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Fiscal governance and Budgetary
Outcomes: The case of Greece
Georgia Kaplanogou
Vassilis T. Rapanos
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UNIVERSITY OF ATHENS
DEPARTMENT OF ECONOMICS
Motivation of the paper
Serious fiscal imbalances now facing most euro area
countries pose new challenges for policy makers.
Particularly in Greece, the question arises about the
causes of the severe fiscal crisis that emerged about a
year ago.
Was it mainly the result of the high 2009 deficit
figure?
Why did the alarming size of the deficit became
known as late as October?
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Figure 1: Main elements of domestic fiscal frameworks.
•Common standardised accounting practices for all government tiers
"Basics" of Domestic
Fiscal Frameworks
• Reliable macro and fiscal statistics and regular availability
• Comprehensiveness of the budget process
• Regular and timely monitoring of main expenditure and revenue categories
• Others
Numerical
Fiscal Rules
Medium-Term
Budgetary
Frameworks
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Independent
Public
Institutions
Budgetary
Procedures
A short story of Greek public finances since
1999
During the 1993-1999 period, Greece, in its effort to
join the Eurozone, made considerable progress in
reducing its deficit. Indeed, the budget deficit, from
13% of GDP in 1993, was reduced to below 3% by
1999, while the public debt-to-GDP ratio started
declining.
After the introduction of the euro, fiscal consolidation
efforts lost momentum. In fact, the period 2001-2003
witnessed significant increases in budget deficits.
The deficit for 1999 was revised to 3.1% after a fiscal
audit that took place in 2004.
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Annual changes in the general government
balance (% of GDP), (2000-2009)
A nnual change as a % of G D P
3,0
2,0
1,0
0,0
-1,0
-2,0
-3,0
-4,0
-5,0
-6,0
-7,0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Greece
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Euro area average (EU-12)
What fiscal data is presented to and
approved by the Greek Parliament?
The fiscal data for a given year are presented to the Greek
Parliament three times. Take the example of 2009 data.
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What is presented?
When is it presented?
Target for 2009
November 2008
Within-year estimate of
2009
(provisional estimate)
November 2009
Final outcome for 2009
November 2010
Is the Greek Parliament presented with
reliable targets?
What are the deviations
Between targets and within-year estimates,
and
Between within-year estimates and final
outcomes?
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Deviations of within-year estimates of major fiscal aggregates
from the targets set at the Introductory Report of the State
Budget, 1999-2008
(excluding "outlier" 2009)
4.000
3.000
million euros
2.000
1.000
0
-1.000
-2.000
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Primary Expenditure
Interest payments
8
00
Av
er
ag
e
20
01
-2
99
-2
19
ag
e
Av
er
Revenues
00
8
08
20
07
20
06
20
20
05
04
20
03
20
02
20
01
20
00
20
19
99
-3.000
Deviations of within-year estimates of major fiscal
aggregates from the targets set at the Introductory Report
of the State Budget, 1999-2009
million euros
5.000
0
-5.000
-10.000
Revenues
9
Primary Expenditure
Av
er
20
ag
09
e
19
A
99
ve
-2
ra
00
ge
9
20
01
-2
00
9
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
-15.000
Interest payments
Deviations of within-year estimates of major fiscal
aggregates from final outcomes, 1999-2009
1.500
1.000
500
million euros
0
-500
-1.000
-1.500
-2.000
-2.500
-3.000
Revenues
Primary Expenditure
Interest payments
Av
er
ag
e
20
01
-2
00
00
99
-2
19
ag
e
Av
er
10
9
9
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
19
99
-3.500
% deviations of major fiscal aggregates
of the State Budget (average 2001-2009)
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
0,4%
2,4%
-3,8%
Percentage deviations of
within-year estimates from
budget targets
-2,4%
Revenues
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1,0%
0,0%
Percentage deviations of
final outcomes from withinyear estimates
Primary
Expenditure
Interest
payments
Deviations of final outcomes of major fiscal aggregates from
targets set at the Hellenic Stability and Growth Programmes
10.000
5.000
million euros
0
-5.000
-10.000
-15.000
-20.000
2001
2002
2003
2004
2005
2006
2007
General Government Revenues
General Government Primary Expenditures
General Government Interest Payments
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2008
2009
Average
20012009
Deviations of final outcomes of major fiscal aggregates from the
targets set at the Hellenic Stability and Growth Programmes
(excluding the impact of ex-post statistical revisions)
10.000
5.000
million euros
0
-5.000
-10.000
-15.000
-20.000
2001
2002
2003
2004
2005
2006
2007
General Government Revenues
General Government Primary Expenditures
General Government Interest Payments
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2008
2009
Average
20012009
Deviations of GDP growth rate
(2000 – 2009)
