TABLE OF CONTENTS

COMMISSION STAFF WORKING DOCUMENT.................................................................. 3

1........... THE IMPLEMENTATION OF THE MAIN PROVISIONS OF THE DIRECTIVE BY MEMBER STATES...................................................................................................................................... 4

1.1........ Implementation of the main provisions of the Directive in BELGIUM................................ 4

1.2........ Implementation of the main provisions of the Directive in BULGARIA............................. 6

1.3........ Implementation of the main provisions of the Directive in the CZECH REPUBLIC........................................................................................... 10

1.4........ Implementation of the main provisions of the Directive in DENMARK........................... 14

1.5........ Implementation of the main provisions of the Directive in GERMANY........................... 17

1.6........ Implementation of the main provisions of the Directive in ESTONIA.............................. 23

1.7........ Implementation of the main provisions of the Directive in IRELAND.............................. 27

1.8........ Implementation of the main provisions of the Directive in GREECE................................ 31

1.9........ Implementation of the main provisions of the Directive in SPAIN................................... 34

1.10...... Implementation of the main provisions of the Directive in FRANCE............................... 37

1.11...... Implementation of the main provisions of the Directive in ITALY.................................... 40

1.12...... Implementation of the main provisions of the Directive in CYPRUS................................ 43

1.13...... Implementation of the main provisions of the Directive in LATVIA................................. 44

1.14...... Implementation of the main provisions of the Directive in LITHUANIA.......................... 46

1.15...... Implementation of the main provisions of the Directive in LUXEMBOURG.................... 48

1.16...... Implementation of the main provisions of the Directive in HUNGARY............................ 50

1.17...... Implementation of the main provisions of the Directive in MALTA................................. 54

1.18...... Implementation of the main provisions of the Directive in the NETHERLANDS............. 56

1.19...... Implementation of the main provisions of the Directive in AUSTRIA.............................. 58

1.20...... Implementation of the main provisions of the Directive in POLAND............................... 60

1.21...... Implementation of the main provisions of the Directive in PORTUGAL.......................... 63

1.22...... Implementation of the main provisions of the Directive in ROMANIA............................ 65

1.23...... Implementation of the main provisions of the Directive in SLOVENIA........................... 68

1.24...... Implementation of the main provisions of the Directive in SLOVAKIA........................... 71

1.25...... Implementation of the main provisions of the Directive in FINLAND.............................. 74

1.26...... Implementation of the main provisions of the Directive in SWEDEN............................... 75

1.27...... Implementation of the main provisions of the Directive in the UNITED KINGDOM......................................................................................... 80

2........... Implementation of the Directive by the Commission....................................................... 83

2.1........ Information on the steps taken by the Commission for the implementation of Article 3 and Article 14 of the Directive....................................................................................................................... 83

2.2........ Information on the steps taken by the Commission for the implementation of Article 4(3) of the Directive 83

2.3........ Information on the steps taken by the Commission for the implementation of Article 4(7) of the Directive 84

2.4........ Information on the steps taken by the Commission for the implementation of Article 16(3) of the Directive 84

COMMISSION STAFF WORKING DOCUMENT

Accompanying the document

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

Interim Progress Report on the implementation of Council Directive 2011/85/EU on requirements for budgetary frameworks of the Member States

This Working Document accompanying the Commission Interim Progress Report provides detailed country fiches on national steps or plans for the implementation of Council Directive 2011/85/EU. In accordance with Article 15(3) of the Directive, Member States have been asked to contribute to the preparation of the document by providing answers to a questionnaire distributed on 23 May 2012 in the Economic Policy Committee. The questionnaire focused on the following topics: (i) accounting and statistics; (ii) forecasts; (iii) fiscal rules; (iv) medium-term budgetary frameworks; and (v) mechanisms of coordination across governments sub-sectors. Whenever possible, the layout of the country fiches follows the above structure. As Member States delivered their contributions in September 2012[1], the information contained in the country fiches reflects the state-of-play in national transposition efforts at the time.

1. IMPLEMENTATION OF THE MAIN PROVISIONS OF THE DIRECTIVE BY MEMBER STATES

1.1. Implementation of the main provisions of the Directive in BELGIUM

The Belgian authorities report that on 27 March 2012, the Inter-Ministerial Finance and Budget Conference decided to set up a working group at administrative level in order to ensure the comprehensive and coordinated transposition of the Directive into the national and sub-national law.

This working group is overseen by the Federal Budget Ministry and brings together representatives from the Belgian Communities and Regions and, at federal level, representatives from the Ministry of Finance and the Budget Ministry.

A list has been drawn up of potential adaptations of the Belgian legislation to the Directive. In particular, it is planned to modify the law of 16 May 2003 (on general provisions for the accounting of the Communities and Regions) and the special financing law of 16 January 1989. Cooperation agreements between the federal government and the Communities and Regions could also be adapted.

The federated entities have been asked to compare their own legislation with the provisions of the Directive. Several provisions are already applied but are not legally binding. Their binding nature thus has to be explicitly specified in the legislation. The work of the group is still in progress and more details are expected in the coming months.

1. Accounting and statistics

The law of 22 May 2003 on state budgets has brought public finance practice in Belgium somewhat closer to the requirements of the Directive by introducing accrual accounting across general government sub-sectors. However, local accounting does not currently allow the provision of ESA95-compliant regional accounts. Fiscal data in the sense of Article 3 of the Directive are not available at state and federated entities level.

The Belgian authorities report that the Council of the Ministers (federal level) of 15 June 2012 decided to create a High-Level Task Force with the aim of improving the governance of statistics for the general government accounts.

2. Forecasts

Regarding Article 4(1) of the Directive, the National Accounts Institute (ICN) is tasked with the preparation of macroeconomic forecasts for the federal budget (Article 108 of the Law of 21 December 1994). It brings together the Federal Planning Bureau (FPB), the National Statistical Institute and the Central Bank of Belgium. Although this is not a legal obligation, both the central government and sub-central governments use the forecasts produced by the FPB (through the ICN). Regarding ex post evaluation in line with Article 4(6) of the Directive, the FPB occasionally produces ex post evaluations of forecast accuracy on an ad hoc basis (a recent assessment was issued for the 1994-2010 period).

3. Fiscal rules

In the 2011 EPC peer review of national fiscal frameworks, the Commission’s country fiche noted that ‘(…) numerical fiscal rules and medium-term frameworks appear less developed (as many of the former numerical rules have been abandoned) and show some shortcomings, which has contributed to frequent slippages in the past (…)’[2].

4. Medium-Term Budgetary Framework

The Commission’s country fiche noted the existence of a rolling three-year framework applicable to the entire general government. The framework is indicative[3].

5. Mechanisms of coordination across sub-sectors of general government

As pointed out by the Court of Auditors and Belgium’s High Council for Finance of Belgium existing mechanisms for coordination between central (federal) government and federated entities do not fully allow for budgetary coordination.

1.2. Implementation of the main provisions of the Directive in BULGARIA

The Bulgarian Ministry of Finance (MoF) is preparing a draft law on public finances[4] which is expected to enter into force on 1 January 2014. If adopted, it would consolidate and strengthen the budgetary framework in a single legislative act, repealing the Organic Budget Law and the Municipal Budgets Law, and amending other laws. The law would transpose the main provisions of the Directive and, more generally, implement the ‘six-pack’ provisions. The Bulgarian authorities report that the purpose of the law is to carry out a comprehensive reform of the medium-term budgetary framework to address existing weaknesses and support the fiscal consolidation process. The law is also intended to strengthen the interaction between central and local governments in the conduct of a prudent fiscal policy, while observing EU reference values and taking into account the independent nature of their budgets.

1. Accounting and statistics

Accounting

Article 164 of the draft law stipulates that the MoF is to approve the accounting standards and charts of accounts and give instructions to publicly financed organisations in compliance with the EU requirements governing reporting, statistics and budgeting in the public sector. Article 169 further stipulates that the standards, instructions and chart of accounts and the accounting systems of publicly financed organisations and undertakings must allow the preparation of data on the general government sector and its sub-sectors in compliance with EU requirements.

Statistics

Monthly cash-based budget execution results are published on the MoF website[5]. They include main aggregates (revenue and grants, expenditure, transfers) and the financing structure, with a detailed breakdown by sub-sector and special entities (republic’s budget, judicial authority, social security, municipal budgets, extra-budgetary funds and other accounts, other autonomous budgets[6], and the national assembly). The consolidated debt of the government sector is reported monthly on the website of the MoF (Article36 of the draft law on public finances).

Regarding the reconciliation table referred to in Article 2(2)(b) of the Directive, the Bulgarian authorities report that the preparation of such a table will be regulated in MoF guidelines.

Extra-budgetary entities

According to the Bulgarian authorities, the draft law envisages discontinuation of the practice of off-budget funds and accounts under Article 45(2) of the Organic Budget Law and Article 42(1)(1) of the Municipal Budgets Law. Article 67(5) of the draft law on public finances stipulates that ‘the budget procedure shall cover also legal entities controlled by the central government and/or municipalities, which do not belong to the Consolidated Fiscal Programme but fall within the scope of the general government sector’. Article 168 further provides that ‘the Minister of Finance may require from the undertakings […] which are controlled by the government or municipalities or supported by them with subsidies, loans, sovereign guarantees and other forms of state aid, to provide additional reports, and information in forms, content, time limits and procedure established by the Minister of Finance’.

