- The characteristics of the new fiscal framework make it advisable to take advantage of the potential of institutions such as AIReF, which have the capacity for independent analysis
- Cristina Herrero stated that any reform of AIReF must reinforce its functional autonomy and safeguard its independence
- She pointed out that independent scrutiny of public finances contributes to improving the democratic quality of countries
The president of the Independent Authority for Fiscal Responsibility (AIReF), Cristina Herrero, today took part in the XL seminar organised by the Association of Economic Information Journalists (APIE) and the Menéndez Pelayo International University under the title “The economy of democracy, from the Transition and entry into the EU to the pandemic crisis”. During her speech, she assured that the independent control of public finances will be an essential part of the modernisation of fiscal frameworks at European and national level. This reinforcement, in her view, contributes to improving the democratic quality of any country.
In this regard, she stressed the importance of any reform of AIReF reinforcing its autonomy and safeguarding its independence, as the institution continues to face certain limitations despite the guarantees it is granted by law. Independent fiscal institutions such as AIReF are not comfortable institutions and they are relatively young, so there is not enough tradition to understand and accept this uniqueness.
The President began her speech by reviewing the creation of the Stability and Growth Pact, which was created with the aim of maintaining sound public finances in order to ensure the stability of the euro. The Pact, which has already undergone two reforms and is on its way to a third, gave rise to the creation of the so-called second-generation Independent Fiscal Institutions (IFIs), such as AIReF, which were set up with the aim of supervising public finances and controlling the bias towards debt.
The independent control exercised by these institutions, as the president pointed out, is particularly important in the current context of public finances, given that in both the medium and long term moderate growth is expected to limit the correction of the fiscal imbalance. Specifically, AIReF projects average real GDP growth of 1.3% in the period 2022-2070 and in the medium term a stagnation of the public deficit at around 3% of GDP, with public debt above 100% of GDP. Moreover, in a no-policy change scenario, ageing and interest burden pressures reverse the slightly declining dynamics of public debt.
In parallel, the new fiscal framework proposes a new understanding of fiscal policy coordination in the EU, giving countries more leeway over their fiscal policy, but also strengthening the enforcement and enforceability of commitments. Each country will have to submit comprehensive multi-year medium-term plans that reduce debt on a sustained basis, but automatic Excessive Deficit Procedures (EDPs) will be opened if there is a deviation from the expenditure path and fiscal plans can be shortened if committed reforms or investments are not met.
In this context, Cristina Herrero pointed out that the credibility and viability of national medium-term strategies will be key. Differentiated fiscal paths must have a rigorous, consensual basis, adapted to the reality of each country. And, although the monitoring of fiscal plans is simplified, their definition will be complex, since the plans must have a vision that goes beyond the medium term and will require coordination in decentralised countries.
According to Cristina Herrero, the current context and the characteristics of the new fiscal framework make it advisable to make the most of the potential of institutions such as AIReF, with their capacity for independent analysis. From AIReF’s perspective, the proposal put forward is ambitious and goes in the right direction because it strengthens the control exercised by these institutions and expands their role with new functions.
Furthermore, in Spain a review of the fiscal framework will be necessary, even if there is no reform at European level, and AIReF must act as an integrating link between the European and national fiscal frameworks. Within the framework of this reform, a review of AIReF’s role could be considered in order to make better use of the institution’s information and expertise, given the challenge of sustainability in a decentralised country like Spain.
After reviewing the context, the president of AIReF insisted on the need to draw up a strategy that ensures long-term fiscal sustainability without neglecting economic growth. “It is already an unavoidable task”, said Cristina Herrero, after also considering it necessary to implement a new form of supervision that overcomes the mistakes made in the past, reinforcing the independence of institutions and paying greater attention to the quality of public finances through evaluation.
The commitment to the quality of public finances requires the evaluation of
the effectiveness and efficiency of public policies based on an evidence-based approach that is a form of accountability to society by providing objective information on public management. AIReF is already a key player in the evaluation architecture, but progress needs to be made in its work. Specifically, it is necessary to maintain the quantitative and qualitative relevance of the assignments that the institution receives, to strengthen the monitoring of the evaluation results and to guarantee AIReF access to sufficient information and human resources. According to Cristina Herrero, the consolidation of evaluation in Spain requires that evaluation should not be a declaration of intent but a real commitment to effectiveness.
Strengthening independence
For all of the above reasons, Cristina Herrero stressed that the independence of institutions such as AIReF is a necessary condition for carrying out credible control and supervision of public finances. Independence is one of AIReF’s guiding principles, along with transparency and accountability. AIReF’s functions are carried out under these three principles, all of which are fundamental for the proper exercise of its functions and are interrelated.
Despite the legal guarantees that AIReF enjoys, Cristina Herrero said that there are still limitations to its functional autonomy, both in the budgetary sphere and in human resources policy. In her opinion, any reform of AIReF should reinforce its autonomy and shield its independence from the temptation to question its legitimacy, discredit its analyses or limit its resources. As she acknowledged, the IFIs are not comfortable institutions either in terms of their functions or their institutional uniqueness and in many countries there is not enough tradition to understand and accept this uniqueness.
In this respect, she recalled that the Commission’s proposal accompanies the strengthening of the functions of the IFIs with greater requirements to guarantee their independence and functional autonomy. According to Cristina Herrero, the IFIs were a necessary new actor and constitute a factor in the modernisation of national fiscal frameworks, as they have analytical capacity that goes beyond mere fiscal supervision. Moreover, they increase transparency and accountability by bringing data to the table.