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0,40
0,35
0,30
0,20
-0,30
Greek Stability
Programme of the
previous year
Spring forecast for
current year
IMF; -0,12
OECD; -0,15
-0,20
EC; -0,08
-0,10
IMF; -0,20
0,00
OECD; -0,23
0,10
EC; -0,16
deviation of annual growth rate
real GDP - Annual growth rate
Autumn forecast for
current year
-0,03
First provisional
estimate
Deviations of General Government balance
(% of GDP), 2000 - 2009
Greek Stability Programme of the
previous year
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Spring forecast for current year
IMF; 3,8
OECD; 2,7
EC; 2,8
IMF 4,2
4,6
OECD; 3,9
5,0
4,5
4,0
3,5
3,0
2,5
2,0
1,5
1,0
0,5
0,0
EC; 3,9
Deviation (% of GDP)
General Government Balance - deviations from final data
Autumn forecast for current year
General Government Balance - deviations from final data
(excluding the impact of ex-post statistical revisions)
3,0
2,5
2,0
1
16
IM F; 1,7
O E CD; 0,6
0,0
E C; 0,6
0,5
IM F 2,0
1,0
OE CD; 1,8
1,5
E C; 1,8
Deviation (% of GDP )
2,5
Why are deviations from targets so high?
Budget balance targets in Greece were being missed,
while on the whole revenue shortfalls and expenditure
overruns appear to be equally responsible for missing
these targets.
The previous analysis has demonstrated that the widely
held view that optimistic assumptions on GDP growth
are largely responsible for unrealistic forecasts for
public revenue and expenditure is not valid in Greece.
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Why are deviations from targets so high?
All these conclusions point to the same direction: the
weak institutional framework for setting up and
monitoring the execution of the budget is the
fundamental reason for the weak fiscal performance
Any attempt to correct fiscal imbalances is rather
doomed to fail unless the reform of this framework
is also given serious thought.
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Improving PFM in Greece: some proposals:
Improve transparency
The drafting of two separate budgets (the ordinary
and the investment budget), the existence of
significant off-budget operations, the lack of
coherent reporting of the finances of general
government (i.e. local authorities, social security
funds and hospitals).
2. Regular information to Parliament about
implementation of the Budget.
1.
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Improving PFM in Greece: some proposals:
Improve budgeting procedures
1.
2.
3.
4.
5.
6.
7.
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Introduce
Numerical fiscal rules
A national MTBF
Top down Budgeting
Regular budget reporting
Ex post auditing, not just legalistic
Performance and effectiveness criteria
Annual budgets for all public sector entities
Improving PFM in Greece: some proposals:
Improve organization
Give more autonomy to the General Accounting
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Office, with a permanent undersecretary as its head.
Full computerisation of all transactions and connect on
line all offices of public expenditures.
Monthly monitoring of all expenditures of central
government, local authorities, and public entities.
Introduce a new accounting system compatible with
the International Public Sector Accounting Standards.
Organize a new effective internal auditing system, but
also use external auditors.
Reduce detail and make the system more flexible .
Improving PFM in Greece:
Some recent reform efforts
In recent years, there have been some attempts to
address some of the weaknesses listed above.
In 2007 the government attempted to introduce a
unified expenditure classification system covering both
the ordinary and the investment budgets.
In 2008, the Greek government established a
Government Budget Reform Unit with the aim of
introducing initially at a pilot basis a results oriented
program budgeting system, but the progress to date is
very limited.
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Improving PFM in Greece:
Some recent reform efforts
A new law was voted in August 2010 on “Fiscal
Management and Responsibility”, which introduces a
number of important changes, some of which are the
following:
It introduces a national medium-term budgetary
framework for the general government to be approved
by the Parliament.
A top-down approach is introduced for public
expenditure, since ceilings for all levels of general
government (and also by Ministry) will be included in
the budget on a three-year horizon.
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Improving PFM in Greece:
Some recent reform efforts
All bodies of the central government, local authorities
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and social security organizations (including hospitals)
are required to draft annual budgets.
They have to communicate to the General Accounting
Office, on a monthly basis, reports including data on
expenditures, revenue, financing and liabilities, on a
cash basis.
The General Accounting Office is required to submit
to Parliament and make available to the press
consolidated reports at a general government level
covering public revenue, expenditure, liabilities and
financing on a monthly, quarterly and biannual basis.
