Medium-Term Budgetary Framework in France - François Monier, France

MEDIUM-TERM BUDGETARY

FRAMEWORK IN FRANCE

MEDIUM-TERM BUDGETARY FRAMEWORK

I. HISTORY AND IMPLEMENTATION OF THE LEGAL FRAMEWORK

II. CONCRETE BUDGET MONITORING BY ADMINISTRATION

III. FISCAL SURVEILLANCE - the Court of Auditors and the HCFP

2

CONTENTS

I. HISTORY AND IMPLEMENTATION

OF THE LEGAL FRAMEWORK


HISTORY OF THE LEGAL FRAMEWORK

4

1997 2008 2012

SGP Stability and

Growth Pact

French

CONSTITUTIONAL

AMENDMENT

7 July 1997, Stability and Growth Pact

Preventive rules: EU Member States agreed on regulations to enforce the

deficit and debt limits established by Maastricht. They set a national Medium-

Term Budgetary Objective (MTO) that « shall ensure the sustainability of public

finances or a rapid progress towards such sustainability ».

Corrective rules: excessive budget deficits or excessive public debt levels

trigger the Excessive Deficit Procedure.

Stability Programmes since 1999: once a year, each Member State provides a

medium-term analysis of its budgetary objectives (MTO, underlying economic

assumptions, policy measures to achieve the objectives,…)

evaluated by the EU.

TSCG implemented in FR by

an ORGANIC LAW

5

July 2008 : French Constitutional Amendment

Article 34 of the Constitution establishes Public Finance Programming Bills

giving medium-term guidelines for public finances.

With this multiyear programming, Parliament votes a 3-year budget.

France already implemented 4 of them, in: 2009, 2010, 2012 and 2014.

This 3-year budget set an expenditure ceiling by mission (= part of State

expenditure). There are 31 missions in the French State budget. These

ceilings are binding for the first year, and provide only general guidelines

for the others.


1997 2008 2012

SGP Stability and

Growth Pact

French

CONSTITUTIONAL

AMENDMENT


an ORGANIC LAW

6

Nov 2011 : Directive on requirements for budgetary frameworks

March 2012 : TSCG (Treaty on Stability, Coordination and Governance) imposes:

An engagement towards the country-specific medium-term objective (MTO),

An automatic correction mechanism with the creation of an independent fiscal

council to monitor the observance of the rules

17 Dec. 2012 : French constitutional bylaw (implementation of the TSCG in

national law)

Defining the content of Public Finance Programming Bills (including MTO and the

underlying economic forecasts).

Creating the High Council of Public Finance (HCFP)

assesses the consistency of MTO with French European commitments

assesses the structural balance and macroeconomic forecasts for the Public Finance

Programming Bills and only macroeconomic forecasts for Stability Programmes.


1997 2008 2012

SGP Stability and

Growth Pact

French

CONSTITUTIONAL

AMENDMENT


an ORGANIC LAW

IMPLEMENTATION IN FRANCE

7

Multiyear

programming (Stability Programmes,

Public Finance

Programming Laws)

Breakdown into

annual bills (Budget Act, Social

Security Financing Act)

Infra-annual budget

monitoring

Stability Programmes:

no compulsory Parliamentary debate

Public Finance Programming Laws:

voted by Parliament.

Annual bills include:

the annual Budget Act

the Social Security Financing Act.

Checking the observance of the rules during the year.

Better national ownership

Weak national ownership

II. CONCRETE BUDGET MONITORING

BY ADMINISTRATION


THE CONTROL ON PUBLIC EXPENDITURE

VARIES AMONG ADMINISTRATIONS

A decreasing monitoring power among administrations:

9

High

control

Weak

control

State budget & National Health

Insurance expenditure target

(ONDAM)

Central agencies expenditure

Local gov’ts expenditure

and other public expenditure (unemployment benefit, supplementary

pensions…)

Other social benefits (basic pensions system, family allocations)

The HCFP checks the overall consistency of the public finance strategy.

