Helmut Berger Parliamentary Budget Office

1. PEM PAL Budget Community of Practice (BCoP)“The Role of Austria's Parliament in Budgeting”Fiscal Governance in AustriaVienna, 30th January 2014 Helmut Berger Parliamentary Budget Office

2. Content • Key Elements of Fiscal Governance • Overview of the Austrian political, economic and fiscal system • Actors and Competences in the Fiscal Process • The Budget Process at a Glance • The Budget at a Glance • Intragovernmental Fiscal Relations • The Austrian Stability Pact • Challenges for Parliament REPUBLIK ÖSTERREICH Parlament

3. Key Elements of Fiscal Governance REPUBLIK ÖSTERREICH Parlament

4. Challenges for Governments and Parliaments • Foster fiscal sustainability • Enhance fiscal transparency • Safeguard value for money for citizens • Support medium and long-term orientation • Provide benchmarks for politicians, administration and public • Assure commitment and a key role for the parliament It`s all about good governance and fiscal accountability! REPUBLIK ÖSTERREICH Parlament

5. Definition of Fiscal Governance (I) • Fiscal governance is the combination of institutions, rules, and norms that structure governance in this policy area • Fiscal governance is focusing on how governmental budgetary policy is planned, approved, carried out and monitored • Generally fiscal governance involves different public entities, but business and civil society are engaged as well • In countries with different layers of government (federal state, provinces, municipalities etc.) regulations on the intragovernmental fiscal relations are an essential part of fiscal governance • National fiscal governance may be influenced by international obligations or assessments from international organisations (e.g. OECD, rating agencies) REPUBLIK ÖSTERREICH Parlament

6. Definition of Fiscal Governance (II) • Fiscal governance, or fiscal frameworks, can be defined as those rules, regulations and procedures that influence on how budgetary policy is planned, approved, carried out and monitored • This includes particularly: • Basic principles of budgeting and accounting • System of fiscal equalisation • Numerical fiscal rules • Independent fiscal institutions • Medium-term budgetary frameworks (MTBFs) REPUBLIK ÖSTERREICH Parlament

7. Objectives of Fiscal Governance (I) • Traditional political objectives • Assuring parliamentary approval of the budget and close control over spending by the “sovereign” • Better coordination among the various government layers, particularly in highly decentralised countries • Meeting the obligations arising from international agreements or rules and policies of the European Union • Economic objectives • Sound and sustainable budgetary positions in particular by containing the deficit bias (i.e. the tendency to give rise to high deficits and increasing debt ratios) • Reducing the cyclicality of fiscal policy making • Promoting a more long-term oriented fiscal planning and avoiding the short term approach typically associated to political cycles REPUBLIK ÖSTERREICH Parlament

8. Objectives of Fiscal Governance (II) • Performance objectives • Improving the efficiency of public spending • Assuring financial transparency • Avoiding “creative accounting” • Linking the allocation of budgetary resources to performance • Support the efficient use of public resources by monitoring the efficiency of public spending programmes REPUBLIK ÖSTERREICH Parlament

9. Overview of the Austrian political, economic and fiscal system REPUBLIK ÖSTERREICH Parlament

10. The Austrian politicaland fiscal system Austria is a parliamentary democracy that has been dominated by majority governments and grand coalitions of two major parties since 1945 Austria is a federal state and is composed of nine federal provinces, the so called “Laender” (Burgenland, Carinthia, Lower Austria, Upper Austria, Salzburg, Styria, Tyrol, Vorarlberg and Vienna) Legislative and executive powers are shared by the federal and provincial parliaments and governments On the local level the 2.354 municipalities (71 with more then 10.000 inhabitants) have the right to self government REPUBLIK ÖSTERREICH Parlament

11. The Austrian political and fiscal system • Laender and municipalities have their own systems of financial management (i.e. own budgets) and may levy taxes • However, legislative and fiscal powers are highly centralised • Important taxes as the income tax, value-added tax etc. are practically raised only on the federal level and revenue offices are managed solely by the federal level and to a small extend by municipalities • Laender and municipalities receive funds by fiscal transfers from the federal government’s tax revenue under the system of revenue sharing and fiscal equalisation • The revenue-sharing plan covers only a few years and is re-negotiated at regular intervals • Municipalities and their local budgets are supervised by the Laender REPUBLIK ÖSTERREICH Parlament

