Fiscal discipline surveillance report on interim budget for 2019  28 December 2018

Fiscal discipline surveillance report on interim budget for 2019

Article 15 of the Law on Budget and financial management stipulates the authorisation and restrictions for the minister of finance to determine the state budget expenditures, loans and borrowings in the circumstances if the annual state budget law has not entered into force. Such an interim budget was created for 2019.

On 13 December 2018 Fiscal discipline council (hereafter – Council) received from the Ministry of Finance (hereafter – MoF) calculations of fiscal rules (see Annex 1)[1] as well as on 19 December the interim budget for 2019 that has been prepared in accordance with Article 15 of the Law on Budget and financial management. In accordance with the Fiscal discipline law (hereafter – FDL) Council is responsible for the monitoring of compliance with FDL provisions in the annual state budget law and the medium-term budget framework law (hereafter – MTBFL) during their preparation, execution, and amendment. The Council has applied this regulation on the interim budget as well. 

In the interim budget for 2019 the expenditure is the same as the maximum amount adopted in the medium-term budget framework law for 2018, 2019 and 2020 (hereafter – MTBFL 2018/20) – 9 322.9 million euro.

At the same time the MoF and the Council by considering fiscal rules outcome invites to reduce expenditure in the annual state budget for 2019 and in MTBF for 2020.

The fiscal rules calculations request to consolidate for 108.1 million euro and set in the level of 9 214.8 million euro. By establishing fiscal safety reserve in accordance with the FDL requirements the state budget expenditures might be set in the amount of 9 184.0 million euro (see Table 1).

The MoF and the Council came to conclusions that in 2019 and in 2020 the strictest rule to be applied is continuity rule and in 2021 – balance rule. This means that the maximum state budget expenditure as adopted by MTBFL 2018/20 adjusted for FDL requirements for 2019 and 2020 will determine the maximum government expenditure.

Based on the strictest rule for 2019 (continuity rule) general government headline balance is permissible at -0.73% of GFP and the structural balance at -0.57% of GDP. The Council calculations ask to admit the level of -1.08% of GDP, mainly because of diverging opinion regarding the one-off effect of tax reform deviation. The Council also notes that the Stability and growth pact (hereinafter – SGP) flexibilities for the health care reform deviation in 2019 do not allow the achievement of the medium-term objective of the FDL, i.e. at least -0.5% of GDP.

The Council concludes that the interim budget prepared by the MoF is in line with the fiscal policy requirements set out in the Law on Budget and financial management and the framework law for the key parameters of the 2019 budget. However, when preparing the annual budget for 2019 budget revenue should be increased or expenditure reduced to cover the costs of the negative fiscal space and additional expenditure commitments accommodated in the interim budget in excess of approved in the MTBFL for 2019.

[1] Fiscal rules calculations were performed on 6 November 2018 for general government draft budget plan.

Surveillance report available here.
Numerical fiscal rules tables available here.