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Article (06/10/2006)

Fiscal councils, independent forecasts and the budgetary process: lessons from the Belgian case

This paper describes the operating mode of the two existing Belgian fiscal councils - the High Council of Finance and the National Accounts Institute - as well as their role in the budgetary planning process and emphasizes the part taken by the FPB in producing independent macroeconomic forecasts. In the context of the revised Stability and Growth Pact, lessons drawn from the Belgian experience can certainly be useful for other Member States willing to improve their fiscal institutional settings.

One of the conclusions of the revised Stability and Growth Pact (sgp) emphasized the need to strengthen fiscal governance in the eu Member States through the development of national budgetary rules that should complement the eu framework. The European Council acknowledged the important role national institutions could play in that respect. The Council also called for reliable budgetary statistics and realistic, even cautious, macroeconomic forecasts. These conclusions draw on the now generally accepted view, both by academics and policy makers, that the national institutional framework affects budgetary outcomes: some institutional characteristics lead to tighter budgetary discipline than others. As was shown in a report prepared for the Dutch Ministry of Finance, budgetary practices vary extensively across Member States: some governments produce their economic forecasts in-house and leave the decision on what adjustments to make to the Finance Minister, while others use forecasts from independent organisations and establish strict rules on how changes in forecasts lead to changes in annual targets.

Over the last twenty years specific circumstances constrained Belgium to put in place institutions providing independent input, analyses and recommendations in the area of fiscal policy. Firstly, the regionalisation of the Belgian state at the end of the eighties, in a context of very high budget deficits and a soaring public debt (respectively 7% and 125% of gdp in 1988), forced the government to take action in order to avoid overspending by regional governments. Consequently, the High Council of Finance (hcf) was reformed in 1989 and one of its new tasks was to monitor the fiscal policy of regional governments and to formulate medium-term budgetary objectives for the general government and the different entities. The hcf also received a mandate to assess the convergence programmes. Secondly, as the Maastricht criteria for entry into the European Monetary Union were set in national accounts concepts, the National Accounts Institute (nai) was created in 1994 in order to ensure the quality and the independence of the main economic statistics and macroeconomic forecasts upon which the budget was based. Following various reports on population ageing and its impact on public finances, a Study Committee on Ageing was created in 2001 within the hcf.

The role of the fpb in the budgetary process is manifold but limited to positive economics, as it does not make policy recommendations. The fpb produces, on behalf of the nai, the macroeconomic forecasts used by the Belgian federal government for drawing up its budget and prepares, jointly with the National Bank of Belgium, the general government account within the national accounts. Each spring, the fpb also publishes a medium-term economic outlook for the Belgian economy. This report is updated in autumn and serves as a starting point for the elaboration of the stability programme. The fpb also holds the secretariat of the Study Committee on Ageing and produces its long-term projections of age-related budgetary expenditures.

Although the characteristics of the Belgian fiscal councils correspond to national specificities and may not be transposed as such to other countries, three main lessons can be drawn from the Belgian experience for the purpose of designing this type of institution elsewhere: institutions dealing with positive economics should enjoy a fully independent status but remain public; positive and normative issues should be completely separated from an institutional point of view; and responsibility should be shared between several strong independent institutions so as to minimise political pressure.

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