Independent Fiscal Councils

Yes folks, progress might be painfully slow, but we’re gradually moving the idea of independent fiscal policy from “you dreamers just don’t understand the real world” category to the “you’ve gotta get hip, you’ve gotta get real reform” category.

The OECD has published another article about independent fiscal policy. I’ve not had time to go through it yet, but here’s the abstract and a link – for the record.

The fiscal position has deteriorated sharply, leading to large deficits and adding to high debt levels. Some countries have experienced financing pressures. Detailed multi-year plans to stabilise the public finances are required. Prolonged fiscal consolidation and reforms will be needed to bring debt to a more prudent level, increase the ability to withstand future shocks and to prepare for future ageing costs.
Working Paper No 829: Improving fiscal performance through fiscal councils

This entry was posted in Economics and public policy. Bookmark the permalink.
Subscribe
Notify of
guest
14 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
derrida derider
derrida derider
10 years ago

I dunno. What would a Fiscal Council recommend now in, say, Ireland or the UK? And how long would such an arrangement last in those circumstances?

The point is that the government’s fiscal stance has huge distributional – political – as well as macroeconomic implications, and therefore ought to be firmly under the control of the politicians. That’s especially so when we talk about intergenerational issues such as “ageing costs”.

As I’ve said before, this is all about old-fashioned class interest. And the OECD’s economists (especially in Economic Division – ELSA aint so bad) are firmly resolved to make particular classes bear the cost of the GFC.

Patrick
Patrick
10 years ago

Do you really think that Europe’s austerity measures are premature and heroic? Wouldn’t desperately late and grasping be more accurate?? To rehash a quote:

Prolonged fiscal consolidation and reforms will be needed to bring debt to a more prudent level, increase the ability to withstand future shocks and to prepare for future ageing costs.

Also, I think, and hopefully Nick will correct me here, but one of Nick’s key motivations appears to be despair at Australians’ obdurate and seemingly (to him at least) irrational phobia of public debt.

On the other hand it seems at least arguable that this phobia, as well as a rather provincial attitude to competition in the banking sector, was one of the main ingredients in our relatively successful GFC. Overall, we are one of the vastly more ‘balanced budget’ countries in the OECD, aren’t we?

So it seems to the economically ignorant such as myself that Australia gets fiscal stance largely (within the very broad parameters required for political judgement) right, and I can’t see how this independent fiscal council would address what (once again I speculate) you may feel was the ‘real’ problem being the actual allocation of spending.

This may have been one of my most ignorant contributions ever, and I am quite tired so it may be less coherent that I would have liked, but hopefully you can at least set me straight!

Don Arthur
10 years ago

Nicholas – How should we decide that a policy domain requires an independent body to oversee government policy?

Why should we stop at fiscal policy? For example, why shouldn’t state governments have independent bodies that can report on the likely impact of tough on crime policies?

Dave
Dave
10 years ago

DD

“The point is that the government’s fiscal stance has huge distributional – political – as well as macroeconomic implications”

And monetary policy doesn’t?

Fyodor
10 years ago

I think you blokes aren’t thinking this through to the logical conclusion, which is benevolent dictatorship by a suitably qualified – and no-doubt neo-Keynesian – technautocrat.

We could call him God Emperor 2.0.

You know it makes sense.

Don Arthur
10 years ago

Nicholas – So decisions based on values are best made through the political process and those made on matters of fact are best made by experts?

What other criteria should we use to decide whether or not to use an independent body?

Patrick
Patrick
10 years ago

What ‘fiscal stance’ decisions are based on facts and not values??

Alan
Alan
10 years ago

A fiscal council could also help with forcing government and opposition to address reality. The US is a fairly clear example where Republican deficit hawks ‘know’ that tax reductions do not reduce revenue and, although to a much lesser extent, Democrat deficit hawks ‘know’ that spending increases do not increase deficits. The political class in Australia have not exempted themselves from arithmetic to the same extent, and it would be nice to keep it that way.

The weakness in the argument for fiscal councils is that it is that same austerity-crazed Europe where independent fiscal councils are a feature of the landscape in many countries. The German Council of Economic Experts seems as enthused for austerity as the Merkel government.

Alan
Alan
10 years ago

Assuming you were the head of an EU fiscal council, would you be recommending drastic austerity measures as current policy?