The design of national fiscal frameworks and their budgetary impact
Fiscal rules and the budgetary framework in Sweden - OECD · Fiscal rules and the budgetary...
Transcript of Fiscal rules and the budgetary framework in Sweden - OECD · Fiscal rules and the budgetary...
Fiscal rules and the budgetary framework in Sweden
Dr Mårten Blix
Director in Budget Department
MoF, Sweden
Outline of talk
• Fiscal rules – medium term framework
• Key features of how the budget
department works
• Recent improvements in framework
– Evaluation and transparency
Experience of national fiscal
frameworks • Keep your own house in order – prevents
need for stern consolidation later on
• Consolidation tends to be more successful
and long lasting with expenditure cuts
• Countries with rules, especially
expenditure targets, tend to achieve better
consolidation results
• Fiscal rules need muscle behind them
Two fiscal rules in Sweden
Expenditure ceiling t+3
The surplus target
1% of GDP over
an economic cycle
Expenditure ceiling for central
government (1) • A few beauty spots but has never been
exceeded
• Fixed 3 years in advance in nominal terms
• Main strength is that it is simple
• Includes all primary expenditure in the annual budget and the pension system outside the central government budget, but excludes expenditure of local governments
Expenditure ceiling for central
government (2)
• Current government decides ceiling for t+3 on the basis of: – The level should be in line with long term sustainable
public finances and the surplus target
– The level as GDP-ratio shall fall slightly
– The budget margin should be large enough on a 3-year horizon to cover uncertainties and forecast errors, currently estimated 3% of ceiling
Expenditure ceiling for central
government (3) - motivation
• Implicit anchor for revenues needed to
maintain sustainable public finances
• Mitigates common-pool problems
• Limits time inconsistency
• Reduces temptation to create permanent
expenditure from temporary revenue
boosts
• Transparency
Expenditure ceiling for central
government (4) - results
• Expenditure ceiling forces priorities between different spending areas;
• Trade-off between rules and discretion
– Freedom to let automatic stabilisers work
– Freedom to use discretionary fiscal policy: the medium term target need not imply pro-cyclicality
• Continuous evaluation
– internal, external by national audit authority, fiscal policy council.
Surplus target
• General government net lending 1% of GDP over the business cycle.
• Gives medium term perspective and avoids pro-cyclicality
• Pre-funding of the budgetary impact of ageing populations
Key fiscal figures at a glance
2008 2009 2010 2011 2012
Net lending 2,5 -2,2 -3,4 -2,1 -1,1
Average since 2000 1,6 1,2 0,8 0,5 0,4
Structural balance 2,3 1,4 0,2 0,7 0,6 GDP-gap 0 -6,4 -6,5 -5,0 -3,0
Average since 2000 0,6 -0,1 -0,6 -1,0 -1,2
General gov revenue ratio 52,7 51,9 51,7 51,6 51,3 General gov exp ratio 50,2 54,1 55,1 53,6 52,4 Public debt, consolidated 38,0 42,8 45,5 45,6 45,2
Current projections for 2009 and 2010 much
stronger
Objectives of the Budget Department
• Budget discipline
• Overall economic efficiency
• High quality and efficiency in the
administration
Strong role of MoF and Budget department –
all expenditures have to be assessed by
budget department
Fiscal discipline and economic efficiency
NO!
Notable features of how we work
• Strong delegation to staff and line managers
• Contact persons represent the Budget
department’s formalised connection with the
line ministries
• Frequent ‘informal’ contacts between
minister and staff
• Benefits of system: learning process for all
Improvements in fiscal framework
•Clearer motives for the surplus target and indicators for evaluation
•Expenditure ceilings – three year perspective re-introduced
•More transparency for the ceiling
•Outside evaluation
•Fiscal Policy Council (strong mandate)
•National Audit Office (indep)
Swedish finances have
strengthened substantially
• Deficits replaced by surpluses
• General government debt as percent of
GDP has fallen from 73 per cent of GDP in
1996 to less than 40 per cent in 2008
• In better position to face the present crises
compared to many EU countries
• Expenditure ceiling will be a key
instrument in our efforts for a fiscal exit
and beyond
Conclusions (1)
• Fiscal rules should be simple, measurable
and enforceable
• They need to be protected
• Informal aspects can sometimes be as
important as formal rules
• Rules also handle long term commitments
ageing population
Conclusions (2) expenditure ceiling
needs institutional support •Strong role of MoF
•Budget Dep as watchdog
•Top-down budget
•Complete budget
•Rules in parliament
•Outside monitoring
•Political will
Public debt, Sweden 1990-
2012
0
200
400
600
800
1000
1200
1400
1600
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Billions of kronor
0
10
20
30
40
50
60
70
80
90
Percent of GDP
Billions ofkronor (LHS)
Percent ofGDP (RHS)
Very expansionary fiscal policy
2009-10 Source: OECD Economic Outlook 2009, June
-2,0
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
SE DK FI DE JPN ES UK IT FR PO USA
Automatiska stabilisatorer
Diskretionär finanspolitik
Percent of GDP
Automatic stabilisers
Discretionary fiscal policy
Public debt in Sweden compared
to EU - Gross Public Debt. Source: OECD.
0
20
40
60
80
100
120
140
LU DK CZ FI SK SE IE ES PL NL AT DE HU PT FR UK BE EL IT
2010
2008
Percent of GDP
Government revenues in Sweden - forecast revisions since Spring Bill 2008,
billions kronor
-300
-250
-200
-150
-100
-50
0
50
2007 2008 2009 2010 2011
2009 Budget B ill
Govt. B ill
2008/09:97
2009 Spring Fiscal
Policy B ill
2010 Budget B ill
GDP in Sweden Percentage change per year, 1920–2012
-15
-10
-5
0
5
10
15
1920
1924
1928
1932
1936
1940
1944
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
Note: Time series before and after 1950 are not completely comparable. The quality of data from earlier years is more uncertain. Sources: Edvinsson (1920-1949) and Statistics Sweden (1950-2008); forecast fromMinistry of Finance (2009-2012)
GDP growth and forecast
-6
-4
-2
0
2
4
6
01 02 03 04 05 06 07 08 09 10 11 12
USA
Euro area
Sweden
Sources: Eurostat, US Dep. of Commerce, Statistics Sweden and Ministry of Finance.
Sustainable public finances in Sweden The S2 indicator shows the permanent improvement in surplus needed for sustainable
public finances. A negative number imples that the public finances are sustainable and can
withstand some weakening.
-6
-4
-2
0
2
4
6
8
10
12
14
DK SE PL FI IT NL DE AT FR PT GR SL BE HU CZ LU UK ES IE EU27
Percent of GDP
Source: European Commission 2009.