The State of Public Finances 2015

The State of Public Finances 2015

Strategies for Budgetary Consolidation and Reform in OECD Countries You do not have access to this content

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06 Nov 2015
9789264244290 (PDF) ;9789264244245(print)

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For most countries in the OECD, 2015 is the seventh or eighth year of dealing with the budgetary consequences of the economic and financial crisis. These years have been marked by challenges of fiscal retrenchment of a scale and nature unprecedented in modern times. Previous OECD publications have tracked the fiscal policy responses adopted by OECD governments during the early years of the crisis (2007-2012). This book takes stock of how these responses have evolved and in recent years, up to 2014/15. Two points are apparent from the outset: the response to the crisis has had repercussions for virtually every aspect of budgetary governance; and there are clear lessons for governments about the conduct of fiscal policy – including in its institutional aspects – that should inform future decisions and the agenda of budgetary reform.

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  • Foreword

    The State of Public Finances 2015 provides a record of the strategies pursued by OECD countries to correct, consolidate and stabilise their public finances in the period to 2015, and in particular of how these strategies have evolved over the entire period of the economic and financial crisis from 2007-08 onwards. The report also provides an insight into the future plans for public finances over the coming years. Importantly, the report does not confine itself to the challenges of managing public finances, but encompasses a broad range of related policy themes including: the use of fiscal rules, the strategies adopted in various countries to sustain economic growth during fiscal consolidation, the developing role of independent fiscal institutions, how the role of parliaments and citizens in budgeting has been affected, and the degree to which fiscal consolidation has been accompanied by broader-based budgetary reforms.

  • Preface

    Right across the OECD, public policy over the past decade has been dominated by the challenges of steering the public finances through troubled times. The fundamental national debate over resources – how they should be raised, allocated and prioritised – often takes precedence over sector-specific concerns, and most particularly when resources are under pressure and even shrinking.

  • Executive summary

    For most countries in the OECD, 2015 is the seventh or eighth year of dealing with the budgetary consequences of the economic and financial crisis precipitated in 2008. These years have been marked by challenges of fiscal retrenchment on a scale and nature unprecedented in modern times.

  • The state of public finances 2015: An overall perspective

    This chapter presents the overall state of public finances in OECD countries with a particular focus on trends and policy responses between 2007 and 2014. The chapter presents the headline and underlying fiscal position and presents the various fiscal policy responses to the global economic and financial crisis, as well as the ongoing implications for fiscal policy in light of remaining fiscal challenges and country plans. The chapter includes a discussion of fiscal consolidation strategies, recent developments in fiscal rules, country strategies to protect and promote economic growth, the developing role of independent fiscal institutions and the broader range of related reforms in budgetary governance.

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  • Expand / Collapse Hide / Show all Abstracts Public finances in context: Country notes

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    • Australia

      Growth is projected to dip to 2.25% in 2015 but pick up to nearly 3.0% in 2016. Gathering momentum in consumption, non-resource investment and exports help the economy adjust and recover from the fall in commodity prices and unwinding resourcesector investment. Consumer price inflation has been dented by lower oil prices and will remain moderate due to economic slack.

    • Austria

      Economic growth will remain subdued in 2015, but will strengthen and reach 1.7% in 2016. Going forward, geopolitical and euro-wide developments should support export growth and recovery in investment. The income-tax reform will boost private consumption.

    • Belgium

      The recovery is projected to gradually strengthen. Economic growth is expected to broaden with rising exports and business investment owing to supportive financial conditions and improving external demand. Household consumption growth will be held back by fiscal consolidation and wage restraint. Inflation will pick up somewhat in 2016 as the effects of falling oil prices wear off.

    • Canada

      Since the acute economic shock of 2009, Canada’s economy has proven resilient and has enjoyed steady growth over recent years. However, growth is projected to slow to around 1.1% in 2015 before rising slightly in 2016. The recent fall in oil prices has resulted in declines in related investment and GDP. However, substitution towards nonenergy exports is underway, supported by the currency depreciation and stronger foreignmarket growth. With economic slack fully absorbed, inflation is projected to return to the 2% midpoint of the inflation target range by mid-2016.

    • Chile

      After a sharp slowdown in 2014, the economy is projected to recover gradually in 2015 and 2016. The pick-up in activity will initially be driven by higher public spending, but will increasingly be supported by stronger external demand for industrial goods from the United States and Europe.

