This presentation was made by Ronnie Downes, OECD, at the 36th Annual Meeting of OECD Senior Budget Officials held in Rome on 11-12 June 2015.

1. State of Public Finances 2015:
Restoring, Consolidating, Growing
Ronnie Downes
Deputy Head – Budgeting & Public Expenditures
Senior Budget Officials, Rome – 11 June 2015

2. Part of continuum of OECD and SBO analysis

3. Taking Stock of Public Finances
3
• country experiences of fiscal policy management?
– Not just “consolidation” and “correction”
– Not just 2013-15, but over entire period of the crisis
• challenges?
– Not just fiscal
– thematic, cross-governmental, ‘budgetary governance’
• collating and presenting country cases
• can we go further: “Lessons from the crisis?”

4. Approach
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• Country questionnaire
– Details of scale and nature of consolidation
– Broad “budgetary governance” aspects
• Collection and presentation of findings
• Distillation of policy messages

5. Context: OECD Economic Outlook
• Slow, lack-lustre recovery – range of uncertain risks
• No easy solution to challenges of fiscal correction

6. Fiscal balance 2007-2014

7. Structural fiscal balance 2007-2014
-20
-15
-10
-5
0
5
10
% 2013 2009 2007 2014

8. Gross debt 2007-2014

9. Country clusters: a bird’s eye view 2007-2014

10. Tax-Expenditure split, 2013-14

11. (i) Low or no consolidation needs
public finances: consolidation
2007 2010 2014 needs
Norway   
Korea   
Turkey  – 
Switzerland    ▌
Luxembourg  – – ▌
New Zealand  – – – –  ▌▌▌
Chile   
Denmark  – – – ▌
Estonia   –
Germany  – – – 
Mexico  – –  ▌
Czech Republic – – – – – – –

12. (ii) Moderate-to-high consolidation needs
public finances: consolidation
2007 2010 2014 needs
Sweden   – – ▌▌▌
Finland  – – – – ▌▌▌
Australia  – – – – – ▌▌
Slovenia  – – – – – – – – ▌▌▌
Belgium  – – – – – – ▌▌▌
Canada  – – – – – – – ▌▌
Ireland  – – – – – – ▌▌
Austria – – – – – – – – – ▌▌
Netherlands  – – – – – ▌▌▌
Slovak Republic – – – – – ▌▌
Poland – – – – – – – – – ▌▌
Hungary – – – – – – – – – – – ▌▌

13. (iii) Very high consolidation needs
public finances: consolidation
2007 2010 2014 needs
Japan – – – – – – – – – – – ▌▌▌▌
France – – – – – – – – – – ▌▌▌▌
United Kingdom – – – – – – – – – – ▌▌▌▌
United States – – – – – – – – – – ▌▌▌▌
Italy – – – – – – – – – ▌▌▌
Greece – – – – – – – – – – – ▌▌▌▌
Portugal – – – – – – – – – – ▌▌▌▌
Spain  – – – – – – – ▌▌▌▌

14. The moral of this story…?
• Healthy pre-crisis, healthy post-crisis
• Weak pre-crisis, weak post-crisis…
• But what is ‘healthy’?
– Refinement of analysis based on structural balance
– Is structural balance a ‘real-time’ tool for policy-makers?
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15. Fiscal rules and fiscal objectives
Euro area / European
Compact
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Clear Domestic Rule 
Commonwealth model 
National model 
Hybrid model 

16. Fiscal rules and fiscal objectives
• EU rules – more “binding”, or just more complex?
– Is the fiscal path clearly laid out? Tests lie ahead
• Simple rules
– Simple results – Switzerland, Germany
– Complex results? - Sweden
• “Commonwealth” model
– Stabilisation over the cycle – Australia, NZ, Canada
– Focal point for medium-term consolidation – UK
• Which comes first: Fiscal Virtue or Fiscal Rules?

17. Independent Fiscal Institutions
2008 2014
Established IFI role 
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Limited / new IFI role
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No IFI role
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18. Independent Fiscal Institutions - functions
• Technical – e.g. structural fiscal balance
• Policy costings – quality of election-time debate
• Transparency and accountability – esp. parliament
• Fiscal watchdog – counterpart to Fiscal Rules
• Fiscal policy comment, advice and/or critique
– Should an IFI enter into “political territory?”

19. Protecting economic growth
fiscal stimulus / relaxed stance

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fiscal stimulus + structural reforms
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structural reforms + fiscal correction
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20. Involving parliaments and citizens
• Half of OECD countries have some progress to report
• None (but US) can report “strong engagement”
• Progress includes:-
– “citizen’s budgets”
– Web portals – open budget data
– Phone / tablet apps
– Some civic engagement initiatives
• Note: “citizen literacy” (and “parliament literacy”) seem
to be related to performance-budgeting shortcomings

21. Sub-national government (SNG) finances
• SNG debt is 13% of GDP (UWA) or 23.8% (WA)
– Special chapter of the State of Finances 2015 report
• Major “fiscal risk” issue tackled by ‘federal’ countries
– Fiscal rules
– Coordination bodies and procedures
– Expenditure efficiency initiatives (esp. health sector)
– ‘Rainy day funds’ – effective for cyclical stabilisation
• Why not used more at national level?

22. Human Resource Management – budget impacts
number of HR reforms per country, 2008-2013

23. Human Resource Management – reform ‘bundles’
average no. of HR reforms per bundle per country, 2008-2013

24. Public employment ‘downsizing’
changes in Central Public Admin. employment levels, 2008-2013

25. Qualitative conclusions on HRM reforms
• Austerity-related workplace measures can adversely
affect workplace attitudes
– Job satisfaction, trust in leadership
• Positive side-effects
– More scope for strategic workforce / HRM planning
• Need for balance between
– “technical” HRM (cost-reduction, efficiency) and
– “behavioural” HRM (motivation, competences,
employee engagement)

26. Intensity of budget reform
intensive / broad-based reforms 
moderate / focused reforms
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no significant reform activity
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27. Key areas of budget reform
• Performance-related budgeting
• Medium-term frameworks
• Spending review
• Evaluation focus
• Top-down budgeting
• “Outliers” (or “Pioneers”?)
– Welfare spending cap – UK
– Gender budgeting - Austria
– Inter-generational equity principle - NZ

28. Preliminary conclusions?
• Counter-cyclical fiscal policy – now an imperative
– but the existing tools, incentives seem inadequate
• Fiscal rules: simpler and clearer
– but how to instil a culture of compliance, enforcement?
• IFIs are a potential positive factor
– but where on the spectrum from technical to critical?
• MTBFs / MTEFs are a potential positive factor
– but only as a way of operationalising a fiscal target / rule
• Can national budget practices learn from SNGs?
– “Rainy day funds” as a complement to fiscal targets / rules
• Not enough attention to multi-dimensional budget reform
– OECD Budgetary Governance Recommendation – a point of reference
• The way to balance growth with fiscal correction is…?

29. Next steps for State of Public Finances 2015
• Additional analysis on structural balance
– Refine the narrative on “country clusters”, cyclicality of fiscal
policy and growth-supportive policies
– Possible further analysis on efficacy of fiscal rules
• Additional analysis on tax/spending responses over time
• Scope for additional country comments until 30 June
– e.g. update the tables on budget reform, growth strategy
• “Policy Conclusions” chapter to be refined in light of SBO
discussion
• Publication: early autumn 2015