Article 69(7) of the draft law stipulates that ‘for the purposes of the medium-term budget forecast, the legal entities which fall within the scope of the general government sector and do not belong to the Consolidated Fiscal Programme shall present information and estimates of their forecasts’.

Contingent liabilities, tax expenditure and participation in the capital of public and private corporations

Articles 163, 165, 169 and 170 of the draft law contain enabling clauses for the MoF to obtain other types of fiscal data.

2. Forecasts

The draft law on public finances contains a number of provisions for the preparation of forecasts. The Ministry of Finance is responsible for preparing and publishing macroeconomic forecasts in spring and autumn (Article 68 of the draft law). During the preparation of the medium-term budget forecasts for the next three years, macroeconomic scenarios based on assumptions regarding domestic and global economic developments are constructed by the MoF (Article 73 of the draft law). After taking into account the most likely or conservative scenario (Article 72 of the draft law) and justifying potential discrepancies with the forecasts of the European Commission (Article 75 of draft Law), the Minister of Finance submits the medium-term budget forecast every year by the Minister of Finance to the Council of Ministers for approval (Article 72 of the draft law).

In order to improve public access to fiscal data, the macroeconomic forecasts, the approved medium-term budget forecast, the main underlying assumptions and the results of the overall assessment of the forecasts are to be published on the website of the MoF (Articles 68 and 75 of the draft law).

The results of the ex-post evaluation of the forecasts are to be made public and taken into account for future macroeconomic forecasts (Article 75 of the draft law).

3. Fiscal rules

The Bulgarian authorities report that the draft law on public finances preserves the current structure of their three major fiscal rules (budget balance, debt and expenditure).

The draft law sets a medium-term budgetary target for the deficit not to exceed 0.5% of GDP in structural terms. The target can be revised every three years and an automatic correction mechanism -to be defined by the National Assembly- is to be activated in the event of deviation (Article 23). The draft law further establishes a nominal ceiling of 3% for the general government deficit. It reasserts the objective of achieving a zero or positive budget balance for the Consolidated Fiscal Programme[7] and the general government sector, and requires offsetting measures in the event of deviation (Articles 25 and 27). The existing nominal consolidated debt ceiling of 60% for the general government sector is reaffirmed, with proposed actions in the event of non-compliance (Article 29).

Additionally, the existing expenditure ceiling (40% of GDP) in the Consolidated Fiscal Programme is supplemented by an expenditure rule derived from the SGP provisions: ‘the average growth rate of budget expenditure for the period of the forecast shall not exceed the forecast average growth rate of the potential Gross Domestic Product until the attainment of the medium-term structural balance target set out in the budgetary forecast’ (Article 26).

The scope of these fiscal rules (Article 22) is extended in order to ensure a comprehensive coverage of the general government sub-sectors. Concerning local government, a medium-term budget target on a cash basis is introduced (Article 30), together with further constraints on debt and debt payments (Article 32) and a requirement for municipalities to set a spending cap for new commitments. Additional rules restricting the accumulation of debt and the issuance of guarantees are stipulated for the social security sub-sector (Article 33), and for other entities whose budgets are excluded from the state budget but are included in the Consolidated Fiscal Programme, for which debt ceilings will also be introduced (Article 34).

As regards the monitoring of compliance with the fiscal rules, transitional provisions stipulate that, within six months of the promulgation of the law, the Council of Ministers, ‘shall submit to the National Assembly a proposal on the designation of an independent body endowed with functional autonomy’.

In the event of non-compliance with the targets for budget balance, structural deficit or nominal value of the consolidated debt of the general government sector, corrective mechanisms are provided for in the draft law (Articles 23 to 29). Article 41 stipulates that a minimum level of fiscal reserves should be included in the annual state budget.

4. Medium-Term Budgetary Framework

The Bulgarian authorities report that one of the objectives of the draft law on public finances is to turn the medium-term budget forecast into a real instrument for medium-term forecasting and planning through observance of strict fiscal rules by central and local authorities. Together, the provisions regulating the preparation of the medium-term budget forecast, the state budget, the budgets of the state social security system, the National Health Insurance Fund and municipal budgets, aim to introduce a multiannual budgetary perspective based on multiannual fiscal planning.

The draft law proposes rolling three-year budget planning with a two-step annual budgetary procedure (Article 72). The first stage ends on 15 April with the approval of the medium-term budget forecast for the following three-year period and the updated government debt management strategy by the Council of Ministers. The deadline for the second stage is 31 October, when the Council of Ministers has to submit to the National Assembly the draft law on the state budget together with the updated medium-term budget forecast. Article 79(2) provides that ‘the parameters of the approved state budget bill shall comply with the parameters of the updated medium-term budget forecast’.

The medium-term budget forecast includes fiscal policy objectives relating to the fiscal rules and constraints, the main budget indicators for the past, current and next three years, expenditure ceilings for first-level spending units, a description of the priorities of government policies, macroeconomic scenarios and underlying assumptions (Article 73). Municipalities also have to prepare and adopt three-year budget forecasts (Articles 82 to 84). The approved medium-term budget forecast is made public through notification to the National Assembly and publication on the MoF website (Article 72). Following adoption of the budget law, the parameters of the medium-term budget forecast have to be aligned within one month (Article 79(6)).

5. Mechanisms of coordination across sub-sectors of general government

The draft law on public finances states that the budget procedure covers ‘all budget spending units for the budget of public-financed organizations’ as well as ‘all legal entities controlled by the central government and/or municipalities’ (Article 67). The Bulgarian authorities mention that the responsibilities of ministers would be increased under the draft law, as they have to present to the Minister of Finance summary forecasts and indicators for legal entities outside the scope of the state budget but included in the general government sector.

Regarding fiscal coordination with local government, the Bulgarian authorities report that the proposed procedure for drafting the budget forecasts for local activities is aligned with the national procedure, including provisions governing the dynamic pattern and condition of the municipal debt and guarantees, the revenue and expenditure of the entities controlled by the municipality and the expected impact on municipal finance indicators. The Minister of Finance is expected to discuss with the National Association of Municipalities ‘the amount of the budget relationships of the central budget with the municipal budgets’ within the medium-term budget forecast and to submit the minutes of these consultations together with the draft state budget law to the Council of Ministers.

1.3. Implementation of the main provisions of the Directive in the CZECH REPUBLIC

The current fiscal framework has been in place since 2004, when the last comprehensive reform of public finances was carried out. The main components of the reformed fiscal framework included fiscal targeting within the medium-term budgetary framework and a new numerical expenditure rule.

In order to transpose the Directive, the Czech authorities report that a project for modernising of the Czech Republic’s fiscal and budgetary system was launched at the Ministry of Finance (MoF) in August 2011. Objectives include the preparation of a comprehensive budgetary framework, the formulation of numerical fiscal rules and the preparation of a Constitutional Act on fiscal responsibility. Following the government’s programme statement of 4 August 2010, the Minister of Finance established a task force to define the basis for preparation of the Constitutional Act. The draft Act was approved by the government on 10 October 2012 and was to be submitted to parliament in the following months.

1. Accounting and statistics

Accounting

The Czech authorities report that the reform of the state’s accounting system was launched in January 2010. Its goal is to unify the compilation of information across accounting units managing funds from public budgets within a Central state accounting information system (CSAIS). An ‘auxiliary analytical survey’ (PAP[8]) was carried out to obtain information on public finance management and monitoring on the basis of requirements of the Regulation on the European system of national and regional accounts within the EU and the SGP regulations.

The MoF works closely with the Czech Statistical Office (CSO) in order to ensure the compilation of data according to ESA 95 standards.

Internal control and auditing

The Czech authorities report that the Chamber of Deputies is discussing the draft Act No320/2011 Coll, on financial control in public administration. This action addresses the requirements of the Directive in the field of internal control by:

- for public budget administrators, separating financial management and control responsibilities from auditing responsibilities;

- reinforcing the responsibility of managers of public funds by specifying their legal duties in the area of preliminary, regular and subsequent controls;

- setting up independent auditing in public administration and ensuring that the system of preliminary, regular and subsequent control is effective;

- ensuring coverage of all general government sub-sectors by specifying competences in the field of control for all providers of public financial support.

Additionally, the MoF is preparing new legislation on financial management, financial control and audit in the public administration. It should follow the requirements of the Directive and ensure consistency across general government entities.

An amendment to Act No 166/1993 Coll. Section 3, under parliamentary review, should extend the audit competence of the Supreme Audit Office to nearly all general government entities.

Statistics

Additional steps to meet the requirements of the Directive will be taken after enactment of the Constitutional Act on Fiscal Responsibility, which requires all general government bodies to prepare draft budgets, and after release of the conclusions of the Eurostat Task Force.

The Czech Statistical Office has been tasked with the release of tables illustrating the methodology for the transition between cash data and ESA 95.

Regarding the implementation of Article 14(2) of the Directive, the MoF has published research on tax expenditures. It contains an extensive theoretical section and a practical section on the quantification of tax expenditures in the Czech Republic in 2008. Legislation is to be prepared to require the MoF to issue from 2014 onwards an annual report on tax expenditures using the methodological basis of the research study.

Regarding the implementation of Article 14(3), a decision will be taken following the conclusions of the Eurostat Taskforce.

2. Forecasts

The Czech authorities report that the MoF broadly meets most of the requirements of Chapter III of the Directive. However, the method of implementing the obligations in national legislation in operational terms is currently being discussed. The MoF is also preparing a framework for the independent assessment of tax revenue forecasts and a description of the methods used during their preparation. Details will be determined in a legislative text.

