents. On August 1, 2007, the Swedish Government set up a Fiscal Council (Finanspolitiska rådet) to provide an independent scrutiny of fiscal policy, promote active public debate, and strengthen the credibility of fiscal policy. The case for strengthening independent review of economic forecasts and fiscal policy has received increasing attention in the past years, and the Swedish initiative may with time provide valuable insight to the effectiveness of such institutions.
The Fiscal Council will assess the clarity of budget documents, and to what extent proposed policies are consistent with the Government’s fiscal objectives. Based on the Spring Fiscal Policy Bill (essentially a pre-budget statement sent to Parliament on April 15) and the Budget Bill (submitted to Parliament on September 20), the Fiscal Council will evaluate four issues:
- The extent to which the fundamental objectives for fiscal policy are achieved, taking into account the cyclical development. These objectives include: long-term sustainability of public finances; the surplus target (average annual general government finance surplus is one percent of GDP over the business cycle); and, the multi-annual expenditure ceiling for the central government.
- The consistency between government policies and long-term sustainable growth and employment.
- The clarity of the Spring Fiscal Policy Bill and the Budget Bill, particularly with respect to the motive for the fiscal policy stance and the justification for individual policy proposals.
- The quality of forecasts and the models used to generate forecasts.
The Fiscal Council is also explicitly given the task of promoting a public debate on economic policies.
The Fiscal Council will complement the existing institutions involved in evaluating macroeconomic and fiscal development. These include:
- The National Institute for Economic Research (Konjunkturinsitutet)—an independent agency under the Government—publishes macroeconomic forecasts, analyses the cyclical development, and regularly comments on the Government’s fiscal policies.
- The National Financial Management Authority (Ekonomistyrningsverket)—also an agency under the Government—publishes independent medium-term forecasts for central government revenue and expenditure five times per year, which enables a second opinion on the fiscal development and the quality of the Government’s official forecasts.
- The National Audit Office (Riksrevisionen), under Parliament, has recently set up a division for government finances, concentrating on the Government’s institutional capacity to pursue sustainable policies, and the transparency of budget reports.
The Fiscal Council is set up as an independent agency, subordinate to the Government. Its eight members—appointed by the Government for three years—will be selected from both the academic world and from the government sector. The Fiscal Council will annually present a report to the Government in mid-March, including the results of its analysis and conclusions, and dissenting views of individual Council members. Although the Council is created by the Government, there is an explicit expectation that Parliament (Riksdagen)—and particularly the Standing Committee on Finance—will take an interest in the report.
Posted by Gösta Ljungman
Rosenbad, Prime Minister's Office
Photographer: Pawel Flato