12. Selected EconomicIndicators REPUBLIK ÖSTERREICH Parlament

13. Expenditure Shares oflevelsofGovernment 2012 REPUBLIK ÖSTERREICH Parlament

14. General Government Development REPUBLIK ÖSTERREICH Parlament

15. Actors and Competences in the Fiscal Process REPUBLIK ÖSTERREICH Parlament

16. Actors in the Fiscal Process European Union Parliament Court of Audit Budget Office Institute of Economic Research Federal Government Fiscal Council Ministry of Finance Line Ministries Austrian National Bank Austrian Treasury Statistics Austria

17. Parliament - National and Federal Council The Austrian Parliament has two chambers, the National Council (183 members) and the Federal Council (61 members), who jointly represent the legislative power. The Federal Councils major responsibility is the representation of the Federal Provinces’ interests in the legislative process at federal level. The National Council has exclusive competence in budget matters. The Federal Council has no decision rights in this area. The Federal Council’s approval is necessary in case of intended change of the distribution of competences as laid down in the federal constitution restricting the competences of the Provinces. REPUBLIK ÖSTERREICH Parlament

18. Budget Committee The Budget Committee prepares the approval of the Federal Medium-Term Expenditure Framework Act, the Budget Finance Act and of all kinds of bills regarding budgetary matters. For this purpose the Budget Committee debates the bills. During these debates the Minister of Finance and the responsible Line Ministers have to be present and must answer any questions arising in respect of the budget allocations. As for the implementation of the Budget Finance Act, the Budget Committee discusses and resolves so called Budget Accompanying Acts (Budgetbegleitgesetze). These Budget Accompanying Acts change legislation in various matters with financial impact as for instance laws on family grants, social security or hospital funding. REPUBLIK ÖSTERREICH Parlament

19. Budget Office • Established 2012 • Main Tasks: • To support the budget committee in form of written expertise, analysis and short studies on budgetary matters presented by the government according to budget law • To support other parliamentary committees regarding impact assessment of new legislation • To consult the Parliament on performance and gender budgeting • Currently 7 headcounts, 5 academic experts • Government independent expertise, direct support for budget committee, part of Parliamentary Administration

20. Austrian Court of Audit • Set up by the federal constitution as an independent auditing institution on a federal, laender and municipal level • Main functions and objectives • To verify that state funds are being correctly administered, including state spend by public institutions and state funds used by private institutions. • To scrutinise whether resources available are being used economically, efficiently and effectively • To Compile the federal financial statements • To Audit processes and financial statements of government bodies and off-budget entities • To cooperate in preparing the financial debt statement by ensuring the legality of debts and their correct entry in the ledger of financial debt REPUBLIK ÖSTERREICH Parlament

21. Ministry of Finance • Macro-fiscal policy competence according to the Constitution and Organic Budget Law • Overall-responsibility for the federal budget and overall-coordination (of federal government but also with lower levels of government) • Preparation of draft budget bills (medium-term and annual) • Establishment of Budget rules • Agreement on overruns of budget allocations • Only Ministry of Finance may assume liability on behalf of the Federal Government (statutory or contractual guarantees) • Only Ministry of Finance may incur financial debts (in compliance with authorisations contained in the Federal Finance Act) • Reporting requirements to National Council REPUBLIK ÖSTERREICH Parlament

22. Line ministries • Participation in the preparation of medium-term and annual budget bill • Execution of budget • Management and oversight of budget funds, and exercise oversight of compliance with budget figures and the performance mandates • Prepare monthly budget forecasts • Participate in controlling • Management of re-allocations (depending on budget level) • Accounting of all business cases • Participation in the drawing up the federal financial statements • Developing and administration of policy areas REPUBLIK ÖSTERREICH Parlament