Government Resolution No 253 dated 11 April 2012 tasked the MoF to prepare an amendment to Act No 2/1969 Coll. on the Establishment of Ministries and other Central state Administration Bodies. The amendment would expand the MoF’s powers regarding the system of public finances and its stability, fiscal planning, and the preparation of macroeconomic forecasts. The draft amendment is to be submitted to the government by the end of 2012.

3. Fiscal rules

The Czech authorities report that the implementation of the debt ceiling rule in Article 5 of the Constitutional Act on Fiscal Responsibility should help ensure consistency with the reference value for debt determined in accordance with the TFEU. The article requires the government and the parliament to ensure that public debt develops in a way that does not threaten the stability of the Czech Republic’s public finances. Articles 6 to 13 of the proposed Constitutional Act detail the obligations of individual general government entities to ensure that the 60 % threshold is not breached. Corrective measures are triggered if the debt ratio reaches 40 %. Additional measures are introduced at debt levels of 45 % and 48 %. If the debt ratio reaches 50 % the government immediately calls for a vote of confidence before the Chamber of Deputies. As the obligations are gradually stepped up, the 60 % threshold should remain an absolute ceiling not to be breached. Effective and timely monitoring of compliance would be based on EDP notifications and rely on an independent fiscal institution –the National Budgetary Council[9]. Specific escape clauses are defined for the rule.

An expenditure rule, the logic of which should be closely linked to the concept of the expenditure rule implemented under the preventive part of the Stability and Growth Pact (the so-called medium-term expenditure benchmark), is assumed to be implemented on an operational level. This should be used to attain the medium-term objective and ensure long-term sustainability of public finances. The rule should align the growth of adjusted general government expenditure with average potential GDP growth.

Specific restrictions in the form of a tailored balanced budget rule also exist for certain public sector units such as the General Health Insurance Company, public universities, regional self-administration units, etc.

Given the relatively significant fiscal decentralisation and high autonomy of the local government sub-sector, Article 14 of the Constitutional Act includes a rule for territorial self-government units (municipalities and regions). Its implementation should help ensure comprehensive coverage of general government sub-sectors. Under this rule, a territorial self-government unit (TSGU) should conduct economic activities so that its debt does not exceed 60 % of its total average revenue for the last four years. If the TSGU’s debt exceeds the limit, it must reduce its indebtedness by at least 5 % of the difference between the total value of the debt and the 60 % value calculated as above. If the TSGU does not reduce its indebtedness in this way, the state will retain tax revenue to the tune of 5 % of the difference between the current total debt and the 60 % value. According to Article 14, ‘the retained tax revenue intended for territorial self-government units can only be released for payment of the territorial self-government unit’s debt obligations concluded before the year in which the revenues was retained.’

The Czech authorities also mention that the MoF is preparing legislation for insolvency proceedings for TSGUs.

4. Medium-Term Budgetary Framework

The Czech authorities mention that a medium-term forecast and budget framework was established in the 2002 reform. However, an amendment to the relevant legislation is being discussed within the Chamber of Deputies. Following this amendment, the main features of the medium-term expenditure framework (MTEF) would be as follows:

- The MTEF proposal would be submitted together with the state Budget Act to the Chamber of Deputies. It would be based on macroeconomic forecasts of key indicators processed by the MoF.

- The Chamber of Deputies would determine an expenditure framework for the years n+1 and n+2 covering overall expenditure from the state budget and state funds (with the exception of subsidies to state funds).

- Under Section 8a of the Act on Budgetary Rules, the MTEF could be amended only in specified cases. If the MTEF targets are not identical to those determined by the Chamber of Deputies, then the government should provide justifications for the changes.

- Apart from the MTEF, a medium-term outlook for the state budget and state funds for a further two years is to be prepared together with the State Budget Act. The outlook would contain estimated revenue and expenditure categorised according to the national budgetary classification.

The Czech authorities declare that they are currently working on a definition of the steps needed to meet the requirements of the Directive regarding the medium-term budgetary framework. The issue will be dealt with in accordance with the decision on the implementation of the expenditure rule. Subsequent steps leading to the creation of a consistent medium-term budgetary framework are to be included in the Constitutional Act on Fiscal Responsibility.

Finally, a ‘public sector strategy’ document is to cover the medium-term horizon and interconnect the fiscal objectives presented by the convergence programme and the national budget policy. Under Article 2 of the proposed Constitutional Act, the government is to submit this document to the Chamber of Deputies, which will then issue a resolution on it. The drafts of state budget and budgets for state funds are to be prepared on this basis. More detailed regulations will define the contents of the public sector strategy document and its integration within the budget process.

5. Mechanisms of coordination across sub-sectors of general government

The Czech authorities state that coordination mechanisms will be in place for implementing individual chapters of the Directive (numerical fiscal rules, fiscal planning – medium-term budget framework, accounting and statistics).

1.4. Implementation of the main provisions of the Directive in DENMARK

1. Accounting and statistics

Danish authorities report that fiscal data are already publicly available on a quarterly and monthly basis for the relevant general government units[10]. Consequently no additional measures have been taken in relation to the requirements regarding fiscal data in Article 3. Work on the reconciliation table and on contingent liabilities is in progress.

2. Forecasts

The Ministry of Economic Affairs and the Interior (OIM) is responsible for preparing and publishing the government’s economic forecasts. It does this in collaboration with the Ministry of Finance (MoF). OIM is responsible for estimates regarding the real economy and financial markets, while the MoF provides estimates for public finances based on the economic forecast. The MoF also estimates the effects of fiscal policy on activity as well as the structural fiscal balance.

The forecasts are produced three times a year (May, August and December) and cover the current year and next year, except in December, when estimates are provided for the next two years. The May forecast is used in the annual budget negotiations and agreements on the municipal and regional economy. The August forecast forms the basis for the government's budget proposal for the coming fiscal year, while the December forecast is the basis for the final budget bill.

The forecasts are published in an ‘Economic Survey’, which can be found on OIM’s website[11] (where a short English summary is published on the webpage with some delay), and a ‘Budget Outlook’ (aggregates are presented according to ESA95 standards), which can be found on the MoF’s website[12]. In addition, the MoF prepares medium- and long-term projections at least once a year as part of Denmark’s Convergence Programme, which gives an account of Denmark’s medium-term objective and long-term fiscal sustainability.

The Danish authorities report that the forecasts make use of the latest macroeconomic data, external assumptions and economic models. Expected developments are incorporated in an empirical macroeconomic model of the Danish economy (ADAM). The forecasts include sensitivity analyses calculated as shocks to the empirical model. The type of sensitivity analysis varies depending on the macroeconomic risks to the forecast, e.g. changes in export market growth, interest rate assumptions, oil prices etc.

The assumptions underlying the forecasts are presented in the Economic Survey. It describes the government’s political and economic measures in the light of projected economic developments.

The forecasts are regularly compared to forecasts from e.g. the European Commission, the OECD, and the IMF etc., in order to shed light on and explain disparities. The comparisons are published on the ministry’s website. Analyses of historical forecast errors are made and published approximately every 5 years.

3. Fiscal rules

Denmark’s Convergence Programme for 2011 –based on the former government’s 2020 plan– included a deficit target expressed in structural terms of no more than ½ per cent of GDP in 2015 and a balanced structural budget by 2020. Since May 2012 –based on the current Government’s 2020 plan– Denmark’s medium-term budgetary objectives imply annual structural deficits of no more than 0.5 per cent of GDP, and at least a budget balance in structural terms by 2020.

Additionally, the Government signed the Fiscal Compact on 2 March 2012. It was ratified on 31 May 2012 by the Danish parliament. In the Compact, the Government undertook to adopt a budget balance rule in the Constitution or in permanent legislation, as along with an automatic correction mechanism. The government has implemented the provisions of the Fiscal Compact regarding a budget balance rule and an automatic correction mechanism within the Budget Law. The draft Budget Law was put forward by the government in April 2012 and was passed by a broad majority in the Danish parliament on 13 June 2012. The Budget Law will come into force by October 2012. However central provisions concerning the budget balance rule and the automatic correction mechanism will come into force no later than a year after the Fiscal Compact has come into force, while provisions for multi-annual expenditure ceilings will come into force by January 2014.

The Budget Law stipulates that the target for the structural budget balance is the Medium-Term Objective as specified in the Stability and Growth Pact, although with a lower threshold for the structural deficit of 0.5 per cent of GDP for the structural deficit, unless the exceptional circumstances specified in the Fiscal Compact occur. If the structural deficit exceeds the threshold by more than 0.5 per cent of GDP (a significant deviation), the Budget Law stipulates that it must be corrected.

The Danish Economic Council has the task of monitoring compliance with the Budget Law as described in the revised Law on the Economic Council, which will come into force by January 2014.

4. Medium-Term Budgetary Framework

The Budget Law adopted in June 2012 (see above) introduces binding multi-annual expenditure ceilings for the three major public sub-sectors in Denmark, i.e. central government, the municipalities and the regions. The ceilings consist of nominal upper limits on actual spending. The Danish authorities consider that the agreed ceilings within each sector ensure clear responsibility for spending control and foster compliance within each sector. It also ensures a close connection between the expenditure ceilings, actual budgets and the final accounts of each sector. The annual Budget Bill for central government and the annual economic agreements between the government and the municipalities and regions must comply with the ceilings[13].

