One of the objectives for improving budgetary governance is that the quality of public spending must be judged by the results obtained for a given budget. Given the current context of tight fiscal constraints, increased defense spending and growing economic uncertainty and turbulence, both nationally and internationally, it remains essential for governments to adopt medium-term strategies aimed at restoring and maintaining fiscal sustainability.
Citizens today aspire to a more rational, fact-based economic debate rather than a political one. Therefore, stakeholders must be equipped with the means to shed an independent and rigorous light on public finance issues by advocating for greater rationality and good fiscal governance. Such transparency can also positively impact the implementation of public finance reforms.
Three types of issues can arise and must be addressed: First, there are few independent institutions with the appropriate mandate and analytical clout to accurately analyze public finances. Second, there is insufficient interest from the citizenry, media and parliamentarians in assessing the quality of public spending, the establishment of long-term strategic priorities, and compliance with budgetary constraints. Third, when amendments to the budget are proposed, serious and independent costing should be publicly provided, although this happens in very few countries.
Currently, consultative fiscal councils, acting as national fiscal watchdogs, are enshrined in the European Union law, based on the 2011 Stability and Growth Pact, and exemplified in a significant number of other countries. The IMF has listed the existence of a fiscal council in 51 countries. The scope of their competencies varies considerably across countries as follows:
1. Monitoring compliance with national fiscal rules: The degree of involvement of fiscal councils ranges from a descriptive assessment of fiscal policy to issuing opinions concerning the functioning of fiscal rules in real time.
2. Preparation or approval of the macroeconomic forecasts: The decisive factor is whether the fiscal council prepares or approves the macroeconomic forecasts.
3. Preparation or approval of the budgetary forecasts and opinion of the fiscal council on quantitative policy costing: The decisive factor is whether the fiscal council makes a budgetary forecast or approves it.
4. Preparation of long-term fiscal sustainability analysis (if a listed competency);
5. Promoting the transparency of fiscal policy (if a listed competency); and
6. Normative recommendations for fiscal policy makers (if a listed competency).
However, a softer tool for peer pressure is currently in place in some countries in the form of the “comply or explain principle”. This requires that the governments either comply with the fiscal councils’ recommendations or publicly explain the reasons for deviation. On average, fiscal councils have rather limited room for maneuvering and leverage. However, by producing more accurate information in real time, including the monitoring of debt trajectories, the fiscal councils could better inform the public debate and potentially change the culture of parliamentarians and citizens regarding the sustainability of public finances. They could also more efficiently serve to counteract malevolent disinformation.
Countries lacking an independent fiscal institution could be advised to establish an independent body, lighter in structure and responsibility, to assess the government’s progress vis-a-vis its fiscal strategy and targets, while also continuing to improve the transparency and credibility of the budget documents.
Therefore, another type of organization might be needed. For example, an independent research institute administered by a board of directors, consisting of representatives of public and private partners and researchers, could produce innovative works concerning the challenges of budgetary governance. Such a body could also propose concrete avenues for the government to pursue reforms relating to public finance management. The organization could be based on a similar model, namely, the “European Tax Observatory” which contributes to a democratic and inclusive debate concerning the future of taxation, and fosters a dialogue between the independent research community, civil society and policy makers.
Such an organization could eventually perform some or all of the following functions:
The ultimate purpose of such an institution would be to enhance fiscal responsibility, accountability and transparency, support a public debate, and strengthen parliamentary oversight and scrutiny.
