Tricks of the Trade Chiara Goretti Senato della Repubblica - Italy Bucharest, 10th April 2008
description
Transcript of Tricks of the Trade Chiara Goretti Senato della Repubblica - Italy Bucharest, 10th April 2008
11
Tricks of the Trade
Chiara GorettiSenato della Repubblica - Italy
Bucharest, 10th April 2008
22
OutlineOutline
Fiscal rules: incentive to Fiscal rules: incentive to creative accountingcreative accounting
Forecasts: optimism biasForecasts: optimism bias Stock-flow adjustment:Stock-flow adjustment:
Infrastructures: the ISPA case Infrastructures: the ISPA case Railway transfersRailway transfers Securitisation and lease backSecuritisation and lease back Tax collectorsTax collectors
Conclusions Conclusions
33
From restricted to non restricted From restricted to non restricted activitiesactivities
The EMU case: The EMU case: optimistic growth forecastsoptimistic growth forecasts deficit vs debt bias: the stock-flow deficit vs debt bias: the stock-flow
adjustment adjustment fiscal surveillance: an evolving statistic and fiscal surveillance: an evolving statistic and
accounting modelaccounting modelCoherence of definitions and quality of Coherence of definitions and quality of
datadata
Fiscal rules: incentive to creative accountingFiscal rules: incentive to creative accounting
44
ForecastsForecasts: : optimismoptimism biasbias
There is evidence of a significant degree of optimism in a number of euro area countries: boosting projected revenues and containing some types of spending;
In 2000, the prevailing buoyant economic conditions were taken to be average or normal: medium-term growth prospects were erroneously assessed to be very bright;
Afterwards, budgetary developments dramatically worsened.
55
ForecastsForecasts
Contemporaneous growth conditions and macroeconomic forecasts(simple average of EU-15 countries)
0%
1%
2%
3%
4%
1998 1999 2000 2001 2002 2003 2004 2005 2006
y-o-
ych
ange
7,5%
8,0%
8,5%
9,0%
9,5%
10,0%
cum
ulat
ive
chan
ge
Real GDP growth in the year ofpreparation of the SCP (lhs)
SCP projections: averageplanned cumulated increase inreal GDP over three years (rhs)
Source: Commission services
Contemporaneous growth conditions and macroeconomic forecasts(simple average of EU-15 countries)
0%
1%
2%
3%
4%
1998 1999 2000 2001 2002 2003 2004 2005 2006
y-o-
ych
ange
7,5%
8,0%
8,5%
9,0%
9,5%
10,0%
cum
ulat
ive
chan
ge
Real GDP growth in the year ofpreparation of the SCP (lhs)
SCP projections: averageplanned cumulated increase inreal GDP over three years (rhs)
Source: Commission services
Revis ions of the output gap e stimate for 2000 in success ive Commiss ion Service s ' forecasts
-1
-0,5
0
0,5
1
1,5
2
2,5
2000 2001 2002 2003 2004 2005 2006
Germany Italy France UK
66
ForecastsForecasts: Italy: Italy
Italy - Economic forecasts in Stability Programmes
0
0,5
1
1,5
2
2,5
3
3,5
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
actual data SP1999 SP2000 SP2001
SP2002 SP2003 SP2004 SP2005
SP2006 SP2007
2002 2003 2004
Potential growth 2.4 2.2 1.8ΔCAB 0.6 0.5 0.2ΔCAPB 0.2 0.6 0
Potential growth 1.6 1.7 1.9ΔCAB 0.9 0.1 0.3ΔCAPB 0.1 -0.3 0
One off measures 1.3 1.9 1.4
ΔCAB excl one offs 0.2 -0.5 0.8ΔCAPB excl one offs -0.5 -0.9 0.5
on ΔCAB -0.4 -0.2 0.1
ΔCAB - fiscal effort as measured by the annual change in cyclically adjusted balanceΔCAPB - fiscal effort as measured by the annual change in cyclically adjusted primary balance
Source: EU Commission
Effect of growth surprise
Planned
Outcome
Budgetary effect of growth surprise
77
ForecastsForecasts: lessons: lessons
In a rules-based fiscal framework that sets limits on the budget balance, negative growth surprises will necessarily require a downward adjustment of expenditure plans;
Budgetary plans should be built on economic growth projections which possibly err on the side of caution.
88
The stock-flow adjustment The stock-flow adjustment (SFA)(SFA)
Deficit vs debt bias: from restricted to Deficit vs debt bias: from restricted to unrestricted activities;unrestricted activities;
Reconciliation between: Reconciliation between: cash and accrual data; cash and accrual data; stock and flow indicators;stock and flow indicators;
Consistency across the data; Consistency across the data;
DebtDebttt – Debt – Debtt-1t-1 = Deficit = Deficittt + SFA + SFA
99
ISPAISPA ISPA (created in 2002): joint-stock company ISPA (created in 2002): joint-stock company
(outside GG);(outside GG); Entire financing of high speed railway, raising Entire financing of high speed railway, raising
money and providing proceed to RFI and TAV money and providing proceed to RFI and TAV (both outside GG) to finance infrastructures;(both outside GG) to finance infrastructures;
In 2005, Eurostat decided all debt issued by In 2005, Eurostat decided all debt issued by ISPA is to be recorded as gvt debt, with a ISPA is to be recorded as gvt debt, with a counterpart as financial transaction in the counterpart as financial transaction in the form of a loan from gvt to RFI-TAV;form of a loan from gvt to RFI-TAV;
In 2006, gvt consolidated the ISPA debt, for In 2006, gvt consolidated the ISPA debt, for transparency reasons, with an increase in transparency reasons, with an increase in deficit of about 13 billions.deficit of about 13 billions.
