Conclusiones globales del estudio

CONVERGENCE PROGRAMMES: TAKING STOCK AND LOOKING FORWARD

The annual updates of the stability and convergence programmes (SCPs), where Member States lay down their medium-term

Graph II.1.1: A stylised example: reviewing the QPF in EU Member States with simple composite indicators

The middle quartiles Member States

0,0 0,5 1,0 1,5 2,0 1. Size of government 2. Fiscal position and sustainability 3. Composition and efficiency of spending 4. Composition and efficiency of revenue systems 5. Fiscal governance

The lowest quartile Member States

0,0 0,5 1,0 1,5 2,0 1. Size of government 2. Fiscal position and sustainability 3. Composition and efficiency of spending 4. Composition and efficiency of revenue systems 5. Fiscal governance The top quartile Member States

0,0 0,5 1,0 1,5 2,0 1. Size of government 2. Fiscal position and sustainability 3. Composition and efficiency of spending 4. Composition and efficiency of revenue systems 5. Fiscal governance

Notes:Composite indicators are based on variables described in Table II.1.2 with equal weights for each sub-indicator. A higher index is associated with a stronger support for economic growth. The benchmark is the unweighted average of the EU-15 countries. Countries with an indicator that outperforms the EU-15 average by one standard deviation or more were assigned a 2; countries that underperform the EU-15 average by one standard deviation or more were assigned a 0; all others were assigned a 1. Data gaps for a few countries (on fiscal governance and education spending efficiency) were filled with averages of comparable country groups.

The countries have been grouped by quartiles based on the average overall index.

fiscal plans, are a cornerstone of the EU fiscal surveillance framework. They form the basis of the assessment of national fiscal policies by EU peers in the Council. On top of presenting the projected path of a range of key economic and public finance variables, SCPs are also expected to include information on a number of elements which, in line with the conceptual framework discussed in Part III of this report, fall in the area of quality of public finances (QPF); e.g. information on tax reforms, value for money initiatives and changes in national fiscal governance. Traditionally and unsurprisingly, the main focus of SCPs has been on the key public finance variables related to the numerical thresholds of the Pact. The coverage of other aspects of public finances has been less detailed and varied greatly across countries.

Based on the last two vintages of SCPs - 2006/07 and 2007/08 - this section provides an overview of the current reporting on the QPF. The main aim of the exercise is to take stock of the type and amount of information provided by EU Member States and to assess whether there is scope for improving the reporting.

1.3.1. The guidelines for reporting

The revised Code of Conduct lays out detailed specifications about the format and content ofthe SCPs (1_{). As regards the QPF, the guidelines cut}

across a number of areas reflecting the large extension of the topic. In terms of the model structure of the programmes included in the Code of Conduct there are at least two chapters where QPF plays a prominent role: Chapter 5

dealing with Quality of public finance and

Chapter 7 on Institutional features of public finances. Chapter 5 should present the main budgetary measures with a breakdown into expenditures and revenues, while Chapter 7 is expected to report on changes in the national fiscal governance.

The revised Code of Conduct also prescribes a broad range of quantitative information to be

(1_{) The revised Code of Conduct (Specifications on the}

implementation of the Stability and Growth Pact and Guidelines on the format and content of stability and convergence programmes) was endorsed by the ECOFIN Council on 11 October 2005.

presented in standard tables. The tables most relevant for the QPF are General government budgetary prospects (Table 2) and General government expenditure by function (Table 3 – COFOG data).

To substantiate the model structure and the standard tables, the Code of Conduct includes a broader set of indications on the content, some of which are again tightly linked to the QPF. From the relevant section of the Code of Conduct, the following points indicate what to cover in the programmes:

• Budgetary and other economic policy measures being taken and, in case of the main budgetary measures, their quantitative effects on the general government balance. Budgetary targets should be backed by an indication of the broad measures necessary to achieve them. The further out the year of the programme, the less detailed the information is expected to be provided.