The expenditure ceilings must be enacted into law by the Danish parliament and will cover a rolling 4-year period. Ceilings for the new fourth year will be determined on a yearly basis based on an updated medium-term macroeconomic projection. The ceilings cover a broad range of public expenditures. More specifically the ceiling for central government includes operating costs, expenditures on income transfers that are not unemployment-related, subsidies and foreign transfers. The expenditure ceilings for municipalities and regions include service/operating costs. Automatic stabilisers such as unemployment benefits and cash benefits are not included. The Danish Economic Council is to conduct an annual assessment of compliance with the expenditure ceilings, and whether the ceilings are consistent with the medium-term projections for public finances. The expenditure ceilings are to take effect from 2014. The ceilings for the years 2014-2017 are expected to be determined in spring 2013.

5. Mechanisms of coordination across sub-sectors of general government

The Danish authorities state that the overall framework for fiscal policy coordination in Denmark is based on a long tradition of budget cooperation based on voluntary agreements between central government and local government bodies. The agreements call for mutual cooperation and coordination on how to adjust collectively: (i) to the agreed limits on spending among the municipalities and regions; (ii) to the agreed level of taxation among municipalities.

However, experience has demonstrated a need for improved expenditure control in local and central government. Therefore the new Budget Law adopted in June 2012 introduces separate expenditure ceilings for central government, the municipalities and the regions (cf. above). Compliance with the expenditure ceilings should also contribute to meeting the requirements of the Fiscal Compact.

To improve control over local government expenditure and taxation levels, permanent legislative acts containing sanction mechanisms have been approved by parliament in the last few years. Such measures have increased incentives for local government to comply with budget agreements in the last two years. In concrete terms, if the expenditure of a municipality or region exceeds the agreed ceiling, cuts in general grants are to be phased in. The cuts would affect both the collective part of the grant (i.e. the entire group of regions or municipalities would be sanctioned), and the individual grant of the municipality or region concerned. The grant reduction can be up to DKK 3 bn. Cuts can also be triggered at municipality level if taxes rise above the agreed level[14].

1.5. Implementation of the main provisions of the Directive in GERMANY

1. Accounting and statistics

Accounting

Regarding Article 3(1) of the Directive, both for the Federal government and for the Länder, the consistency of the public accounting systems used to compile data for generating ESA 95 data is required by federal law. Under section 49a(1) of the Budgetary Principles Act, the federal government and Länder have set up a committee to ensure a uniform basis for procedures and data by laying down standards for cash-based accounting, double-entry accounting and product budgets. It reviews those standards once a year, verifying compliance with the requirements for financial statistics, including with those for national accounts. The German authorities report that their national accounts are compiled in accordance with the current ESA 95. General and specific classification issues are discussed at regular intervals and harmonised as needed in this committee.

For local governments, the German authorities report that there are corresponding committees in which representatives of the Länder ministries of the interior, the Federal Statistical Office (Destatis) and municipal umbrella organisations discuss and vote on classification issues at local government level.

For the social security system, budgeting and accounting are governed by title 3 (sections 67 to 79) of Book IV of the Social Code (Sozialgesetzbuch) and by ordinances and administrative regulations. The General Administrative Regulation on Social Security Accounting (Allgemeine Verwaltungsvorschrift über das Rechnungswesen in der Sozialversicherung) stipulates binding charts of accounts, with annexes for funds in each social security sub-sector. The charts of accounts are updated by decree of the federal ministries responsible for the different branches of the social security system after consulting with the supreme administrative authorities of the Länder.

Auditing

Under Article 114(1) of the Basic Law (Grundgesetz), for the purpose of discharging the federal government, the Federal Minister of Finance must submit annually to the Bundestag and to the Bundesrat an account of all revenues and expenditures, assets and liabilities during the preceding fiscal year. Parliament is assisted in its supervisory capacity by the Federal Court of Audit (Bundesrechnunghof). Under Article 114(2) first and second sentences of the Basic Law, the Federal Court of Audit, whose members enjoy judicial independence, must audit the accounts given, including for federal special funds and enterprises, and determine whether public finances have been properly and efficiently administered. Its audit covers annual revenue and expenditures, expenditure commitments, and federal assets and liabilities. As well as to the federal government, the Federal Court of Audit must submit annual reports directly to the Bundestag and the Bundesrat. Detailed stipulations on auditing are specified in section 42 ff. of the Budgetary Principles Act and Part V of the Federal Budget Code.

The Länder courts of audit similarly audit the administration of Länder public finances.

Social security funds are audited by the responsible ministries at federal level in accordance with sections 87 to 90a of Book IV of the Social Code (SgB IV).

Auditing of local authority finances is performed by audit offices at local authority level. For example, provisions for the land of Hessen can be found under sections 128-131 of the Hesse Local Authority Code (Hessische Gemeindeordnung).

Statistics

Regarding Article 3(2) of the Directive, the frequency of transmissions is laid down for the federal government, Länder and local authorities in the Finance and Personnel Statistics Act. Section 3(1)(3) stipulates monthly transmission for the federal government and the Länder; section 3(2)(2) stipulates quarterly transmission for local authorities. Under section 15(3) of the Federal Statistics Act, federal statistics (including statistics under the Finance and Personnel Statistics Act) must be transmitted ‘within the time limits set by the statistical offices of the federal government and of the Länder’.

With a view to implementing the Directive, the federal government and the Länder have committed to transmitting monthly data by the 20th of the following month. For quarterly cash-based statistics from local authorities, the federal government and the Länder have also agreed transmission dates that ensure publication in the next quarter. In response to a request from the federal government, social security funds have pledged timely compliance with the Directive’s requirements and to ensure monthly publication of data.

Regarding Article 4(7) of the Directive, Germany transmits quarterly deficit data to Eurostat but places an embargo on the publication of data for the current year. It would have to discontinue this practice by the end of 2013 to comply with the Directive.

Extra-budgetary entities

Regarding Article 14(1) of the Directive, the German authorities report that the Federal Statistical Office, under section 2(4) of the Finance and Personnel Statistics Act, has identified and classified extra-budgetary funds, bodies and enterprises in a register. This ensures nearly complete statistical coverage of the state sector from the 2011 reporting year. The Federal Ministry of Finance has initiated a legislative process to allow for publication of the register. As the national system of budgetary reporting differs slightly from the ESA95 framework regarding the definition of extra-budgetary units, the Federal Ministry of Finance is examining the possibility of eliminating these differences.

Extra-budgetary funds, bodies and enterprises are also included as part of each sub-sector in public finance projections for reporting debt levels as defined in the Maastricht Treaty, for example under the Stability Programme.

Tax expenditures

Regarding Article 14(2), the German authorities report that it is a standard part of the legislative process to publish the medium-term impacts of all changes in tax legislation. Tax benefits that directly or indirectly favour businesses are analysed in federal subsidy reports. A report on the main tax benefits at federal level, as required under section 12(2) of the Stability and Growth Act, is updated annually in Tables VII and VIII of the Federal Budget.

Contingent liabilities

Regarding Article 14(3), the Federal Statistical Office publishes contingent liabilities for all political subdivisions and for general government[15].

The federal assets and liabilities accounts include detailed tables on the status of guarantees given by the federal government and its special funds. Participation in the capital of private or public corporations is reported in federal and Länder assets and liabilities accounts and in federal and Länder reports on government holdings.

2. Forecasts

The federal government’s macroeconomic forecasts are produced by an expert panel led by the Federal Ministry of Economics and Technology (BMWi) and including representatives of other federal ministries, the Deutsche Bundesbank, the Institute for Employment Research (IAB) and the Federal Statistical Office. The Federal Ministry of Finance (BMF) is responsible for budgetary projections.

Detailed macroeconomic and budgetary projections are published in BMF and BMWi monthly reports and on the BMF and BMWi websites. The BMWi presents federal government projections to the public and discusses them at press conferences. Detailed forecasts are also presented in the Finance Report and the stability programme. Forecasts are discussed, where applicable together with methodologies, assumptions and relevant parameters, by the independent Working Party on Tax Revenue Estimates.

Macroeconomic forecasts are based on current data at the time of the forecast as provided by the Federal Statistical Office and international organisations. The federal government’s forecasts are compared with the most recent forecasts from the European Commission and other independent institutions (economic research institutes, IMF, OECD, Deutsche Bundesbank) and the causes of any discrepancies are identified and evaluated.

Medium-term public finance forecasts are based on the federal government’s latest macroeconomic projections and the findings of the Working Party on Tax Revenue Estimates. Reasons are given for any major discrepancies from other institutions’ budget projections. The German authorities consider that the macroeconomic projection data lie within the range of estimations by independent institutions such as economic research institutes, the Deutsche Bundesbank, the OECD, the IMF and the European Commission. As an added benchmark for its own projections, the federal government uses the Joint Economic Forecast compiled by the leading German economic research institutes, which publish their own macroeconomic forecasts –independently as academic bodies– immediately in advance of Federal Government projections. Reasons are given for any major discrepancies from other institutions’ projections.

Additionally, an Annual Economic Report describing the current economic situation and its foreseeable development is published by the independent Council of Economic Experts (Sachverständigenrat zur Begutachtung der Gesamtwirtschaflichen Entwicklung) established by law in 1963 (Act on the Appointment of a Council of Experts on Economic Development). The Annual Economic Report presents and appraises scenarios for a range of assumptions and their impacts. It also addresses undesirable developments and options for averting or remedying them. The report is submitted to the federal government by 15 November each year. Each January, on the basis of section 6 of the Act on the Appointment of a Council of Experts on Economic Development, the federal government presents an Annual Economic Report to the legislative bodies stating its position on the report of the Council of Economic Experts. In accordance with section 2 of the Stability and Growth Act, the Annual Economic Report presents the federal government’s economic and fiscal policy targets for the current year (annual projection). The following year’s Annual Economic Report compares and evaluates them against the preliminary GDP data published by the Federal Statistical Office at the start of January.