Expenditure targets are set in nominal terms in Public Finance Programming Laws

22%

14%

14%

3%

19%

28%

THE EXPENDITURE MONITORING A LIMITED SCOPE

10

Not monitored State nominal rule

Agencies monitoring (partial and complex)

Health Insurance

expenditure target

Percentage of total public expenditure (1227 Bn€) well monitored : 56%*

Local Gov'ts rule

(not binding)

Predictable social expenses (basic pensions system, family allocations)

277 Bn€

177 Bn€

170 Bn€

34 Bn€

229 Bn€

318 Bn€

* Approximate % given the blurred boundaries of monitored and unmonitored spending

Two rules to monitor the State budget

2002: a volume rule « zero real-term increase ». The overall State

budget should not grow faster than inflation.

2011: a nominal rule « zero increase », covers the State budget

excluding interest on debt and contributions to the civil servants’

pensions.

Scope of these rules gradually expands to have a broader

coverage of the central public administration expenditure.

Since 2002, this dual rule is broadly respected.

Other rules

Ceiling for the number of civil servants

Ceiling for tax expenditure (including a specific ceiling for tax credits)

11

STATE EXPENDITURE MONITORING

12

TWO RULES TO MONITOR THE STATE BUDGET

206 Bn€

90 Bn€

State usual

expenditure

Interest and pensions (for

public servants)

71 Bn€ Transfers to local gov.

+ EU

5 Bn€ Part of allocated taxes

Volume

rule in

2015:

373 Bn€

* : newly allocated resources considered as a usual expenditures since 2008.

Nominal rule

in 2015:

282 Bn€

13

PROGRESSIVE EXTENSION

OF THE RULE'S SCOPE

206 Bn€

90 Bn€

State usual

expenditures

Interest and pensions

71 Bn€ Transfers to local gov. + EU

5 Bn€ Part of allocated taxes

Volume

rule in

2015

1996

2008*

2012

In the perimeter of the

volume rule since :

* : newly allocated resources considered as a usual expenditures since 2008.

HEALTH CARE EXPENDITURE MONITORING

ONDAM (National Health Insurance expenditure target)

Created in 1997, this target is reset by Parliament every year within the Social Security Financing Law.

The ONDAM has helped control the evolution of health public insurance.

Monitoring the observance of the ONDAM during the year

Since 2005, an Alert Committee warns Parliament, the Gov't and the

National Health Insurance Fund if the level of National Health Insurance

spending proves to be unreasonable in comparison with the target voted.

Regarding the medium-term budgetary framework, the Public Finance

Programming Bill builds a 3-year global financing plan for the Social Security.

14

COMPLIANCE WITH THE ONDAM SINCE 2010

15

Bubble size represents the magnitude of OVER SPENDING or UNDER SPENDING.

Source: Alert Committee of the Social Security, 2014.

EVOLUTION OF NATIONAL HEALTH INSURANCE EXP.

LEVEL OF EXPENDITURE RECORDED

CENTRAL GOV'T AGENCIES

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MONITORING RULES APPLIED SINCE

Limitation of newly allocated taxes 2008

Ceiling for the number of employees 2009

Expenditure reduction objectives (not binding) 2011

Ceiling for allocated taxes to agencies (partial) 2012

Restriction on new debt (ban with few exceptions) 2012

A complex monitoring of central Gov't agencies (universities,

CNRS, INSERM...) due to the multiplicity of rules:

LOCAL GOV'TS EXPENDITURE

Local Gov'ts have financial autonomy according to the Constitution.

However, they are supposed to contribute to the global consolidation of public finances.

State grants to local governments have been reduced (a fall of

3,7 Bn€ in 2015, in 2016 and again in 2017).

Moreover, the Public Finance Programming Law for 2014-2019 of December 2014 establishes a national target for the evolution of local Gov'ts expenditure (in percentage of annual change).

Target prepared by the central Gov't, transmitted to Parliament and

discussed with representatives of local Gov'ts.

The target is not binding for local Gov'ts.