• Measures aimed at improving the QPF on both the revenue and expenditure side (e.g. tax reform, value-for-money initiatives, measures to improve tax collection efficiency and expenditure control).

• All budgetary measures having significant ‘one-off’ effects.

• Structural reforms (with special attention to pension reform), especially when they are envisaged to contribute to achieving the objectives of the programme. Comprehensive information on the budgetary and economic effects should be communicated, including a detailed quantitative cost-benefit analysis of the short-term costs – if any – and of the long-term benefits of the structural reforms from the budgetary point of view.

• Information on the implementation of existing national budgetary rules as well as on other institutional features of public finances, in particular budgetary procedures and public finance statistical governance. The first four points would fit under the heading of Chapter 5 Quality of public finance, while the

last point should be covered in Chapter 7

Institutional features of public finances of the SCPs.

1.3.2. Findings

Examining the 2007/08 vintage of the SCPs on how and what type of information is reported on QPF uncovers large differences across the EU Member States and a number of discrepancies vis-à-vis the indications of the Code of Conduct. In particular, few Member States follow the model structure laid out in the Code of Conduct and compliance with the guidelines on the content is rather low. The 'compliance scores' that have been calculated in that respect and which are summarised below and in Table II.1.4 are based on the assessment of the 2007/08 SCPs. Moreover, to highlight some of the key recent developments it has also been compared with the previous SCPs vintage.

The structure of the reporting

On average, EU Member States score close to 60% on the model structure (1_{). The chapter on}

‘Quality of public finances’ (Chapter 5) is included in most programmes (23 of 26 countries), while a version of ‘Institutional features of public finances’ (Chapter 7) appears only in around two thirds of the programmes. However, in both chapters the breakdown into the sections foreseen in the Code of Conduct is often overlooked (across all the SCPs of the Member States only 45% of the required sections are included).

When it comes to the standard tables listed in Annex 2 of the Code of Conduct, all programmes include Table 2 General government budgetary prospects, even though a few countries have made some slight changes to the set up. On the other hand, Table 3 General government expenditure by function is presented only by 15 Member States and six of these tables do not cover the required time period (2_{). Nevertheless,}

(1_{) If a country includes all the requirements from the Code}

of Conduct, it would score 100%. Similarly, if none of the recommendations was followed the score would be 0%. The score of all EU Member States is an unweighted average of all the country scores.

(2_{) Note that provision of COFOG data is not compulsory.}

more countries included Table 3 General government expenditure by function in the 2007/08 vintage than the year before.

The cross-country variation in the reporting structure in the 2007/08 SCPs is huge; some Member States follow the proposed structure to the letter while others totally disregard it. Among the latter category are mostly 'old' Member States, which give preference to a format that is rooted in national standards. Recently Acceded Member States, which have been reporting for fewer years, tend to stick to the structure prescribed in the Code of Conduct to a much larger degree (a total score of 75% vs. 47% for the EU15).

Another noteworthy result is that small countries tend to follow the structure laid out in the Code of Conduct more closely, scoring somewhat better than the five biggest Member States (64% vs. 43%) (3_).

The content of the reporting

Assessing the actual content of the SCPs is difficult since countries follow very different approaches. Using the guidance of the Code of Conduct and the best practices (4_{) as the starting}

point, the average score of the Member States on the content side is only slightly above 30% (Table II.1.4).

Recently acceded Member States score slightly better than 'old' Member States on the content side as well, although the difference is not large. The same applies to the five biggest Member States, which on the content outperform the smaller Member States somewhat.

(3_{) The five biggest countries both in terms of population}

and GDP are Germany, France, United Kingdom, Italy and Spain.

(4_{) As the Code of Conduct is not very specific on what}

should be included under the heading of QPF, the requirements from the Code of Conduct are supplemented with other important aspects of QPF that some of the Member States have included.