    • Czech Republic

      The economic expansion has gained momentum, driven by domestic demand. Renewed consumer confidence and income growth are supporting consumer spending, while public spending and an improving outlook are raising investment. Stronger growth in trading partners will drive further growth in exports. Global commodity price falls have temporarily reduced inflation but rising domestic cost pressures will push it towards the target during 2016.

    • Denmark

      Economic growth is projected to rise to 1.9% this year and 2.3% in 2016, thanks to improved trade prospects, a weaker effective exchange rate, lower energy prices and easing financial conditions. Improved confidence, recovering house prices and a savings surplus in the private sector will underpin gathering momentum in business investment and private consumption.

    • Estonia

      Economic growth is projected to strengthen gradually. Strong wage growth will fuel private consumption and investment will recover somewhat. Export growth will pick up only slowly, however, hampered by weak economic growth in some of Estonia’s main trading partners.

    • Finland

      Economic growth is projected to resume in 2015 after three years of contraction. Nevertheless, sluggish incomes and high unemployment will continue to weigh on private consumption and remaining spare capacity will delay investments. A pick-up in exports on the back of the global economic recovery and the weaker euro should progressively spill over to the domestic economy.

    • France

      Economic growth is projected to gain momentum in 2015 and 2016. Lower energy prices, improving financial conditions, slowing fiscal consolidation, strengthening external demand and a pro-competitive reform agenda should underpin an increase in consumption and export volumes. Weak business confidence entails a delayed pick-up in hiring and only marginal decline in unemployment.

    • Germany

      Economic growth is projected to strengthen, driven by both domestic and external demand. A robust labour market, low interest rates and low oil prices will underpin household spending, while the recovery of the euro area and the depreciation of the euro will boost exports. Business investment is expected to recover as capacity utilisation rises. The already low unemployment rate will fall further, while consumer price inflation is projected to rise in 2016.

    • Greece

      Economic growth in 2015 remains weak, as uncertainty related to the reform programme and deteriorating liquidity conditions have undermined business confidence and investment. In 2016, growth will gain momentum and unemployment will decline somewhat as exports and investment recover while reform momentum is renewed.

    • Hungary

      Economic growth is projected to slow but remain fairly robust, and unemployment will decline somewhat further. As the effects of cheaper energy wane and the labour market tightens, inflation should gradually increase. Exports growth will remain dynamic.

    • Iceland

      The economy has entered its seventh year of economic growth, with a pick-up in private consumption and fixed investment and a boom in tourism. Large investments in energy-intensive projects and fiscal support for households will sustain growth in 2015 and 2016. Inflationary pressures will mount as the labour market tightens. Fiscal policy has made significant progress in reducing government debt.

    • Ireland

      Economic growth is projected to be robust and broadly based in 2015 and 2016. Exports will continue to be strong due to increasing demand in trading partners and the depreciation of the euro. Household consumption will gather pace with employment and wages rising steadily.

    • Israel

      Economic growth slowed in 2014, picked up strongly at the end of the year and should strengthen to around 3.5% in 2015 and 2016, helping to keep unemployment low. Lower oil prices, further cuts in interest rates and a significant revaluation of the minimum wage should shore up domestic demand, while the gradual improvement of the global economy boosts exports.

    • Italy

      After a long recession, the Italian economy has started its gradual recovery. Output is projected to grow by 0.7% in 2015 and by 1.3% in 2016. Exports will continue to support growth, but the recovery will broaden to private consumption. Sluggish private investment will be countered by rising public infrastructure spending. Economic growth will result in employment gains.

    • Japan

      The economy has now rebounded from the contraction in the wake of the 2014 tax hike. Supported by the fall in oil prices and real wage gains, output growth is projected to reach 0.6% in 2015 and 1.2% in 2016. Export growth is projected to remain buoyant. Inflation, which has fallen close to zero, is projected to begin rising from late 2015, while unemployment continues to fall.

    • Korea

      Output growth is projected to slow to around 3% in 2015, reflecting sluggish private consumption in the context of high household debt and stagnant wages. Inflation has fallen to less than 1%, well below the target range of 2.5% to 3.5%, while weak domestic demand is boosting the current account surplus to around 7% of GDP. Lower oil prices are projected to support stronger consumption and investment, boosting output growth to 3.5% in 2016.

    • Luxembourg

      Growth is projected to remain robust at just below 3%, notwithstanding the shift in the EU VAT regime for e-commerce (which makes Luxembourg less attractive for certain export-oriented activities) and higher domestic VAT rates (introduced to partially offset the loss of revenue from e-commerce). Lower oil prices, a weaker euro and an ongoing recovery in the euro area will support exports and investment.

