- The Independent Authority for Fiscal Responsibility (AIReF) issued 11 recommendations aimed at placing the focus on medium-term orientation, strengthening budgetary stability and improving the transparency of public accounts
- AIReF’s recommendations are governed by the principle of “comply or explain” – the institution’s main tool to fulfil its mandate
- The Ministry of Finance and the Ministry of Economic Affairs deviated from the recommendations issued, while almost all Local Governments complied or expressed their commitment to compliance
The Independent Authority for Fiscal Responsibility (AIReF) published the monitoring of the recommendations to the General Government sub-sectors on its website today, issued by the institution in the second quarter of 2023. During this period, AIReF issued 11 recommendations designed to place the focus on medium-term orientation, strengthening budgetary stability and improving the transparency of public accounts
AIReF issues recommendations in the reports it draws up over the course of the year. These recommendations are governed by the principle of “comply or explain” – the institution’s main tool to fulfil its mandate. This principle establishes that public authorities are under an obligation to follow AIReF’s recommendations or explain the reasons why they have deviated from them. By means of the application of this principle, the recommendations made by AIReF lead to constructive and transparent dialogue between this institution and the competent public authority.
In the second quarter of 2023, AIReF issued the Report on the Initial Budgets of the General Government (GG) for 2023, supplemented at a territorial level with the Individual Reports for the Autonomous Regions (ARs) and the Individual Evaluation Report of the Initial Budgets of the Local Governments (LGs). It also reported on the Stability Programme Update (SPU) 2023-2026, following the issue of its endorsement of its macroeconomic outlook. In these reports, AIReF issued a total of 11 recommendations: 6 new recommendations, 3 reiterated recommendations and 2 of what are considered to be live recommendations. The new and reiterated recommendations were aimed at placing the emphasis on medium-term orientation, strengthening budgetary stability and improving the transparency of public accounts.
From the perspective of the recipient authority, 33 recommendations were issued: 7 to the Ministry of Finance and Civil Service (MINHAFP), 4 to the Ministry of Economic Affairs and Digital Transformation and 22 to the Local Governments. All the public authorities responded to AIReF’s request to declare their intention to “comply or explain”. However, both the Ministry of Finance and Civil Service and the Ministry of Economic Affairs and Digital Transformation deviated from complying with the recommendations received while, in contrast, almost all the LGs complied or undertook to comply with the recommendations issued.
Medium-term orientation and budgetary stability
AIReF recommended providing the Stability Programme Update 2023-2026 with sufficient content and scope to effectively design a medium-term fiscal strategy that includes a downward path of debt and deficit that is compatible with the requirements of the European Commission, which integrates the macroeconomic and fiscal implications of the implementation of the investments and reforms contained in the Recovery, Transformation and Resilience Plan (RTRP); incorporating measures to respond to contingent scenarios, which include more complete and detailed information on fiscal risks; and adding disaggregated forecasts in national accounting terms for each sub-sector. Both MINHAFP and the Ministry of Economic Affairs and Digital Transformation deviated from the recommendation, considering that the SPU already includes the information AIReF requested and they do not see the need to include disaggregated forecasts by sub-sector nor more information on the RTRP given its fiscal neutrality. AIReF is not in agreement with these arguments.
In order to strengthen budgetary stability, AIReF recommended the Central Government should commence work on the reform of the national fiscal framework. MINHAFP deviated from the recommendation given the need to wait until negotiations of the new European framework have concluded, which should then be subject to transposition to the national legal framework. However, AIReF feels that progress should start to be made given the significant effort that the reform will require. AIReF also recommended designing a model of governance for the evaluation of the RTRP at three levels: an internal governmental institution, management centres and independent agents, and external agents. However, the Ministry of Economic Affairs and Digital Transformation deviated from the recommendation, considering that high levels of oversight and supervision already exist, as does an adequate governance framework. AIReF, in contrast, considers that greater evaluation would be appropriate.
At the LG level, AIReF recommended avoiding increased expenditure and reductions in revenue without structural financing, and analysing the structural nature of increased expenditure since 2019 in relation to the expenditure rule of 11 LGs: the City Councils of Alicante, Barcelona, Cordoba, Madrid, Palma and Valladolid, the Provincial Councils of Valencia and Seville, the Island Councils of Tenerife and Majorca and the Provincial Government of Gipuzkoa. They all undertook to comply with the first recommendation and made the analyses that AIReF requested in its second recommendation, except the Island Council of Majorca. Following the analysis, AIReF concludes that most of the growth in expenditure between 2019 and 2022 was of a structural nature, which reinforces the need to comply with the first recommendation to avoid additional increases in expenditure that do not receive permanent financing.
Transparency
As regards transparency, AIReF recommended an analysis of compliance with the plausibility of the downward path of debt and how this was reached by each level of authority to guarantee the consistency of the distribution. In its response, MINHAFP considered that this analysis was unnecessary given that the Stability Programme already guarantees compliance with a downward path of debt in the terms required by the European Union. However, in the opinion of AIReF, the setting of targets in accordance with national legislation should be well-founded for each of the sub-sectors, guaranteeing their consistency with the target for the GG sector as a whole.
AIReF also reiterated to MINHAFP the recommendations aimed at increasing transparency in the execution of the RTRP in national accounting terms: identifying the revenue and expenditure of the RTRP under national accounting headings in monthly, quarterly and year-end execution published by the IGAE; and publishing details of the transfers between the different sub-sectors of the GG in national accounting terms corresponding to the RTRP. MINHAFP responded by referring to the publication of the execution of the RTRP in budgetary accounting, however, AIReF stressed the need to have this information available in national accounting terms.
AIReF also maintained two live recommendations in the second quarter aimed at improving transparency and at regulating the exchange of information. The main reason alleged for not following these recommendations was that they are unnecessary given the current flow of information, however, AIReF considers that the SPU information is insufficient, given that it does not include the impact of the RTRP measures and reforms. It also considers that the existence of a “memorandum of understanding” would improve the exchange of information and constructive dialogue with the public authorities, providing a stable and predictable framework for their relationship with AIReF.