Most programmes present to a certain degree a description of the policy measures that have been taken, with an overview, usually a table, of the overall projected expenditure and revenue changes for the first year and sometimes for the two following ones. As regards the quantitative effects on the general government balance of main budgetary measures, which are presented either as a percentage of GDP or in absolute terms, these are included in 22 of 26 programmes. In general there is a stronger attention on the budgetary implications of the measures on the expenditure than on the revenue side, with some notable exceptions (1_).

(1_{) Especially the Baltic States do distinguish themselves by}

covering the revenue side more extensively than other Member States.

Nevertheless, the budgetary effects of the individual measures often refer only to the first year of the programme, without going deeply into the medium-term prospects. Only 11 of the 22 programmes previously mentioned include an assessment of the projected budgetary effects up to 2010.

Another aspect examined is the attention to the total direct budgetary effect. In fact, the sum of the direct budgetary effects of the individual measures should add up to the difference between the trend revenue and trend expenditure and the targeted ones. But only six of the programmes include all effects of the main measures, neatly presented in a table. Countries like Italy, Austria and United Kingdom would fulfil the role of best practices in this area.

Table II.1.4:

Structure of the reporting No. of incidents % of incidents

Chapter 5 (as stand-alone chapter) 23 of 26 88.5

Information as required in Chapter 5 but presented in different format 50 of 78 64.1

Chapter 7 (as stand-alone chapter) 18 of 26 69.2

Information as required in Chapter 7 but presented in different format 20 of 78 25.6 Table 2 included (with required time period) 52 of 52 100 Table 3 included (with required time period) 24 of 52 46.2

Total score for the structure 187 59.9

Content of the reporting No. of incidents % of incidents

Quantitative effects of main budgetary measures

- first year 22 of 26 84.6

- medium term 11 of 26 42.3

- all budgetary measures 6 of 26 23.1

Measures aimed at improving QPF 12 of 26 46.2

- tax reforms (budgetary effects) 8 of 26 30.8

Analysis of one-off budgetary measures 4 of 26 15.4

Structural reforms (in Chapter 5) 9 of 26 34.6

- pension reforms 8 of 26 30.8

Growth-enhancing budgetary measures 5 of 26 19.2

Multi-annual budget for the gov. sector 5 of 26 19.2

Fiscal rules 11 of 26 42.3

Performance budgeting 7 of 26 26.9

Tax collection efficiency 5 of 26 19.2

Total score for the content 113 33.4

Source: EU Member States' stability and convergence programmes of 2007/08.

Notes: This table summarises to what extent Member States fulfill the requirements to report on quality of public finances spelled out in the Code of Conduct. The table lists for each criterion how many countries provide the required information. In some instances, several criteria have been summarised. Therefore, the total is a multiple of the number of Member States in those cases. The total scores for the structure and content of reporting on quality of public finances are the unweighted sums of the criteria assessment. Belgium had not submitted its stability programme for 2007/08 at the time this report was written and is therefore not included.

Included in the SCPs

Still, none of the SCPs include a detailed no- policy-change scenario as discussed in Section II.2.4; it is only given implicitly in some SCPs as the difference between the budget measures and the target scenario.

Concerning the measures aimed at improving the QPF, on both the revenue and expenditure sides, the SCPs usually provide some information. In particular, tax reforms, measures to improve tax collection and expenditure control are widely presented in many of the programmes. Nonetheless, the information provided deals mainly with the qualitative aspects of the reforms, without going into much detail on their costs and future benefits.

For what concerns the one-off measures, only four programmes present a detailed analysis of their budgetary implications. Good benchmarks would be the programmes of Estonia and Denmark, which make the presentation of these measures clearer by using tables.

Regarding the fourth point that should be covered in Chapter 5, notably major structural reforms, many of the countries that are implementing these types of reforms include a detailed presentation in their programmes. However, the budgetary implications and an analysis of the costs and the benefits of these reforms are not always included.