23. Austrian Treasury Debt management office and acts in the name and for the account of the sovereign Wholly owned by the Republic of Austria, represented by the Federal Ministry of Finance The primary objective is to secure the government’s funding at the lowest possible cost over the medium to long term while avoiding excessive risk Responsibilities include issuing Austrian government debt and managing the central government debt portfolio Acts as central liquidity manager of the Republic of Austria May perform financial and consulting activities for Austrian provinces, quasi-governmental and other legal entities of the Republic of Austria with the aim of exploiting synergies REPUBLIK ÖSTERREICH Parlament

24. Statistics Austria Separated from Government Services in the year 2000 Independent and non-profit-making federal institution under public law Responsible for performing scientific services in the area of federal statistics Federal Statistics is defined as a (non-personal) information system of the government providing data on the economic, demographic, social, ecological and cultural situation in Austria This information helps administrative bodies in planning and political decision-making procedures and in controlling the measures taken Moreover, data are made available to the scientific and economic community and to the general public The Statistics are decreed by international legal acts of the European Community, by federal laws and by regulations REPUBLIK ÖSTERREICH Parlament

25. Austrian Institute for Economic Research (WIFO) The Austrian Institute for Economic Research (WIFO) is an independent scientific institution that prepares all macroeconomic assumptions used in the budget process. WIFO is funded by the federal government, the state governments and the social partners, as well as by specifically funded research. It has a professional staff of about 100 persons. WIFO produces multiple forecasts for the Ministry of Finance, including the five-year perspective used in the coalition negotiations, the economic assumptions for the annual budget, the mid-term expenditure framework and the annual stability programme submitted to the European Commission. The objective is to forecast as accurately as possible. WIFO is also engaged in a variety of economic research, both in Austria and internationally. REPUBLIK ÖSTERREICH Parlament

26. Fiscal Advisory Council Evaluation and forecast of the financial-political situation Analyses of the effects of financial operations on the national economy in connection with the indebtedness of all the public authorities Analysis of the sustainability and quality of the budgetary policy of public budgets Presentation of written recommendations concerning the financial policy of the public budgets in Austria taking economic conditions into consideration Annual presentation of a report on the recommendations made to the Federal Minister of Finance, which the Federal Minister of Finance is to present to the National Council and Federal Government REPUBLIK ÖSTERREICH Parlament

27. Österreichische Nationalbank (OeNB) Central bank of the Republic of Austria and as such an integral part of the European System of Central Banks (ESCB) Astock corporation and capital is held by the federal government a the sole shareholder (rights are exercised by Federal Minister of Finance) Fully independent and not bound by any instructions from institutions from the European Union, the government or any other institution Safeguards price stability and contributes to the stability of money and credit markets Conducts monetary policy operations with banks and manages foreign reserve assets Analyses banks and contributes to the maintenance of financial stability Provides Austrian businesses and consumers with high-quality, secure cash Provides comprehensive, high-quality and timely financial statistics REPUBLIK ÖSTERREICH Parlament

28. The Budget Process at a Glance REPUBLIK ÖSTERREICH Parlament

29. Major Changes and New Elements in the Austrian Fiscal Framework Medium-Term Expenditure Framework (MTEF): Legally binding for four years (since 2009) New rules for reserves and introduction of the possibility to carry forward any unused funds at the end of the fiscal year as an unearmarked reserve (since 2009) Accrual accounting and budgeting on the federal level (since 2013) Performance budgeting and result-oriented management of administrative units (since 2013) Long-term projections covering a period of 30 years (since 2013) Fiscal rules: Federal and sub-national debt brake rule (since May 2012) REPUBLIK ÖSTERREICH Parlament

30. The Budget Cycle Annual report as a prerequisite for Annual budget 4. Court of Audit creates a federal statement of accounts (annual report) Budget Control Federal Statement of Accounts 1. Ministry of Finance creates and the Federal Government passes a federal (medium term and annual) budget draft 3. Ministry of Finance and the Line Ministries execute the federal budget law Federal Budget Law Federal Budget Draft Statement 2. Parliament -adopts the Draft Law Resolution -adopts the Federal Statement of Accounts REPUBLIK ÖSTERREICH Parlament

