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Thursday, July 7, 2022

Fiscal Council on the Coalition Treaty: Much inconsistency and obscurity

By: C.R.

According to the Fiscal Council, the coalition agreement contains a set of mostly generally defined measures that exceed the four-year term. They are critical of the inconsistency of the contract and the possible increase in expenditure, which could be greater than the increase in revenue. They expect the government to specify the financial consequences of the measures in the future, reports STA.

The Fiscal Council estimates that the coalition agreement does not provide a sufficient basis for the planning of economic entities due to the great inconsistency, both in terms of scope and timing of measures. They thus suggest moving closer to good practice in some countries, where coalition agreements allow for more accurate evaluation. “This also gives the general public an insight into their public finance and macroeconomic consequences,” the Fiscal Council said in an assessment of the coalition agreement published today.

“The Fiscal Council expects the government to present the measures in the future official budget documents in a transparent manner and to specify their public finance consequences,” they emphasised.

Measures that can determine the direction of the impact on general government aggregates are mainly aimed at increasing expenditure. At the same time, the Council reiterates its warning that the growth of current consumption must not exceed the growth of long-term economic potential. According to the council, the coalition agreement also reflects to some extent some guidelines regarding the financing of additional expenditures, which is a difference compared to the previously assessed coalition agreements.

Funding is supposed to be provided by increased use of European funds, and partly also by alternative but not yet defined sources of funding in the coalition agreement, which means that some measures will not necessarily worsen the public finance situation.

“The coalition agreement also mentions commitments in some places to ensure (long-term) fiscal sustainability in connection with the measures it cites. At the same time, the coalition agreement indicates some elements of solving the long-term challenges facing Slovenian public finances, but even here it does not specify the measures in detail,” the Council explained.

In the light of current and projected macroeconomic developments and global and domestic risks, economic policy must prepare an appropriate set of measures to address the current challenges to ensure a macroeconomic environment for sustainable economic growth without deepening imbalances and enable the creation of room for manoeuvre for future economic policy interventions.

“Measures should not jeopardise the achievement of a medium-term balance of public finances. This is all the more important due to the expected gradual tightening of monetary policy and thus higher debt financing costs,” stated the Fiscal Council.

Announcing the change in the fiscal rule, the Council recalls that this should be well thought out and, in terms of time and content, harmonised as much as possible with the expected changes in the rules of economic governance in the EU.

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