Around one third of the programmes contain information on the progression of pension reforms. The SCPs usually present a general evaluation of the long-term benefits, but do not go into much detail on the short-term costs of introducing a new pension system. In some cases figures for the receipt of newly introduced second pillar pension schemes are also presented. Some countries are currently implementing tax reforms, usually towards flat rate systems for corporate sector or lower labour taxation to enhance employment. Most of them present the budgetary effects, also for the medium term. The programme of Lithuania devotes particular attention to the issue of how to find resources to finance the tax reform during the first years of implementation, which is an aspect highlighted in the Code of Conduct.

In general, those countries that include Chapter 7

Institutional features of public finances give a description of the institutional reforms to be implemented and the institutions to achieve certain policy goals, dealing in particular with the problem of the independence of statistical institutions.

Eleven Member States present information on their fiscal rules, although not always within the context of Chapter 7. The Member States (EU25) have earlier filled out the questionnaires on fiscal rules and institutions sent out by the Commission services, so the information should be easily accessible by other means.

A handful of countries mention the introduction of multi-annual budgets for the government sector. Around the same number of countries (20-25%) disclose their efforts on the areas of performance budgeting and tax collection efficiency.

When Chapter 7 is included in the SCPs, it mostly consists of 1-3 pages. Both in the 2006/07 and the 2007/08 vintage of the SCPs, the stability programme of Ireland has the most comprehensive chapter regarding institutional features (although the structure do not follow the recommendations of the Code of Conduct). One last aspect examined is the attention that programmes give to growth-enhancing budgetary measures. This issue is of particular importance in relation to the priorities of the Lisbon strategy and the link between SCPs and NRPs. In general, when this issue is taken into consideration, it is usually included in Chapter 5 of the programmes. The comparison shows that most Member States usually consider as priorities growth-enhancing policy measures. Generally, the focus in the programmes is on measures on the expenditure side (e.g. a frequent measure is moving expenditures towards more productive allocations through a reduction and a rationalisation of current expenditures). But a detailed analysis of the expected growth contribution from each measure is quite rare. As regards the budgetary implications of this type of measures, although most programmes do not provide detailed quantitative information,

they are usually included within the total projected expenditures under the heading ‘growth-enhancing measures’.

A good benchmark for the presentation of growth-enhancing measures would be the programmes of Malta or Slovenia.

1.3.3. Main conclusions and suggestions

The information provided under the heading ‘Quality of public finances’ presents a high degree of heterogeneity inter alia because the concept has not been clearly and comprehensively defined yet. Usually there is a detailed description of the policy measures to be implemented during the first year of the programme period, but the expected budgetary effects are not presented for all individual measures and, in some cases, not even for the main ones. As regards the medium-term implications, most programmes tend to present only the global projections of revenues and expenditures for the medium term, without going into much detail on the budgetary effects of individual measures.

The functional classification of expenditure (COFOG – Table 3) is fully included only in a one third of the programmes, while it would serve as a useful instrument for the overview of the allocation of resources over the programme’s horizon and of the policy priorities that have been targeted. The tables to be included in the SCPs might be relevant for several chapters; a good approach would be to include the tables in an appendix as well as in the text for more easy access.

In order to have a user-friendly reporting on and effective assessment of QPF and the possibility to quickly compare the information provided by the Member States, the countries should stick more closely to the model structure as well as the elements of content indicated in the Code of Conduct. However, the Code of Conduct in its present form might not be a sufficient guidance for this purpose. Therefore, the conclusions from this assessment would be twofold:

• The Code of Conduct could provide further details on the model structure of the programme, but, above all, be more specific

on what should be included in Chapter 5

Quality of public finances, particularly regarding the budgetary implications of structural reforms. It should also clarify what should be presented in Chapter 7 Institutional features of public finances.

• A better compliance by the Member States with the provisions of the Code of Conduct would greatly facilitate and improve the comparability and the assessment of information. The recourse to best practice on