Sensitivity analysis

The German authorities report that the German stability programme includes a sensitivity analysis with projections for the general government deficit under different GDP scenarios (generally an optimistic and a pessimistic scenario). No sensitivity analysis is given for interest rates, which the federal government refrains from explicitly forecasting in keeping with monetary policy independence.

3. Fiscal rules

Description of fiscal rules

Articles 109 to 115 of the German Basic Law (Grundgesetz) set out the fundamental budget rules at constitutional level. The Budgetary Principles Act additionally lays down basic principles for the implementation of budget law by the federal government and the Länder. For the federal government, the Federal Budget Code (Bundeshaushaltsordnung) governs the preparation and execution of the federal budget, rendering of accounts, and auditing of accounts. The Länder have met their obligations under the Budgetary Principles Act by issuing Länder budget codes.

Article 109(3), first sentence, of the German Basic Law normally requires the federal government and the Länder to present balanced budgets without borrowing (‘the budgets of the federal government and the Länder shall in principle be balanced without revenue from credits’). The federal government and Länder may introduce rules intended to take into account, symmetrically in times of upswing and downswing, the effects of market developments that deviate from normal conditions as well as to make exceptions for natural disasters or unusual emergency situations that are beyond government control and are substantially harmful to the state’s financial capacity. Exceptional regimes of this kind must be accompanied by a corresponding amortisation plan. Article 115(2), second sentence, of the Basic Law stipulates for the federal government that the balanced budget condition is satisfied if revenue from borrowing does not exceed 0.35 per cent of nominal GDP. Further stipulations are made for the federal budget in an implementing act (‘Gesetz zur Ausführung von Artikel 115 des Grundgesetzes’). The Länder regulate their budgets in such a way that the requirement of Article 109(3), first sentence, of the Basic Law is only met without revenue from borrowing. Under a transitional provision (Article 143d of the Basic Law), the federal government has until 2016 and the Länder have until 2020 to comply.

For the social security system, self-correcting contribution adjustments (e.g. for statutory pension insurance see sections 153 and 158 of Book VI of the Social Code (SGB VI), and for unemployment insurance, see section 363 ff. of Book III of the Social Code (SGB III)) ensure more or less a structurally balanced budget. Social security funds are not allowed to have recourse to external borrowing but can fund any deficits out of reserves.

Under the constitutional arrangements for public finances, the Länder are each responsible for their local authorities. For the local authorities too, balanced budgets are ensured in the medium term by fiscal rules applying to them. Under local authority budget ordinances issued by the Länder, transfers from the administrative budget to the capital budget must at least cover existing debt service and the cost of borrowing. For larger transfers, there is leeway for funding investment or additions to reserves. New borrowing by local authorities is allowed only under the capital budget and only for investment and debt restructuring. For instance, in the Land of Baden-Württemberg, section 78(3) of the Local Authority Code (Gemeindeordnung) stipulates: ‘a local authority may only take out loans if other forms of funding are not possible or would be economically unviable’.

Compliance arrangements

The recent reform put in place the Stability Council, which, in accordance with Article 109a of the Basic Law, supervises the budgetary management of the federal government and the Länder to avoid budgetary emergencies. The Stability Council has the task of monitoring compliance with the general government deficit limit. The federal government and the Länder are expected to work together in the Stability Council to prevent the general government deficit limit under Article 3 of the TSCG from being exceeded.

In time for the start of parliamentary consultations on the government draft for the next budget, the Federal Court of Audit also presents a report on the development of federal finances in which it analyses federal medium-term financial planning, providing members of parliament with an additional decision aid.

Compliance with constitutional borrowing limits is further subject to judicial review, as cases can be brought the Federal Constitutional Courts or Länder constitutional courts (see e.g. Article 93 of the Basic Law).

Under the budget rule, if the target is missed in one fiscal year, a structurally balanced budget, or in the case of local authorities and social security funds one complying with their respective fiscal rules, must be achieved in the next fiscal year. To ensure that the budget rule is also complied with at the execution stage of the budget, a federal ‘control account’ has been set up with a built-in settlement requirement. The control account documents non-cyclical deviations from the threshold that arise each fiscal year during budget execution. If actual net borrowing is more than the maximum permissible limit –as determined after the fiscal year-end based on the actual impact of economic activity on the budget– then the account is debited accordingly; if it is less, the account is credited. The annual credit and debit to the control account are netted over time. Under the Basic Law, if the control account has a negative balance exceeding a threshold of 1.5 per cent of GDP, the negative balance must be reduced back to that threshold in a cyclically appropriate manner. Implementing provisions enacted as ordinary legislation thus stipulate that any such reduction may only be applied during an upturn. Reductions must be phased in annual steps not exceeding 0.35 per cent of GDP. Because this spreads the reduction over time, however, the obligation to reduce borrowing, again enacted in ordinary law, kicks in at a lower threshold of 1 per cent of GDP for the control account.

The German authorities report that, if a local authority is in or moving towards deficit, the relevant supervisory authority can make approval of its budget conditional on presentation of a consolidation plan leading to a balanced budget at least in the medium term. In extreme cases, the supervisory authority can enforce consolidation by sending in a ‘state commissioner’ and stripping local bodies of many of their powers.

Escape clause

Under Article 109 of the Basic Law, the federal government and the Länder may make exceptions for natural disasters or unusual emergency situations that are beyond governmental control and are substantially harmful to the state’s financial capacity. Exceptional regimes of this kind must be accompanied by a corresponding amortisation plan.

4. Medium-Term Budgetary Framework

The German authorities report that under section 50 of the Budgetary Principles Act and sections 9 and 14 of the Stability and Growth Act, the federal government and the Länder have a five-year fiscal planning horizon. Detailed projections of general government revenue and expenditures are published in the Stability Programme and in the Federal Ministry of Finance’s Finance Report and monthly reports.

As for reporting on fiscal sustainability matters, the impacts of individual policy areas and specific measures on the sustainability of public finances are presented in the Report on the Sustainability of Public Finances (Bericht zur Tragfähigkeit der öffentlichen Finanzen). The report is published once every parliamentary term.

The German authorities report that medium-term financial planning generally provides the starting point for the next planning cycle. The federal government and the Länder report on changes relative to the previous planning cycle in accompanying documentation on medium-term financial planning as per section 10(2) of the Federal Budget Code.

5. Mechanisms of coordination across sub-sectors of general government

Under section 51 of the Budgetary Principles Act, the Stability Council consults on underlying macroeconomic and fiscal assumptions in order to coordinate the budgetary and financial planning of the federal government, the Länder and local authorities. The Stability Council may decide on recommendations for the coordination of budgetary and financial planning.

Allocation of responsibilities

Under Article 104(1) of the Basic Law, the federal government and the Länder each fund out of their own budgets the expenditures they incur in discharging their constitutional responsibilities. Under Article 109(1) of the Basic Law, the federal government and the Länder are autonomous and independent of each other in the management of their respective budgets. The federal government and the Länder each act separately on their own responsibility in making decisions on the compilation of budgets, the execution of budgets, control and auditing.

The SZAG law of 5 September 2006[16] regulates the sharing of fines and non-bearing deposits between the federal government (65%) and the Länder (35%) in relation to the SGP (Regulation 1467/97). A new law in preparation will deal with sanctions imposed under the preventive arm of the SGP.

1.6. Implementation of the main provisions of the Directive in ESTONIA

1. Accounting and statistics

Accounting

The state budget is prepared and its execution monitored on a cash basis (based on the state Budget Act), whereas accounting and the financial statements are done on an accrual basis.

The Estonian authorities report that accounting is regulated by the Accounting Act and Guidelines of the Estonian Accounting Standards Board (Estonian GAAP). The recommendation for accounting principles to conform to international accounting standards is contained in the Accounting Act. Public sector entities also apply General Rules for state accounting, enacted by the Ministry of Finance, which came into force on 1 January 2004. In January 2004 the transfer to accrual accounting by all public sector entities was completed.

Statistics

According to the General Rules for state Accounting all public sector accounting entities submit financial reports to a dedicated MoF database. The reports are based on the common chart of accounts, which consists of balance sheet accounts, revenue and expenses accounts and accounts for off-balance sheet information, such as guarantees, commitments, collaterals etc. The financial data also include trading partner codes for consolidation purposes, activity codes based on COFOG and cash-flow codes for cash-flow statements. All general government sector accounting entities enter their monthly reports into the MoF database. State-owned enterprises enter their reports quarterly. The due date is the end of the month following the end of the reporting period. Database reports are available to the public on the MoF website. The main accrual-based results of the general government sector (surplus/deficit, loan liabilities etc.) are also published monthly together with the budget fulfilment report of the state (cash-based) on the MoF website. The MoF’s reporting database is used by the Estonian Statistical Office, which transfers all the accrual-based information from that database to another database they use to produce statistical data in accordance with ESA 95.

Internal control and auditing

The National Audit Office (NAO) is responsible for auditing the Estonian consolidated annual report and the ministries’ stand-alone annual reports. The audited annual report of the state is published together with an NAO statement and transmitted to parliament. Local governments, social security funds, other public corporations, agencies and non-profit institutions are audited by private audit firms. Also NAO may also choose to audit these entities.

