CHALLENGES IN ESTABLISHING FISCAL POLICY SURVEILANCE

The case of the Hungarian Fiscal CouncilLjubljana, 8 July, 2015 | Balázs Romhányi

Content

• Legal mandate• Staffing• Information• Communication

Legal mandate• Fiscal discipline– Monitoring the fiscal rules– No direct power (like a SAO)

• Transparency– Impartial analysis of the

• state of the economy • likely fiscal effects of policy decisions

– Clients: • Parliament• Public at large

• Nothing normative, only positive

Legal mandate• „Quantitative”

– Macro forecast– Baseline scenario– Fiscal impact assessment of the budget law and bills affecting

mandatory items (upon submission and before final vote)– (For discretionary items fiscal impact assessment is only optional)

• „Qualitative”– Answers questions of the President of the Republic, ombudsmen,

SAO, central bank, parliamentary committees– Methodological proposals for budget planning and fiscal impact

assessment– Legal proposals to foster fiscal discipline and transparency– Gives its opinion about changes of the accounting rules

„Warming up”• May 2009: establishment of the secretariat• August 2009: medium term macro forecast and fiscal risks• November 2009: macro model and fiscal baseline for 2010• March: 2010: medium term macro-fiscal baseline• June 2010: first fiscal impact assessments• November 2010: assessment of the budget bill• (December 2010: Abolishment of the secretariat)

Why to have a „big” staff1. Fiscal discipline is not possible without a medium term framework2. Any well functioning fiscal rule is embedded in a MTBF3. Only looking at the annual budget law is less than half of the story

Mandatory budget items are much more important for the medium term fiscal space

4. Mandatory legislation (and budget amendments) can happen (and happens) almost any time of the year

5. The parliament will not – refuse to debate about any proposal just for the lack of a fiscal impact assessment– wait several weeks for the fiscal impact assessment of the FC

6. For a fiscal impact assessment one needs– a fresh baseline– sometimes ad hoc data to quantify direct and indirect effects– micro level panel-data to assess behavioral effects– a (sometimes new) methodology to assess second round effects

Staffing of the secretariat

Area Senior staff Other

Macro 1 4

Micro 1 4

Taxes 1 4

Entitlement programs 1 2

Discretionary items and Loc.Gov. 1 3

Finance, debt, state property 1 2

Statistics and database 1 2

Administration 3 7

Directors (gen., macro, fiscal) 3 0

Total 13 28

Staffing of the secretariat

• Total staff: 30 economists + 10 administrative• By size a FC would be a ministerial department• Staff has to be paid by its (very high) quality, not by

position• Salaries:

Ministry < FC ≈ Debt Management Agency < Central Bankeconomist in the FC ≈ head of division in the Ministry

Information

• In theory: – Full access to information („level playing field” with MoF)

• In practice:– Lack of coherent database– Many data are dirty– Ministry staff is reluctant to disclose dirty data– Signed agreements for cooperation

• Cement dries fast!

Communication• Government

– ready to enter necessary conflicts– avoided unnecessary conflicts (e.g. based on misunderstanding)– No surprises– behind the scenes communication only about facts

• Parliament: – mainly with the budget committee– one-day course on budgeting for all deputies

• Media– Direct and regular contact with the professional media– Documents have to be (more) readable

• Public– web page (with all documents)– no Facebook, Twitter, etc.

Main challenges for fiscal surveillance

• Professional challenges– Mandatory legislation is more important than the budget– The FC has to be „on line”, part of the legislative process– Timeliness is not possible without technology and adequate staff– Warming up phase (huge workload)• Lack of ready made database and methodology• Budgeting is new for most FC staff• Compliance

– Communication with the administration

• Political challenges– Rich Hungarian experience – for another conference

Thank you for your attention