31. Budget Authority of National Council Minister of Finance prepares the budget bills and presents the drafts to the National Council National Council can amend the budget at will or indeed prepare its own budget without reference to the executive (e.g. if government does not present a budget draft in due time) National Council approves the mid-term expenditure framework (Federal Medium-Term Expenditure Framework Act), the yearly budget (Federal Finance Act) and the Austrian Stability Pact The National Council may also empower the Minister of Finance in the Federal Finance Act to overrun the approved budget allocations under certain circumstances and up to certain amounts The National Council and especially the Budget Committee receives a number of reports, supporting the budgetary steering and control function of the National Council REPUBLIK ÖSTERREICH Parlament

32. The Budget at a Glance REPUBLIK ÖSTERREICH Parlament

33. Current State of Affairs The Federal Government must present the Budget Bill (Federal Finance Bill) to the National Council at latest 10 weeks before the end of the fiscal year Due to general elections the National Council has not passed a Federal Finance Law for 2014 yet. The household is managed according to the most recently passed Federal Finance Law (2013) National Council has just passed temporary provisions by way of a Federal Law (due to changes in responsibilities of line ministries) REPUBLIK ÖSTERREICH Parlament

34. MTEF: ExpenditureCeilings 2013-2017 REPUBLIK ÖSTERREICH Parlament

35. Economic & budgetarypolicystrategy Government strategy for the years 2013-2017: Stable budget through reforms. Growth through active measures‛ and has three main goals: A balanced budget until 2016, achieving of long-term sustainability and reduction of the debt ratio to 60 % of GDP Stimulate investment in education, universities, R&D and infrastructure for growth and employment Continuation of the structural reforms in the following sectors: pension system, health system, public administration, subsidies and labour market REPUBLIK ÖSTERREICH Parlament

36. General Government Development REPUBLIK ÖSTERREICH Parlament

37. Budgetary Targets Priority on sustainable budget consolidation: planned revenue growth by 12,9 billion EUR and planned growth of expenditure by 5,7 billion EUR between 2012 and 2017 REPUBLIK ÖSTERREICH Parlament

38. Budgetary Targets • Targets: • Until 2016: a balanced budget in Maastricht terms • Until 2017: a 0 % deficit target for the central government and a small surplus for state and local governments • Until 2017: a structural budget balance of 0,45 % of GDP for general government (central government: 0,35 %)(“debt brake”) • Public sector debt-to-GDP will rise from 74 % in 2012 to 74,6 % in 2013 and shall decrease to 67 % of GDP by 2017 REPUBLIK ÖSTERREICH Parlament

39. Key indicators Budget 2011 - 2013 REPUBLIK ÖSTERREICH Parlament

40. Budget Execution 2013 Austrian general government is expected to meet the budget deficit target set for 2013 (-2,3 % Maastricht deficit). This holds even after accounting for weaker than expected economic conditions and additional budgetary provisions for Hype-Alpe-Adria banking-group. The Maastricht deficit at federal government level is projected to turn out slightly higher than planned at -2,1 % of GDP (revised up from -1,9 %). State and local governments, however, will slightly overachieve their deficit targets reaching -0,3 % of GDP (instead of -0,4 %). Social security funds are expected to again display a small surplus (+0,1 % of GDP), surpassing earlier estimates of a balanced budget. In July 2013, nominal GDP was revised downwards, causing general government debt per GDP to range at a moderately higher level of 74,6 % (instead of 73,6 %) at the end of 2013. REPUBLIK ÖSTERREICH Parlament

41. Outlook • New Government is committed to achieving the fiscal goals set. • Minister of Finance plans to table a new Federal Finance Frame Law and a new Federal Finance Law by end of April 2014. • According to the temporary provisions, the general government deficit shall be reduced to -1,5 % of GDP and the structural deficit to -1,3 % of GDP. This shall lead to a decline of public debt to 74 % of GDP. • However, economic landscape in Europe remains challenging. • Further significant fiscal costs from banks under restructuring might be necessary. • Budget reform introduced full carry-forward possibilities for unused funds without earmarking, line ministries already built up considerable reserves, use of reserves will require additional funds. REPUBLIK ÖSTERREICH Parlament