Regarding internal control activities, these are laid down by various legal texts (the Constitution of Estonia, the Central Government Act, the state Budget Act, the Local Government Financial Management Act, the Public Assets Act, and various acts governing legal persons in public law) and internal rules regulating work in various sectors. The general rules include due-date requirements for submitting documents and reports. The requirements for document checks must ensure that the authorised person (signatory) and the employee of the accounting unit are not the same. A Minister must guarantee the implementation of the internal control system and internal auditing in the ministry, in government agencies within the ministry and in the state agencies administered by government agencies.

For reconciliation between public accounting and data based on ESA 95, the detailed table explaining the methodology of transition is under preparation.

Regarding Article 14(1) of the Directive, a list of all bodies and funds that are part of general government (around 3000 entities) is published on the website of Statistics Estonia. In the annual and multiannual budgetary process, information is given on the impact of these bodies on the general government budget position and debt. The impact is shown at the level of general government sub-sectors.

Regarding Article 14(2) of the Directive, information on tax expenditure is made available in the official forecast of the Ministry of Finance, as well as in the state Budget Strategy, the Stability Programme and an explanatory note on the Annual state Budgets. Information is given on the impact of tax expenditure, legal grounds and COFOG classification.

Regarding Article 14(3) of the Directive, information about state guarantees is published on a monthly basis on the website of the Ministry of Finance and in official forecasts and multiannual strategic documents. Regarding local governments, extensive fiscal reports are published on the MoF website on a monthly basis.

Information about public corporations (including the government share, revenues, expenditure and assets) is published yearly in the annual state report[17].

2. Forecasts

The Estonian authorities report that the following rules have been in place for at least five years for the MoF’s macroeconomic forecasting:

­ External assumptions for the forecast are fixed about one month before publication of the forecast. For the development of Estonian export markets, the most recent forecasts provided by the Commission or the countries concerned are used. Major changes in external developments during the forecasting process are taken into account and the latest domestic statistics are used as the basis for the forecast.

­ At least two scenarios are always produced as input for the fiscal forecast, where the probability of the main scenario occurring is over 50 %. Fiscal outcomes are always calculated for both scenarios. In recent years, the risk scenario has been more negative than the main scenario.

­ Before completion, the forecast is thoroughly discussed with Central Bank experts. In addition, a separate seminar is held with virtually all macro forecasters and experts in specific fields at commercial banks and other relevant institutions in Estonia (such as the unemployment insurance fund) to get appropriate feedback.

­ Forecast results and assumptions are discussed on a yearly basis with the Commission, IMF, OECD and rating agencies’ economists.

­ When the forecasts are published, a comparison with all other available forecasts for the Estonian economy and their developments over time is presented.

Together with the preparation of the new state Budget Act (see below), there is a plan to grant legal independence to the staff of the Ministry of Finance who compile the forecast. As described below, there is also a plan to introduce an Independent Fiscal Council in legislation.

3. Fiscal rules

Although there are no laws that require the general government or central government budget to be in balance, the Estonian authorities report that there is a ‘soft’ budget balance rule in the form of a coalition agreement that was followed by all governments until recently. The rule is usually set in the coalition agreements signed between coalition partners at the beginning of a new government’s term. All governments had adhered to it until the recent economic crisis, when the scale of the economic downturn made the strict implementation of the rule impossible.

As regards multiannual expenditure, the state authorities may enter into contracts for the account of the coming years provided that the total amount of the contractual payments due in any coming budgetary year does not exceed 50% of the amount of the relevant item of expenditure in the current budgetary year.

Regarding local governments, their activities have been regulated by the Financial Management of Local Authorities Act since 2012. The Act stipulates that local authorities must ensure that the operating result, i.e. the difference between operating revenue and operating expenditure is balanced or positive. Their net debt burden should be below 60-100 % of their operating revenue (the exact ratio depends on their individual financial capacity). All local authorities are temporarily prohibited until the end of 2016 from increasing their net debt burden over 60 %.

The Estonian authorities report that a new state Budget Act is being prepared to reflect the changes needed in the light of the Directive and domestic needs. The legislation is expected to be submitted to the Riigikogu at the beginning of 2013. It will contain operational balanced budget and deficit rules for the general government and balance budget, deficit and debt rules for the sub-sectors. These rules are already in place for the local government sub-sector and are also planned for the foundations and for the bodies governed by public law (public entities) in the general government sector. Planning will be harmonised so that all of the sub-sectors process their multiannual and annual plans in a synchronized way in line with the State Budget Strategy and the Annual state Budget. The fiscal policy objectives of the state budget will be binding on all general government sub-sectors and institutions.

Deviations can be approved by the Riigikogu through the Annual state Budget Act as long as they are in line with the fiscal policy objectives framework set out in the State Budget Strategy.

Finally, it is planned to introduce an Independent Fiscal Council in legislation. The Council will give opinions on fiscal policy documents before they are approved and will monitor the execution of the fiscal policy objectives.

4. Medium-Term Budgetary Framework

The medium-term budgetary framework has been set out in the form of the State Budgetary Strategy since 2003. The document is adopted annually in May and sets fiscal policy targets for the next three years on a rolling basis. Under the state Budget Act, the State Budget Strategy forms the basis for the compilation of the draft state budget. The State Budget Strategy is compiled for the following budgetary year and the subsequent three years. It sets out the budgetary policy principles and objectives, the priorities of the Estonian Government and its activity-based funding plan for these four years (including for the balance of the state budget and for the state budget surplus or deficit), an analysis of the economic situation and a forecast of economic developments, including forecasts of the income and expenditure of the general government, and other information essential for financial management.

The State Budget Strategy is approved by the government on the proposal of the Minister of Finance at least seven months before the beginning of the budgetary year.

The state Budget Strategy is drafted (jointly with the Stability Programme) in accordance with the so-called rolling principle: in spring of each year the previous State Budget Strategy is updated for the coming three years and plans are made for the fourth year. To that end, the ministries and state authorities update the organisation-based development plans for their area of government annually by one year, in order to ensure a constant four-year perspective for strategic planning. Such development plans are approved by each Minister, after discussing them first with the Prime Minister and other relevant Ministers. The development plans are submitted to the Ministry of Finance by 1 March each year. The Ministry of Finance then drafts the State Budget Strategy for discussion in the cabinet. After the cabinet has taken a decision the government approves the State Budget Strategy.

It is planned to make the content requirements for the State Budget Strategy more explicit, adding compulsory requirements for multiannual expenditure ceilings and for the fiscal policy objectives in terms of the deficit, debt, reserves and tax burden. The intention is to introduce an obligation to set the previously-mentioned ceilings and objectives for the general government as a whole and also for the individual sub-sectors.

5. Mechanisms of coordination across sub-sectors of general government

According to the Estonian authorities, the general government sub-sectors are largely involved in the fiscal planning process. Central government institutions (public entities, foundations, state Real Estate Agency) are required to submit their multiannual budget plans to the Ministries for the official forecasts and State Budget Strategy. Local governments are required to submit monthly fiscal data and approved annual budgets to the Ministry of Finance. Regarding the social security funds, the Health Insurance Fund is adopting a multiannual expenditure plan, which is used in government fiscal planning. The Unemployment Insurance Fund regularly updates its expenditure projections in line with the official macroeconomic forecast of the Ministry of Finance.

1.7. Implementation of the main provisions of the Directive in IRELAND

1. Accounting and statistics

Accounting

The Irish authorities report that Government departments and offices prepare accounts in accordance with the provisions of the Exchequer and Audit Departments Act 1866 as amended by the Comptroller and Auditor General (Amendment) Act 1993. The Appropriation Account, prepared in accordance with the above legislation, includes accrual information in supplementary notes to the accounts in accordance with accounting guidance issued by the Department of Public Expenditure & Reform in the form of circulars. Appropriation accounts are prepared on a cash basis. The notes to the Appropriation Account contain accrual information, which the Irish Statistical Office uses (plus relevant information from other sources) to produce the data based on the ESA 95 standard.

Internal control and audit

Legislative timeframes require government departments and offices to have their appropriation accounts prepared and presented to the Comptroller and Auditor General (C&AG) by 31 March of the year following the year of accounts. Legislation also requires the Comptroller and Auditor General to audit the accounts and present his report on those audits to parliament by 30 September of the year following the year of accounts. Each accounting officer signs a statement of internal financial control, which documents their responsibilities for internal control within the department/office, is appended to the appropriation account and is reviewed by the Comptroller & Auditor General to ensure consistency with the results of his audit. All general government bodies are subject to independent audit by the Comptroller & Auditor General or another external auditor.

The Local Government Act (2001) provides the legal basis for audit of the local government sector. It requires the Local Government Audit Service to carry out audits of local authorities (e.g. city, county and town councils, regional assemblies, regional authorities and other bodies). The auditor appends his/her signature to the audit opinion on the local authority’s annual financial statement. Local government auditors may also issue associated audit reports. The audit opinion and any audit report are sent to the local authority, which must table them for discussion at its next available public meeting. Copies of audit reports are also sent to the Director of Audit, the Minister for Environment, Community and Local Government and the C&AG. There is an accounting code of practice issued by the Department of Environment, Community and Local Government, which sets out accounting policies. Local authorities are required to prepare their annual financial statements on an accruals basis. The accounting year-end for local authorities is 31 December, and annual financial statements are to be prepared by the end of March in accordance with the accounting code of practice.

