The Irish Fiscal Advisory Council has issued a report which outlines recommendations for the design of a permanent fiscal Council, recommendations for the design of sound fiscal rules and assesses elements of the fiscal framework proposed in the Department of Finance’s March 2011 discussion document Reforming Irelands Budgetary Framework.
Amongst the main findings of the report was the recommendation for well designed fiscal rules along with independent fiscal agencies; sound management of public finances that follow three principles: sustainability, stability and counter-cyclicality; the design of effective fiscal rules is challenging that requires both flexibility and credibility; and there is a growing need for independent fiscal councils to complement numerical fiscal rules.
According to the report, the three fiscal rules adopted by the Government in March 2011, including the Public Finances Correction Rule (PFCR), the Prudent Budget Rule (PBR), and the Sustainable Expenditure Growth Rule (SEGR), “do not always strike a balance between prudent management of the public finances and the desirability of pursuing counter cyclical policies”. When designing rules, the Fiscal Advisory Council stresses the need for flexibility. When enforcing these rules, they should form part of legislation, each new government should set out an explicit target for the debt-to-GDP ratio over a five-year period and the Minister should be required to explain to the Oireachtas any actual or prospective deviations from the stated targets and rules. Furthermore, an EU Fiscal Treaty “may narrow the degree of freedom available to the government in the design of Ireland’s fiscal rules.”
The mandate of the Irish Fiscal Advisory Council is to independently assess the appropriateness and soundness of the Government’s macroeconomic projections, budgetary projections and fiscal stance. According to the report, for the council to b effective in delivering its goals, it must be based upon three key principles: independence, transparency and accountability. It must also be sound in terms of economic analysis and independent of political influence; members must be sufficiently qualified; and it should have enough resources to allow it produce and disseminate high-quality analysis.
In the latest issue of the PAI monthly journal, economist Tom Ferris analysed the role of the Irish Fiscal Advisory Council in offering advice to the Government. To view this article click here.