A Proposal for Integrated Reporting of Short- and Long-term Budgetary Conditions
Even after taking account of the new SGP’s constraints, each EU country retains
considerable sovereignty over its fiscal policies. For sure, each EU member country
retains full control over the accounting and reporting of national budget information.
Nevertheless, when it comes to fulfilling SGP-related budget reporting for long-term
fiscal policy surveillance, the budget reports of all countries would benefit from the
introduction of a few additional features.
Both short-term budget projections and the long-term implications of current fiscal
policies should be included in the reports. The FI measure appears to be the easiest to
integrate into most existing budget reporting frameworks because it is essentially a
“budget measure” and comprehensively incorporates forward-looking fiscal information
(as discussed earlier). For social transfer (and possibly other) programs with independent
and dedicated financial resources, it is also easy to integrate presentations of both fiscal
and generational imbalance measures into existing budget reports.
Many existing short-term budget reports divide the overall budget summary table into
“current” and “capital” accounts. Table 3.2, for example, shows a prototype budget report
containing “current” and “capital” accounts followed by additional information on long-
term sustainability measures - that is, the implications of continuing current policies
through the long-term projection horizon of several decades (if not through the infinite
time horizon).
The FI figures for each year beyond the base year show FI as of the corresponding future
year. As discussed earlier, if the initial FI is positive, future years’ FI figures will grow
larger over time. In addition, FI grows larger even as a percentage of the present value of
GDP. The components of each year’s change in FI could also be included. In the case of
finite-horizon estimates, the total change in FI across years would include those arising
from accruing interest and the addition of another year at the end of the projection
horizon. As discussed earlier, such information would be useful for policymakers to
appreciate the cost of postponing fiscal reforms.
This could be followed by reports of the financial implications of current policies for
independently financed subprograms, and a final subsection could include FI and its
revenue and expenditure components for the rest-of-government sector. This subsection
would “close” the account by reporting intra-government liabilities and net liabilities to
the public (net outstanding debt). Supplementary tables could break out the overall fiscal
imbalance into its demographic, budget allocation, and cohort-distribution components -
as described in earlier sections.
Comparison with Sustainability Measures Proposed by the Ageing Working Group
The Working Group on Ageing Populations (AWG) recommends a two-stage approach to
assessing the sustainability of long-term finances (Economic Policy Committee, 2001).
Its assessment of sustainable public finances takes the SGP’s fiscal constraints as a
starting point. The objective is to evaluate prospects for compliance with EMU
requirements - avoiding excessive deficits and keeping debt levels below 60 percent of
GDP. The SGP requires that EU Member States maintain a “close to balance or surplus”
position over the medium term (three to five years) but not over a longer term. However,
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