Statistics

Monthly cash-based fiscal data for central government are published in the Exchequer Statement two working days after the end of each month[18]. For local government, quarterly general government accounts, including local government accounts data on an ESA95 basis, are submitted to Eurostat by the Irish Statistical Institute one quarter later. They are to be published from Q1 2013. To meet reporting requirements under the EU/IMF Programme, income and expenditure reports for local authorities (comprising the main part of local government) are supplied to the Troika within 90 days of the end of each quarter. Consideration will be given to publishing this information in the context of transposing the Directive.

Information on the receipts and expenditures of the Social Insurance Fund (SIF) is supplied to the Troika under the EU/IMF Programme reporting requirements. In addition, a further report is to be added to the Exchequer Statement giving an alternative presentation of the information: revenue information will include receipts for SIF and expenditure information will include its expenditure[19].

Extra-budgetary funds

A register of general government bodies is kept by the Irish Statistical Office and is included in the EDP inventory[20]. The register is to be updated by the end of 2012 and maintained by the Irish Statistical Office. The combined impact of these bodies on general government balances and debts is presented in a detailed reconciliation table now published 5 times a year[21].

Tax expenditure

The Irish authorities report that the requirements of the Directive with regard to tax expenditures are being met on an administrative basis. Information is provided in the annual budget documentation regarding new or extended tax expenditures. Information on existing tax expenditures can be found in the statistical reports produced by the Office of the Revenue Commissioners, though with a lag (only the 2010 report is available so far)[22]. The Commission on Taxation, which undertook an in-depth review of the tax system in 2008, published detailed information on tax expenditure (using OECD methodology) in its 2009 report.

Contingent liabilities and participation in capital of corporations

Only information on government guarantees is available, but is not published.

2. Forecasts

The Irish authorities report that the Department of Finance, which is producing macroeconomic and budgetary forecasts, uses up-to-date information and takes great care in ensuring its macroeconomic and budgetary forecasts are robust and are based on sound data and realistic assumptions.

A sensitivity analysis is performed by the Department of Finance to produce macro-fiscal scenarios resulting from reflecting changes in key economic variables. A macro-fiscal model is used to simulate a situation in which real GDP differs from the baseline by +/-1 %, owing to (i) a change in world growth; (ii) a change in interest rates; (iii) a change in oil prices; and (iv) a change in the savings rate.

As to regards ex post evaluation, the Irish authorities consider that the independent Irish Fiscal Advisory Council (IFAC), established in June 2011, has enhanced the robustness of Ireland’s budgetary architecture. The role of the Council is to independently assess, and comment publicly on, whether the government is meeting its own stated targets and objectives. IFAC assesses the appropriateness and soundness of the government’s macroeconomic projections and overall fiscal stance. These assessments are published[23].

3. Fiscal rules

Following the new legislative developments at EU level, and the positive outcome of the referendum held in May 2012 to approve ratification of the TSCG, the Fiscal Responsibility Bill (FRB) was published on 18 July 2012 to implement the obligations under the Treaty. The Irish authorities report that the requirements of the Budgetary Frameworks Directive are being examined in detail to ensure that it is transposed into Irish law by regulation during 2013.

The Fiscal Responsibility Bill 2012 will require the government to comply with the budgetary rule and the debt rule set out in the legislation.

The budgetary rule states that the budgetary position of general government must be: (i) in balance or in surplus, to be determined by reference to the medium-term objective (MTO); or (ii) on an adjustment path towards the MTO set in accordance with EU Regulation 1466/97; unless exceptional circumstances apply in accordance with the Stability and Growth Pact stipulations.

The debt rule in the FRB fully conforms to the one-twentieth debt rule provided for in EU Regulation 1467/97. The FRB also provides for a correction mechanism in accordance with the common principles adopted by the European Commission. Accordingly, the target definition and scope of the fiscal rules is to be defined in legislation. The target to be set is the MTO and the scope of application will be general government.

Under the FRB, the Fiscal Council will be tasked with monitoring compliance with the budgetary rule and, if applicable, the correction mechanism. It will also be tasked with assessing whether exceptional circumstances exist or have ceased to exist. In the event of non-compliance, as highlighted by the Fiscal Council in its monitoring assessments, the Minister for Finance will be required to comply or explain the reasons why to parliament.

The Irish authorities report that there is a separate fiscal rule applicable to local government. Section10A (1) of the 1994 Local Government Act states that: ‘if at any time an estimate of expenses for a local financial year has been adopted by a local authority and it appears to the Minister that it is insufficient to defray the expenses to be incurred by the authority in that financial year (…) the Minister may (…) require the local authority (…) to amend (…) the estimate (…)’. However, the government has subsequently decided that the 34 local authorities as a whole could run a deficit of up to € 200 million each year[24].

4. Medium-Term Budgetary Framework

The Irish authorities mention that legislation is being drafted to provide a statutory basis for the existing multiannual expenditure ceilings. The Irish medium-term budgetary framework is expected to be fully consistent with the Irish Stability Programme.

5. Mechanisms of coordination across sub-sectors of general government

The Irish authorities report that ways to enhance coordination are under consideration for transposition of the Directive and in the wider context of the Stability and Growth Pact Reform. While the budgetary responsibilities of the various sub-sectors of general government are considered to be clearly defined, understood and implemented by the sub-sectors in question, the transposition of the Directive will provide an opportunity to collate these rules and requirements in a single document.

1.8. Implementation of the main provisions of the Directive in GREECE

1. Accounting and statistics

As of January 2011, the central administration has put in place a modified cash-basis double-entry accounting system (Presidential Decree 15/2011), containing requirements and procedures for generating accrual data and ensuring compliance with the ESA 95 standards. According to the fifth update of the assessment of compliance with the MoU (October 2011), the double-entry accounting system has been finalised in hospitals.

A report on state Budget execution is published by the Ministry of Finance (General Accounting Office)[25]. Cash data encompass total revenue, total expenditure, and the state budget balance and are presented in cumulative form for the current fiscal year and compared to targets. With a one-month lag, the Ministry of Finance (General Accounting Office) publishes general government cash data (revenue, expenditure and balance), broken down by sub-sectors (state budget, extra-budgetary funds, local government and social security funds).

The Greek authorities report that monthly data are collected through questionnaires for 970 entities belonging to general government but outside line ministries. An international auditing company has been mandated to prepare numerical reconciliation tables for all sub-sectors in order to bring the detailed cash data into line with the ESA and GFS codification system.

In line with the economic adjustment programme, quarterly Quantitative Performance Criteria are in place, to monitor general government budget execution.

2. Forecasts

The Greek authorities reports that the Directorate of Macroeconomic Analysis and Forecasting (part of the MoF’s Directorate General for Economic Policy) analyses developments in the Greek and international economy and prepares both short- and medium- term macroeconomic forecasts. These draft forecasts and the underlying assumptions are discussed in a consensus roundtable with independent bodies. The Directorate participates in the formulation of the state budget and the update of the Stability and Growth Programme as well as in the preparation of the Medium-Term Fiscal Strategy. The macroeconomic forecasts prepared for these documents include alternative scenarios and sensitivity analyses. A sensitivity analysis is to be conducted by mid-2013 in the newly established Directorate of Fiscal Programming, Fiscal Data and Methodology for the main fiscal variables under different macroeconomic assumptions.

Finally, in the context of the economic adjustment programme for Greece, all the macroeconomic and budgetary estimates and forecasts are discussed and agreed with the representatives of the European Commission, the ECB and the IMF.

3. Fiscal rules

Greece is currently subject to an Economic Adjustment Programme, which requires fiscal policy to achieve the objectives of the programme. A range of fiscal targets have been set and are closely monitored through regular missions by the European Commission, the European Central Bank and the International Monetary Fund. These targets concern, for example, the general government deficit, primary general government deficit and debt. The second Economic Adjustment Programme for Greece calls for a primary deficit of 1 per cent of GDP in 2012 and a primary surplus of 4.5 per cent of GDP in 2014. The targets should ensure that there is sufficient progress towards the objective of a 120 per cent debt-to-GDP ratio by 2020. In addition, the technical Memorandum of Understanding agreed with the Greek authorities defines a number of additional quantitative performance criteria and indicative targets covering among other things: (i) a floor on the modified general government primary cash balance, (ii) a ceiling on state budget primary spending; (iii) a ceiling on the overall stock of central government debt; (iv) a ceiling on the new guarantees granted by the central government; (v) the non-accumulation of domestic arrears; and (vi) a floor on privatisation proceeds. In order to support implementation of the fiscal targets, the Medium-Term Fiscal Strategy 2012-2015 sets annual spending ceilings for each line ministry and fiscal targets for other central and general government sub-sectors.

A number of accompanying reforms have been undertaken to strengthen implementation of the fiscal targets: (i) the submission of supplementary budgets has been facilitated; (ii) commitment registries have been established in all ministries; (iii) accounting officers have been appointed in every ministry with increased responsibility for the accuracy and reliability of transmitted fiscal data.

4. Medium-Term Budgetary Framework

The Mid-Term Fiscal Strategy Plan (MTFS) makes multi-year projections for total revenue and expenditure over the following time span: the two previous years, the current year, the budget year and the three following years. It covers: (i) central government, with a spending ceiling defined for each line ministry; (ii) the local government organisations (LGOs); (iii) the social security funds and hospitals (social budget); (iv) the public- and private-law entities forming part of central government; (v) state-owned enterprises reclassified under central government; (vi) several organisations and accounts (ELGA, OPEKEPE, Green Fund, AKAGE).