1010
Railway transfersRailway transfers
Capital injections into the state-owned companies are treated as financial transactions;
From 2004 on, capital transfers are treated as economic item after Eurostat decision 98/03 (if the company presents losses);
Revisions to deficit figures in March 2005 due to railway capital injections: 3.6 billion/euro for 2001; 4.1 b/e for 2002; 4.0 b/e for 2003;
1111
Real estate: securitisation and lease-Real estate: securitisation and lease-backback
2001 and 2002: securitisation operations concerning a 2001 and 2002: securitisation operations concerning a portfolio of buildings owned by the Social Security portfolio of buildings owned by the Social Security Fund (SCIP); Fund (SCIP);
In 2002, Eurostat decided that – if the initial payment In 2002, Eurostat decided that – if the initial payment is < 85% of the market price - securitisation are to be is < 85% of the market price - securitisation are to be recorded as financial items until the full payment is recorded as financial items until the full payment is made; made;
Revisions of deficit figures for 2001 and 2002;Revisions of deficit figures for 2001 and 2002;
Lease-back (FIP) of central and local building used as Lease-back (FIP) of central and local building used as offices, then rented back to gvt; offices, then rented back to gvt;
Revenues for 3 bn euro in 2004 e 0.6 bn in 2005. Revenues for 3 bn euro in 2004 e 0.6 bn in 2005.
1212
Tax collectorsTax collectors
From 1997, tax collectors have to advance the From 1997, tax collectors have to advance the payment of indirect taxes due in the following payment of indirect taxes due in the following year; budgetary impact only in the first year;year; budgetary impact only in the first year;
In 2003, gvt introduced another type of pre-In 2003, gvt introduced another type of pre-payments;payments;
In 2005, Eurostat decided that pre-payments In 2005, Eurostat decided that pre-payments have to be recorded as financial transactions, have to be recorded as financial transactions, without improving, in 2003 and 2004, the without improving, in 2003 and 2004, the deficit;deficit;
December 29th, 2007, pre-payments by tax December 29th, 2007, pre-payments by tax collectors abolished, in order to worsen the collectors abolished, in order to worsen the balance.balance.
1313
SecuritisationSecuritisationTreasury Single Account -cash flows 2004
0
20.000
40.000
60.000
80.000
100.000
120.000
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
Revenue Expenditure
Treasury Single Account - cash flows December 2004
02.0004.0006.0008.000
10.00012.00014.00016.00018.000
1 2 3 6 7 9 10 13 14 15 16 17 20 21 22 23 24 27 28 29 30 31
Revenue Expenditure
1414
Data: statistical deficit Data: statistical deficit revisionsrevisions
20012001: : securitisation operations (0.6%), capital injections in FS securitisation operations (0.6%), capital injections in FS (0.4%), re-calculations of current expenditures (0.6%), transactions (0.4%), re-calculations of current expenditures (0.6%), transactions with the EU budget (0.2%);with the EU budget (0.2%);20022002: capital injections in FS (0.4%).: capital injections in FS (0.4%).20032003: capital injections in FS, reduction in the accrual estimate of : capital injections in FS, reduction in the accrual estimate of social contributions, tax collectors.social contributions, tax collectors.20042004: tax collectors.: tax collectors.
2001 2002 2003 2004first release 1.4
June 02 1.6Sep 02 2.2Mar 03 2.6 2.3Sep 03 2.6 2.3Mar 04 2.6 2.3 2.4Sep 04 2.6 2.3 2.4Mar 05 3 2.6 2.9 3May 05 3.2 2.7 3.2 3.2
1515
Conclusions 1Conclusions 1
Experience demonstrates that gvts:Experience demonstrates that gvts: aim to exclude expenditures and includes aim to exclude expenditures and includes
revenues in constrained balance;revenues in constrained balance;
exploit absence of accounting regulations exploit absence of accounting regulations or opacity in recording methodology;or opacity in recording methodology;
abandon “tricks” when are forced to abandon “tricks” when are forced to identify economic substance of transactions identify economic substance of transactions (accrual).(accrual).
1616
Conclusions 2Conclusions 2
Avoid temptations on forecasts: Avoid temptations on forecasts: independent checks;independent checks;
Investments on quality of data and Investments on quality of data and statistics;statistics;
Cash and accrual, stock and flows: Cash and accrual, stock and flows: consistency and coherence of consistency and coherence of indicatorsindicators