Is a Fiscal Policy Council needed in Poland?
The 157th mBank-CASE Seminar was devoted to the idea of creating a Fiscal Policy Council (FPC) in Poland. Such bodies exist in 38 countries, and Poland is the only EU country without one. FPCs are collegial bodies made up of experts, whose purpose is to raise the quality of fiscal policy by providing independent, professional, comprehensive and regular analysis, thus increasing the political cost of conducting suboptimal policy.
During the seminar, papers were presented by Łukasz Janikowski, a CASE economist and doctoral student at the Warsaw School of Economics; Balázs Romhányi, head of Fiscal Responsibility Institute Budapest and general director of the Republic of Hungary’s first Fiscal Policy Council (2009-2010); and Mateusz Szczurek, deputy director and regional economist at the EBRD, member of the European Fiscal Council and finance minister in 2013-2015.
Fiscal Policy Councils: international experience and recommendations for Poland
Łukasz Janikowski began his presentation by defining the optimal fiscal policy, which according to mainstream economic theory should be sustainable and countercyclical. Presenting international experiences, he pointed to the imbalances in public finances in many countries of the world in the past half-century, and the procyclicality of fiscal policy in EU countries in 2004-2013. Summing up the international experience related to the application of fiscal rules, he pointed to the complementarity of fiscal rules and fiscal councils.
In presenting the international experience of FPCs’ functioning, the speaker pointed out that the majority of such organizations are still too new to assess how well they work. But he pointed to key aspects of the functioning of FPCs that determine the effectiveness of their operation: 1) political, financial and organizational independence; 2) monitoring compliance with fiscal rules; 3) assessing the macroeconomic forecasts prepared for the needs of the state budget and 4) good communication with the media.
Next, Janikowski presented an assessment of Polish fiscal policy after 2000, pointing out that the country is repeating errors committed in the past by highly developed countries that today have problems with public debt: Polish fiscal policy is unsustainable and procyclical. Janikowski said appointing an FPC may help overcome these problems. The main tasks a council should perform are 1) preparing and publishing analyses of the balance and cyclical stance of fiscal policy; 2) conducting stress tests on public finances; 3) advising the government and parliament and 4) informing the public about the condition and prospects of public finances.
The Hungarian Fiscal Policy Council in 2009-2010: significant implications for Poland
Balázs Romhányi began his presentation by stating that he agreed 99% with the ideas presented by Janikowski. He dedicated the entire presentation to the lessons from the experience of the Hungarian FPC that operated in 2009-2010, rather than the current one, which has diametrically opposite competences. Romhányi began by comparing the attributes of the Hungarian FPC to the OECD principles published in 2014, concluding that the Hungarian FPC largely met these conditions in 2010, meaning before the recommendations were published.
Next he presented the experiences from the Hungarian FPC’s operations in the following areas: data, human resources, independence, contact with the media and enforcement of compliance with fiscal rules. Among many interesting experiences from Hungary, Romhányi pointed to the frequently heard argument that there are insufficient staff resources to create an FPC. The argument is misguided, because the creation of an FPC contributes to increased interest in fiscal policy among university graduates, and thus to an increase in the availability of qualified staff.
Romhányi said an FPC should be independent from the government, political parties and lobby groups, but it should not be independent from the legislature, which should be its main “client.” Another important observation: The FPC can only win against the government in “small conflicts,” so it is important to include the fiscal rules in the medium-term budgetary framework (MTBF), so as to break the fiscal rule down into “many small steps.” Romhányi also pointed out that for the success of an FPC institution over the longer term, experiences from the initial period of the council’s operation are very important, because poor practices applied at the start are later very hard to change. For this reason it is of fundamental importance to select people for the first FPC who will do a good job organizing the body’s work.
Fiscal Policy Councils: a critical perspective
The final speaker was Mateusz Szczurek, who pointed out that he was asked for a critical comment on the previous two speeches. His most general comment was that tasks and functions, not institutions, are what’s important. Creating some kind of a “facade” doesn’t guarantee anything, which is important in the context of how Romhányi discussed the Hungarian FPC from 2009-2010, not the current one. Szczurek cast doubt on the IMF’s econometric research, which Janikowski had cited, pointing out the short timeframe and numerous legal changes.
Another question is the degree to which the creation of rules and fiscal councils is simply a reflection of a country’s political culture and preferences. During the period when Szczurek was finance minister, the government’s position was that many functions that are assigned to fiscal councils are performed in Poland by other institutions in a relatively independent fashion, and many of the errors and distortions that an FPC is intended to prevent do not occur in Poland. The speaker here pointed to the Monetary Policy Council’s opinion on the budget, the work of the Social Dialog Council, the practice of discussing the budget assumptions with bank economists and the publication by Poland of the results of the IMF Article 4 consultations, which is not a widespread practice.
He also pointed to the provisions of the Act on public finance, which mean it is not beneficial to “cheat on the forecasts,” and to the relatively high “blocking power” of the finance minister. Szczurek said the details of institutional fiscal policy architecture, which determine what value an FPC can add, are very important. He believes it is necessary to think carefully about how a council should look, so as to create more than just an unnecessary “facade.” He believes an FPC is not essential, certainly insufficient, but possibly useful. In concluding his presentation, the speaker stressed once again that the value a potential FPC could add is a reflection of the political culture and social preferences at a given time.
After the presentations, the audience was asked to comment. Some expressed doubts that a new institution is needed, saying it might be better to assign the tasks that aren’t being performed at the moment to existing institutions. It was pointed out that for an FPC to be effective it is desirable for it to be a constitutional body. It is important to precisely define the competences and tasks, and the relationship with the remaining organs of state authority, in particular the finance minister and local governments. Many people pointed to the need to consider whether one of the competences of the FPC should be the assessment of the effects of regulation in the area of their effect on public finances, because in their current form, such assessments leave much to be desired. Doubts were also expressed on whether the current political atmosphere in Poland supports the creation of such an institution in a way that guarantees its independence. Finally, the role of an FPC in the optimal policy mix was brought up, including in particular the coordination of fiscal and monetary policy.
Written by Łukasz Janikowski