The MTFS lays down: (i) the main political directions and priorities; (ii) the fiscal commitments undertaken for the following period, and thus the fiscal limits; (iii) specific targets, timetables and implementation indicators for spending control and gradual deficit reduction; (iv) expenditure ceilings for each line ministry (central government) throughout the duration of the MTFS.

At the planning stage, the MTFS takes into account: (i) the mid-term targets for general government (general government deficit, primary general government deficit, level of public debt), as well as its sub-sectors; (ii) the macroeconomic prospects and economic developments. In accordance with Law 3871/2010, it is submitted to the Ministerial Council by mid-April and to parliament for adoption at the latest by mid-May every year. It may be updated if the macroeconomic environment has changed significantly by September.

According to the Greek authorities, the MTFS promotes a top-down approach that can be described as follows:

- Specification of the mid-term fiscal targets for the period covered by the MTFS for the general government deficit, general government primary deficit and level of debt.

- Preparation of the baseline scenario, i.e. projections of fiscal aggregates over the medium term if corrective measures are not taken.

- Comparison between fiscal targets and the fiscal projections contained in the baseline scenario and identification of deviations per year, i.e. the fiscal gap for the whole period.

- Stipulation of the corrective interventions required to fill the fiscal gap (nature and quantitative evaluation over the MTFS horizon). Corrective interventions may be permanent or one-off, affect revenues or expenditure, target specific entities or have a horizontal nature.

- Preparation of the MTFS to specify in detail the fiscal adjustment required for the whole period for each sub-sector of general government, so that fiscal targets can be met.

5. Mechanisms of coordination across sub-sectors of general government

As regards transparency requirements, general government sub-sector entities are obliged to provide monthly data for their economic performance one month after the reference month. A detailed list of all entities providing such data is published every month. Non-complying entities are not entitled to grants from the state Budget for as long as they do not provide the required data.

In addition the accounting officers (one in each line ministry) monitor the monthly budget execution of all entities supervised by the relevant ministry and the adherence to ceilings for their ministry and submit a monthly report to their minister, the Minister of Finance and parliament.

1.9. Implementation of the main provisions of the Directive in SPAIN

Spain has undertaken successive overhauls of its fiscal framework. The General Budgetary Law (LGP), updated in 2003, established budgetary procedures for central government, while the Organic Law on Regional Financing (LOFCA) laid down procedures and coordination arrangements for regional budgets. In 2011-12, the introduction of fiscal principles in the constitution (in particular a balanced budget principle) and the adoption of a new Organic Law on Budgetary Stability and Financial Sustainability implementing those principles (referred to below as ‘the Organic Law’) defined a new framework for general government.

1. Accounting and statistics

Accounting

Regarding accounting requirements, the general government sector accounts are prepared annually by the comptroller’s office (IGAE) under the ESA standard, as defined by the LGP (Article 125.2.g). Different laws regulate the accounting and budgetary regime of each government level.

Statistics

For central government, IGAE already publishes monthly information on budgetary execution, both in national accounts terms and on a cash basis[26]. Procedures are being designed to collect monthly information in national accounts terms on autonomous bodies and other entities coming under central government.

For the social security system, procedures are also being designed to collect monthly information on the accounts of its different entities for monthly reporting in national accounts terms.

Regarding the autonomous communities and local entities, Article 27 of the Organic Law establishes that the Ministry of Finance and Public Administration can collect any information needed to ensure compliance with the Organic Law and the European requirements. This is complemented by a ministerial regulation to be published in September 2012 setting out the procedural details. Monthly data for the autonomous communities on a cash basis are to be published from September 2012 onwards and in national accounts terms as from 2013 (with a six-week delay). Quarterly information on a cash basis and in national accounts terms for the regions is already published with a delay of 2-2.5 months. For local entities, quarterly reporting is expected as from 2013.

The reconciliation table showing the methodology for the transition between cash-based data and ESA 95 data still has to be developed.

Transparency

Regarding the obligations in Article 14 of the Directive, the Spanish authorities report the following:

- For the contingent liabilities of public administrations, IGAE has information on the guarantees granted by central government and the Bank of Spain has information on the guarantees granted by autonomous communities and local entities;

- For non-performing loans, there is information in relation to central government;

- For the liabilities of public companies, the Bank of Spain publishes information on the debt of public companies;

- For participation in the capital of corporations, there are three registers for central government, autonomous community and local entity holdings, managed by IGAE and the Ministry of Finance and Public Administration.

Regarding tax expenditure, central government has published a tax expenditure budget since 1979 as required by the Spanish Constitution (Article 134(2)) and the General Budgetary Law (Article 32(2)). It quantifies tax expenditure for central government taxes. From 1995 on, an explanatory memorandum[27] has been included with every annual Budget Law (Article 37(2) of the General Budgetary Law). Regions are required to quantify tax expenditure under their statutes of autonomy and regional fiscal laws. Local governments have the same obligation. All regions publish information about the quantification of tax expenditure together with their regional budget laws. Most regions publish the methodology they use for this quantification, but there are differences among the regions, as some publish detailed information while others do not.

2. Forecasts

Regarding Article 4(1) of the Directive, Article 15(5) of the Organic Law requires the government to produce a report with annual and multi-annual macroeconomic and macro-fiscal forecasts, prepared with input from the Bank of Spain and after consideration of the European Commission and ECB forecasts.

Regarding Article 4(4) of the Directive, sensitivity analyses are required by the Organic Law, but only for regions that are in breach of the fiscal rules and therefore need to submit corrective plans. The Spanish authorities state that they follow the guidelines given in the January opinion of the EFC on the contents and format of the Stability and Convergence Programme.

Regarding Article 4(5), the Organic Law (Articles 6(2) and 27(5)) establishes the Ministry of Finance’s responsibilities regarding the public provision of forecasts and corresponding methodologies. In addition, the Organic Law (Article 28) also provides for the establishment of a public information centre ‘to provide information about the economic and financial activity of the various public administrations’. The Ministry of the Economy and Competitiveness is responsible for the production of macroeconomic forecasts. These are incorporated into the overall process through the report evaluating the expected economic situation for each year, which is required by Article 15(5) of the Organic Law.

3. Fiscal rules

Currently, Spain has one fiscal rule for expenditure in place at all levels of general government (Organic Law, Article 12). LOFCA also contains provisions regarding the indebtedness of the regions. As the former laws (LEP and LOLEP) have been repealed by the Organic Law, Spain currently has no budget balance or debt rule in place across general government: the rules to be introduced by the Organic Law (Articles 11 and 13) will be effective from 2020.

Under Article 17 of the Organic Law, the Ministry of Finance is in charge of monitoring compliance with the rules set by the Organic Law (the expenditure rule and the future balanced budget rule and debt rule).

Escape clauses and correction mechanisms are defined in the rules (Articles 11 and 13) and in Chapter IV of the Organic Law.

The Organic Law mentions in Articles 11, 12 and 14 the binding character of the rules for the annual budgets within the general government sector.

4. Medium-Term Budgetary Framework

The Spanish authorities report that the features of their medium-term budgetary framework are specified in Article 29 of the Organic Law.

The articles of the General Budgetary Law 47/2003 that regulate the budgetary frameworks are now under study in order to adapt them to European regulation. This modification will be introduced in the General State Budget Law for 2013. They will be used in the Stability Programme.

5. Mechanisms of coordination across sub-sectors of general government

There are two forums for coordination. The Council for Fiscal and Financial Policy (CPFF) brings together central government and the autonomous communities. The CPFF participates in the setting of the stability objectives and in their monitoring, is informed of the expenditure limit for central government, approves the rebalancing plans of the regions, and coordinates the budgetary, debt and public investment policies of the autonomous communities. The National Committee of Local Administration (CNAL) brings together central government and local administrations.

The Spanish authorities report that the Organic Law establishes or reinforces the sub-central enforcement of national fiscal rules, clarifying the role of different government levels. For instance, while the debt rule sets a ceiling of 60 % of GDP for general government, it is broken down into ceilings for central government (44 % of GDP), regions as a whole (13 % of GDP), and local government as a whole (3 % of GDP).

The Organic Law also establishes correction mechanisms to address deviations from the rule, including the mandatory submission of correction plans from the government level responsible, as well as temporary, total or partial handover of budgetary responsibility to a higher government level in the event of repeated breaches.

1.10. Implementation of the main provisions of the Directive in FRANCE

1. Accounting and statistics

Accounting

The French authorities report that most entities in the general government sector are subject to the French general public accounting conventions (Comptabilité publique) defined in Decree No. 62-1587 of 29 December 1962 and Article 60 of the Law No. 63-156 of 23 February 1963. Other entities apply private accounting conventions or are subject to other specific rules.

Article 30 of the Loi Organique relative aux Lois de Finances No. 2001-692 of 1 August 2001 (LOLF) stipulates that the general public accounting system used for the state is on an accrual basis. This is also the case for public institutions (Articles 51-52 of Decree No. 62-1587 of 29 December 1962), compulsory social security schemes (Article L.114-5 of the Social Security Code) and local public bodies (Articles 51-52 of Decree No. 62-1587). Other legal texts ensure that accrual accounting is also used for the unemployment insurance scheme and supplementary schemes.

Internal control and audit

While internal control is in place for the state (Decrees of 29 December 1962 and No 2011-775 of 28 June 2011) and social security funds (Articles D122-7 and D122-8 of the Social Security Code), a reform of the provisions governi