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Chile’s Advisory Fiscal Council Klaus Schmidt-Hebbel President, AFC, Chile Sixth Annual Meeting of OECD Parliamentary Budget Officials and Independent Fiscal Institutions The Knesset, Jerusalem 31 March - 1 April 2014 Chile’s Fiscal Institutions before the AFC • 2000: Minister of Finance adopts a Cyclically-Adjusted (or Structural) Balance Rule • Starts in 2001, largely in place to the present (14 years) • Objetive: government expenditure determined by estimate of permanent income, saving cyclical revenue in sovereign wealth fund. • Early 2000s: independent committees are established that present trend GDP growth etimates and long-term copper price forecasts. Used as MoF inputs for forecasts of cyclicallyadjusted copper price and GDP levels in estimating cyclically adjusted government revenue • 2006: Fiscal Responsibility Law: formalizes Structural Fiscal Balance Rule, requires incoming MoF to present fiscal policy framework consistent with the latter rule within 3 months, establishes legally the two independent committees. Chile’s Fiscal Institutions before the AFC • 2010: MoF calls Commission to make proposals to improve fiscal policy framework and fiscal rule. • 2011 Corbo Commission: refines calculation of Cyclically-Adjusted Fiscal Balance Rule, proposes Independent Fiscal Council, other changes. Many adoped by MoF • Replication of cyclical adjustments to government revenue still difficult for independent analysts Open Budget Transparency Index, 2012 New Zealand 1 South Africa 2 United Kingdom 3 Norway 6 Chile 16 Spain 19 Colombia 28 Argentina 40 Egypt 83 Chad 95 Benin 96 Saudi Arabia 97 0 10 20 30 Source: International Budget Partnership 40 50 60 70 80 90 100 Main Features of Chile’s AFC • Initiated in May 2013 by Ministry of Finance decree • Main objective: collaborate in discussion, analysis, and provision of recommendations to the MoF, in matters related to application of cyclically-adjusted balance rule to the budget • Specific tasks: a) Participates as observer in Trend GDP and Reference Copper Price Commitess called upon by the MoF b) Takes a position about the estimation of the cyclical adjustment to government revenue and balance preparaed by the Budget Office c) Presents its position and makes observations on prospective changes proposed by teh MoF on the fiscal rule d) Provides advise on fiscal policy issues, in response to requests made by the MoF Main Features of Chile’s AFC • • • • • • AFC pursues a narrow set of tasks Lacks institutional independence Lacks staff and budget (members are not paid) 5 members are named for overlapping 4-year periods Recruited among local fiscal experts AFC issues minutes and press releases that summarize meetings and assessments of Budget Office preparation of budget and related documents Fiscal Councils in the World Note: The tasks considered are 1) provide objective analysis of fiscal policy, 2) provide government independent budget projections, 3) provide evaluations and normative recommendations about fiscal policy; n.d.: no data Sources: Calmfors and Wren-Lewis (2011) and Ministry of Finance of Chile 2013-14 Experience of Chile (1) Council provides independent evaluation of implemention of complex fiscal rule in the Government’s Budget proposal to Congress and its execution: (1) In meetings (July 2013) with independent committees that provide GDP trend estimates and long-term copper price forecasts (July 2013) (2) In sequential meetings (July-October 2013) with Budget Office Director and staff to discuss: • Projections of output gaps and LT/current copper projectons – key for estimations of cyclical components of gov coper and tax revenue • Application of tax revenue elasticities • Other key assumptions for projections of actual and c.a. revenue and balance estimates • Draft Report on the State of Public Finances by the MoF 2013-14 Experience of Chile (2) (3) At presentations at congressional hearings on the budget (not called upon in 2013) (4) In sequential meetings (Dec. 2013-March 2014) with Budget Office Director and staff to discuss: • Adjustment of 2013 budget execution to meet 2013 c.a. target balance (-1% of GDP balance) • Provide comments on 2014 budget execution document • Discuss and prepare memo on possible changes of fiscal policy rule submitted to new administration Summary: external assessment and recommendations by AFC on Budget Office application of fiscal rule to budget preparation is technically useful, raises transparency, and strengthens credibility of Chile’s fiscal framework OECD Principles for Fiscal Institutions The OECD groups 22 principles under 9 broad headings 1. 2. 3. 4. 5. 6. 7. 8. 9. Local ownership Independence and non-partisanship Mandate Resources Relationship with the legislature Access to information Transparency Communications External evaluation Differences with OECD Standards Main differences of Chile’s AFC with OECD standards: 3. Narrow mandate – only MoF advisory role 4. Neither budget nor staff 5. Not formally accountable to Congres Areas of Reform Proposals put forward by 2011 Corbo Commisson and 2013 election program of current Administration: • Adopt Independent Fiscal Council by law • With broad mandate on a wide range of issues to improve asessment of yearly budegt preparation and execution, long-term budget projections, estimation of long-term impact of fiscla policy changes, etc. • With independent staff and budget • Accountable to Congress (but independent of Congress) Chile’s Advisory Fiscal Council Klaus Schmidt-Hebbel President, AFC, Chile Sixth Annual Meeting of OECD Parliamentary Budget Officials and Independent Fiscal Institutions The Knesset, Jerusalem 31 March - 1 April 2014