17

GROWING EXPENDITURE OF LOCAL

GOVERNMENTS 18

EXPENDITURE EVOLUTION OF DIFFERENT

COUNTRIES IN EUROPE 19

Source: Winter economic forecast,

European Commission

A DECREASING PACE OFPUBLIC

EXPENDITURES SINCE 2013 20

Mean

1997-2007 Mean

2008-2012 2013 2014 2015

Evolution

(nominal) 3,6% 3,1% 1,7% 1,0% 0,9%

Evolution

(real) 1,9% 1,9% 0,9% 0,4% -0,2%

Target

(nominal) 1,4% 1,1%

EVOLUTION OF PUBLIC EXPENDITURE (without tax credits, in %, real exp. estimated with

GDP deflator)

FRENCH STRUCTURAL ADJUSTMENTS A STRONG FOCUS ON RECEIPTS IN 2011-2013

21

4.2

2.9

6.2

3.5 3.1

4.9 5.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Euro area Germany Spain France Italy Netherlands UK

Structural effort on expendituresStructural effort on receiptsTotal structural effort

% of GDP

Source: Winter economic forecast, European Commission

Structural adjustments 2010-2015

III. FISCAL SURVEILLANCE The Court of Auditors and the HCFP


FISCAL SURVEILLANCE The Court of Auditors

The Court of Auditors

An independent institution equidistant from Parliament and from the Gov't

which plays a major role for fiscal surveillance.

A broad mission of analysis, control and advice:

Analyzing the situation and outlook of public finances

Checking compliance with fiscal rules (only ex post)

Publishing opinions and recommendations on fiscal policy:

Reports on the current situation and the outlook of public finances

(for central, local or Social Security administrations)

Thematic public reports (for instance on exceptional expenditure, … to

ensure the correct, efficient and effective use of public funds)

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COURT

GOVERNMENT PARLIAMENT

FISCAL SURVEILLANCE The Court of Auditors

Court of auditors : main actor of the Government control in France, since constitutional bylaws of 2001 and 2005.

Annual reports due to constitutional bylaws:

Report on global public finance (once a year in June, updated in

January) :

Covers all subjects connected to public finances, including an assessment on the French targets for public deficit.

Includes general subjects on public finances: public investments, expenditure rules, benchmark with others countries, compliance with the European rules and the Organic Law of 2012……

Report on the state budget and central government agencies (May)

Certification of the French state accounts and certification of the social

security accounts (May)

+ Report on social security administration (September)

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FISCAL SURVEILLANCE The High Council of Public Finance (HCFP)

The HCFP, created by the Organic Law of December 2012:

A new body associated with the Court of Auditors and chaired by the

Head of the Court. Independent from a legal perspective.

Carries out tasks which could not be filled by the Court of Auditors

The three axes of the missions of the HCFP:

Examining the soundness of macroeconomic forecasts, MTO and

potential growth estimates on which draft finance texts are based

Analyzing ex ante the consistency of public finance forecasts

Identifying ex post “significant observed deviations” from the medium-

term budgetary objective. The HCFP plays a major role in triggering the

correction mechanism

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FAILURE OF THE CORRECTION MECHANISM IN 2014

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Multi-year structural balance trajectory

Public Finance

Programming Bill 2012-2017.

Effective trajectory

2011-2013.

New trajectory defined for 2014-2017.

Theoretical

corrective trajectory.

Significant gap

(1,3 pts)

The MTO is defined in level (% of GDP), not in variations.

=> Revision of the MTO in case of new estimation of the Output Gap…

% of GDP

CONCLUSION ON MEDIUM TERM

EXPENDITURE FRAMEWORK

Instruments gradually improved by extending the scope of rules by strengthening monitoring of short term trends.

But there is still a weak monitoring power of Gov’t on

certain components of public administrations : local authorities

funds managed by social partners, …

France made the choice of a very gradual slowing

down of expenditure with unambitious targets and

lesser effort than in other countries. So it will have to be maintained longer.

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THANK YOU FOR YOUR ATTENTION

MORE INFORMATION AVAILABLE ON

WWW.HCFP.FR

HCFP

13, RUE CAMBON – 75001 PARIS

+33 (0) 1 42 95 55 98

[email protected]

Government & Nonprofit

Medium-Term Budgetary Framework in France - François Monier, France