42. Intragovernmental Fiscal Relations REPUBLIK ÖSTERREICH Parlament

43. Principles of intragovernmental Fiscal Relations Art. 13. Federal Constitutional Law (1) The competences of the Federation and the Laender in the field of taxation will be prescribed in a special Federal constitutional law ("Constitutional Finance Law"). (2) The Federation, the Laender, and the municipalities must aim at the securement of an overall balance and sustainable balanced budgets in the conduct of their economic affairs. They have to coordinate their budgeting with regard to these goals. (3) Federation, Laender and municipalities have to aim at the equal status of women and men in the budgeting. REPUBLIK ÖSTERREICH Parlament

44. Basic Legislation Fiscal Constitutional Law (Finanz-Verfassungsgesetz 1948) • Sets the basic principles for financialrelationsbetweentheFederation, Laender und municipalities • Basic principlesoftaxation, tax sharing, intergovernmental transfers and cost bearing Fiscal Equalisation Law (Finanzausgleichsgesetz) • Details the rules of tax sharing, intergovernmental transfers and cost bearing between the Federation, the Laender and the municipalities • Usually in force for only a few years (present duration 4 years) after which it is replaced by new regulations • Result of negotiations between the federal minister of finance and representatives of the Laenderand the local governments in which consensus has to be found • Horizontal equalisation is not regulated by the Federation, nevertheless the system contains some elements with horizontal effects REPUBLIK ÖSTERREICH Parlament

45. Fiscal Equalisation Distribution of Revenue • Guided by two main criteria: • Tax revenue criteria: allocation is based on regional or local revenue of a tax • Demographic criteria: allocation is based on the number of inhabitants of a Land or municipality • Laender now allocate the local share of revenues to the individual municipalities as decided on by the distributing Land Intergovernmental Transfers • Intergovernmental transfers mark the second step of fiscal equalisation: • Quota allocation funds or grants to cover special needs or purposes • Transfers to equalize the average revenue of Laender and municipalities (paid by the federal government, horizontal effect) • Transfers for housing development, environmental purposes and infrastructure • Transfers from the federal natural disasters fund REPUBLIK ÖSTERREICH Parlament

46. The Austrian StabilityPact REPUBLIK ÖSTERREICH Parlament

47. Austrian StabilityPact Basic concept of the ASP Austria’s preparation for entering the EURO area required significant fiscal consolidation The Austrian Stability Pact (ASP) involves all levels of government in the consolidation of public finances and prescribes deficit/surplus targets to the federal, regional and local governments ASP provides for legally enshrined budgetary commitments across various government levels However, due to financial crisis previous targets were revised and not achieved, sanctions were never used REPUBLIK ÖSTERREICH Parlament

48. Austrian StabilityPact 2012 Revision of ASP • Reform of EU budgetary surveillance and implementation of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG) require a reform of the ASP • A debt-brake was introduced as part of intragovernmental fiscal governance • The ASP sets more ambitious targets and strengthens the enforcement mechanism • Attaining budgetary goals in individual years • Enhancing the role of the Court of Audit • Making the launch of the sanctions procedures automatic In the last two years fiscal rules in the ASP contributed to a general government deficit lower than anticipated REPUBLIK ÖSTERREICH Parlament

49. Austrian StabilityPact 2012 • ASP 2012 defines a number of fiscal rules on the federal and sub-national level: • Debt brake rule: upper limits for deficits of Federal Government, Laender and municipalities • Expenditure rule: limiting annual expenditure growth of all levels of government • Rule on reducing the government debt ratio • Upper limits on contingent liabilities • Rules on improvements of budgetary coordination • Rules on enforcement of regulations REPUBLIK ÖSTERREICH Parlament

50. Fiscal Rules in the ASP • Debt brake rule: the Austrian budget has to be structurally balanced by 2017, the structural deficit of • Federal level < 0,35 % and • States and municipalities < 0,1 % of nominal GDP • Expenditure rule: annual expenditure growth of all governments must not exceed a rate below a reference medium-term rate of potential GDP growth, and an appropriate adjustment towards the medium-term objective must be ensured unless the excess is matched by discretionary revenue measures • Reduction of the government debt level: federal and sub-national governments will reduce gap between Austria's debt level and the 60 % reference by 1/20th annually (on average over three years) REPUBLIK ÖSTERREICH Parlament