Fiscal councils as innovative budget institutions

Abstract

The lack of fiscal discipline over the last few decades has led to the exacerbation of the problems arising from the excessive accumulation of public debt in many countries. The global financial and economic crisis in 2008–2010 has caused further sharp deterioration in fiscal indicators and the existing fiscal rules have proven to be ineffective in most countries. The purpose of this paper is to present the role of fiscal councils as independent budget institutions currently considered the most innovative and effective solution designed to reduce the burden of public debt and to promote accountability and fiscal transparency. The paper also outlines the rationale and conditions of appointment of fiscal councils in Poland. The analysis shows that the fiscal council may be an effective complement to other budgetary institutions, moreover, it can increase the effectiveness of numerical fiscal rules. However, to ensure to that the appointment of a fiscal council has contributed to the strengthening of budgetary discipline, it should have strict operational and financial independence from the government and have guaranteed legal access to all public data necessary to assess the draft budget and the state of public finances, to prepare independent analysis and macroeconomic forecasts, to formulate recommendations on the desired character of fiscal policy, as well as the possibility of the assessment of the costs of government projects and monitoring compliance with fiscal rules. The choice of the type of independent institutions should depend on the type of fiscal problems of the country and its political system including the constitutional foundations, legislative traditions and political customs. Under conditions of the structural determinants of the lack of fiscal discipline in Poland, the establishment of an independent fiscal council would bring many benefits. However, the effectiveness of this institution will be closely dependent on the ability to assure it the real operational and financial independence from politics.