Improving PFM in Greece:
Some recent reform efforts
Internal audit procedures for public expenditures are
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introduced.
A double-entry accounting system is introduced for the
central administration.
A unified expenditure classification system is
introduced for all levels of government.
The scope for expenditure reallocations is seriously
limited.
Important changes to the approved budget have to be
approved by the Parliament, after the Minister of
Finance has submitted a Supplementary Budget.
Improving PFM in Greece:
Evaluating Law 3871/2010
The scope of the proposed reforms is indeed ambitious, but there
are areas of concern:
No explicit national fiscal rules are introduced (e.g. expenditure
ceilings).
Doubts about the degree of commitment to the medium-term
targets – “rolling” medium term plans.
No provisions are made for the level of borrowing and
borrowing procedures of bodies outside central government.
What about local authorities or social security funds?
Accruals accounting is partly introduced only in the revenue
side.
Nevertheless, the new Law can be the starting point of a radical
reform in PFM in Greece.
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Improving tax administration Greece:
Some proposals
The large revenue shortfalls can be partly attributed to
the poor performance of the tax administration
mechanisms and the widespread tax evasion. What can
be done?
Give more autonomy to the Tax Administration Office, with
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a permanent undersecretary as its head
Reorganise and consolidate tax offices
Radically change the tax audit system
Reduce the discretion of individual tax officers
Stop “tax amnesties”
Create an effective dispute-resolution mechanism
Improve the efficiency of the judicial system – tax courts
should make decisions in a speedier manner
The Greek Parliamentary Budget Office
The setting-up of an independent fiscal authority does
not automatically imply that its role will be played
effectively.
Perhaps the best blueprint for an effective independent
fiscal council is given by Alice Rivlin, the first director
of the Congressional Budget Office of the U.S.
She eloquently identifies four aspects on which the
acceptance of CBO by the political players rests:
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The Greek Parliamentary Budget Office
It has had strong professional leadership and attracted
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high quality analytical staff.
It has been aggressively non-partisan and never
allowed politicians to appoint members of staff.
It never makes recommendations on policy matters,
but offers estimates of budgetary costs or analysis of
options and alternatives. It has always tried to help
politicians evaluate their choices and steadfastly
refused to tell them how to choose.
It makes all of its reports and analyses available to the
public and the press and tries hard to make them clear
and readable.
The Greek Parliamentary Budget Office
In Greece, in July 2010, the government submitted to
Parliament a Draft Bill, which envisages the establishment of a
Parliamentary Budget Office under the aegis of the Parliament.
Establishing such an office is with little doubt a move in the
right direction.
What Greece lacks today is credibility, not only in its fiscal
policy but also in the quality of its fiscal data. Rebuilding
confidence is a long process and the Parliamentary Budget
Office could play the role of a catalyst in this process.
But what are its chances of doing so?
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The Greek Parliamentary Budget Office
The Greek Parliamentary Budget Office belongs
administratively to the Secretary General of the
Parliament and submits its reports to the Special
Standing Committee responsible for examining the
Financial Statement and the General Balance Sheet of
the State.
Its mandate is defined rather generally as “collecting
information on the State Budget, classifying it in a
systematic way, and providing general support to the
Parliament work”.
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The Greek Parliamentary Budget Office
The Ministry of Finance and other government
agencies are required to provide all necessary data.
The Parliament is responsible for financing the Office,
which will be staffed by 10 members in total with
university or high school education.
Are there any prospects of success?
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The Greek Parliamentary Budget Office
Its mandate appears rather poor and imprecise.
Most importantly, the key requirement for wide
publicity of the office’s reports is not met.
The structure of the office is not clear, neither is the
way the staff members will be appointed, while the
impression is given that high professional skills,
experience and competence, are not an evident
requirement.
Terms of appointment are not specified and the nonpartisan character of the Office’s leadership is also
under question.
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The Greek Parliamentary Budget Office
The above criticism is not meant to imply that the
Office is doomed to fail.
The legal provisions for the creation of the Office do
allow sufficient flexibility, for its effectiveness to be
enhanced. Issues of critical importance:
Choice of a chairman with high professional
qualification and independence of mind
Recruitment of competent staff
Specification of the core functions to be performed
The Office’s analyses should be accessible to all
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All these remain to be seen in practice.
Conclusions
Institutional weaknesses are a root cause of the
Greek fiscal crisis.
Recent reforms are encouraging efforts to
move forward.
Good intentions have to become operational in
practice.
A lot of progress needs to be done.
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