Download Presentation on the June 2011 Fiscal Monitor Update

June 2011 Fiscal Monitor Update
Carlo Cottarelli
p
Director,, Fiscal Affairs Department
J
June
2011
G7 Economies: Change in Fiscal Balance, 2011
(Percent of GDP)
2.0
Canada
1.5
Germany
United
Kingdom
France
FM June 2011
10
1.0
0.5
United States
Italy
0.0
-0.5
Japan
-1.0
-1.0
-0.5
0.0
0.5
FM April 2011
1.0
1.5
2.0
2
2011 Deficit in the G7, in percent of GDP
12
April
p 2011 FM
WEO
10
Current
Current FM
WEO
8
6
4
2
0
Canada
France
Germany
Italy
Japan
United Kingdom
United States
3
Change in the Overall Balance, 2011 - 12
3.5
April 2011 FM
3.0
3
0
Current FM
2.5
2.0
15
1.5
1.0
0.5
0.0
United States
Canada
United
Kingdom
Japan
France
Germany
Italy
4
Emerging Economies
10
India
9
2011
Cyclicallly Adjusted De
eficit
8
India
2012
7
6
South Africa
5
South Africa
Mexico
4
3
Mexico
Brazil
2
Brazil
China
Russia
Russia
1
China
0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
Output Gap
5
Fiscal Adjustment, 2008 - 11
Change in Cyclically Adjusted Primary Balance, in percent
12
10
8
6
4
2
0
Latvia
Romania
Iceland
Estonia
Lithuania
Bulgaria
6
Credit Default Swap Spreads
5-Year CDS Spreads, basis points
1600
1400
Iceland
1200
1000
800
Latvia
600
Romania
400
Lithuania
200
0
Oct-07
Estonia
Feb-08
Jun-08
Oct-08
Feb-09
Jun-09
Bulgaria
Oct-09
Feb-10
Jun-10
Oct-10
Feb-11
Jun-11
7
What DID NOT Happen?

Credible fiscal adjustment
j
plan for the United
p
States

Credible fiscal adjustment plan for Japan

Comprehensive crisis management plan in
Europe

Rising government bond yields in major
advanced economies
8
Central Bank Holdings of Government Securities
(Percent of Outstanding Debt)
20
2010Q2
16
2011Q2
12
8
4
0
U.S. Federal Reserve
Bank of Japan
European Central Bank
1/
Bank of England
9
EU Developments in Fiscal Institutions

Long Standing Problems in Budgeting Process:
 Absence of national fiscal rules consistent with
the SGP
 Optimism in fiscal forecasts
 Lack of transparency in fiscal data

Additional p
proposals
p
by
y Parliamentary
y Committee:
 International Public Sector Accounting Standards
 “Top-down” approach to budgeting
 Countries
Co ntries with
ith poor record of forecasting m
must
st
adopt EC forecasts or independent fiscal
councils
10
Privatization
11
Analysis of Largest 2 Year Revenue Windows

13 out of 25 countries experienced at least one
2 year period with cumulative privatization
receipts of 5 percent of GDP or more between
1977 and 2009

6 of these 13 countries experienced two
additional, non-overlapping episodes with
privatization receipts
p
p of 5 p
percent of GDP or
more
Privatization Receipts
(Percent of GDP)
25
20
Window
Wndow
WindowII I
Window II
15
10
5
0
13
Fiscal Devaluation
(A switch between taxation on labor to taxation of
consumption)
14
Tax Wedge
Tax Wedge and Hours Worked per Working-Age Resident (2010)
1700
1600
KOR
Annual Ho
ours Worked pe
er
Working Ag
ge (15-64) Persson
1500
CHE
1400
PRT
JPN
1300
AUS
GRC
CAN
SWE
DEN
1200
AUT
NOR
USA
FIN
ITA
1100
GBR
DEU
NLD
1000
BEL
ESP
FRA
900
15
20
25
30
35
40
45
50
55
60
Tax Wedge (PIT + SS) as percent of Labor Costs
Source: OECD.
Note: PIT refers to Personal Income Tax; SS refers to Social Security contributions.
15
How Does Fiscal Devaluation Work?

Changes the incidence of the tax burden

Reduces unit labor costs if wages are sticky
16
Policy Conclusions

It is urgent for the United States and Japan to
approve a credible medium-term
medium term fiscal adjustment
plan

For the United States, attaining the authorities’
2012 targets now presents fewer risks

Europe needs to continue fiscal adjustment and
agree on a comprehensive crisis management plan

In some emerging markets, the task is to avoid
overheating
17
Thank you!