    • Mexico

      Mexico’s economic recovery is strengthening, led by US import demand for manufactures and a weaker currency. Real GDP is projected to grow by 2.9% in 2015 and 3.5% in 2016. Firming exports have finally allowed the rebound to gain speed, and investment has begun to regain lost ground. Notwithstanding lower oil prices, new tenders are attracting considerable interest in the wake of the recent energy-sector reforms. Wide-ranging reforms to competition, energy and market regulation have helped boost confidence while monetary policy has been supportive.

    • Netherlands

      Economic growth is projected to increase to 2.0% in 2015 and 2.2% in 2016. Real wage gains will support higher private consumption, while the improved business outlook and the ongoing recovery of the housing market will support investment. Exports are set to continue to increase steadily, boosted by the recovery in the European Union and the low value of the euro. Employment is set to rise significantly and the unemployment rate to fall gradually.

    • New Zealand

      Economic growth is projected to moderate as the fall in the terms of trade depresses domestic demand, the boost from the Canterbury rebuild wanes and immigration slows. Still, the unemployment rate should continue to edge down and wage gains to increase modestly. With economic slack fully absorbed, consumer price inflation is projected to rise to 1.8% by late 2016.

    • Norway

      Growth is projected to weaken in 2015 as the fall in oil prices dents petroleum sector activity and investment, with spillovers on the mainland economy. A gradual recovery in 2016 will be supported by firming business investment in non-oil activities and stronger external demand. The unemployment rate is expected to drift up to slightly above 4% and wage growth is set to moderate. Inflation will remain low given the economic slack.

    • Poland

      Output growth, supported by strengthening private consumption, is projected to continue to rise, reaching 3.7% in 2016. The labour market will make further progress, and exports will benefit from firmer international trade and faster growth in the euro area. Energy and food prices have started to turn around following sharp falls and consumer prices will pick up after the recent spate of deflation.

    • Portugal

      The recovery is projected to strengthen in 2015 on the back of strong external demand, a weaker euro and lower oil prices. After having contracted for three years, domestic demand has started to rise, and business investment is projected to pick up further in 2016. However, considerable economic slack will remain, as the unemployment rate will continue to fall only moderately.

    • Slovak Republic

      Economic growth is projected to accelerate further in 2015. Labour-market performance will continue to improve and increasingly confident households should spend more out of rising real incomes. Export markets are set to recover, raising business sentiment and investment.

    • Slovenia

      Economic growth is projected to continue in 2015 due to strong exports and public investment in infrastructure, partly financed by EU funds. Fiscal consolidation, still high unemployment and corporate deleveraging will weigh on domestic demand. A decline in public investment will be a drag on growth in 2016, although private investment and consumption will gain some momentum.

    • Spain

      Robust growth is projected over the next two years, driven by very supportive financial conditions, the depreciation of the euro, lower oil prices and strengthening trading partner growth. The fiscal stance is assumed to be mildly contractionary. Private consumption growth will be supported by rising employment and incomes, household tax cuts, and lower fuel prices and interest rates. Export growth will be underpinned by cost competitiveness gains, and slack will keep inflation low.

    • Sweden

      Private consumption and investment continue to grow briskly, while foreign trade will make a significant but modest contribution to growth. Unemployment is projected to recede only slowly, as integrating the substantial flow of immigrants takes time and labour force participation increases. Inflation is set to pick up gradually, as wages increase and the disinflationary effect of falling oil prices fades out.

    • Switzerland

      The economy has weakened thus far in 2015, but growth is projected to rise gradually into 2016 as the recent large exchange rate appreciation is absorbed. Private consumption should hold firm on the back of rising real wages and very favourable financial conditions, but exports and business investment will suffer. Lower oil prices combined with the higher Swiss franc are bringing inflation back into negative territory.

    • Turkey

      Growth weakened in early 2015, after a short-lived upturn in late 2014. The uncertainties associated with the forthcoming legislative elections and ongoing geopolitical tensions in the region are holding back investment and consumption spending. GDP growth is projected to pick up gradually over 2015 and 2016, after the "wait and see" attitudes of businesses and households dissipate.

    • United Kingdom

      Economic growth was strong in 2014 and is projected to continue at a solid pace in 2015 and 2016, boosted by domestic demand. The unemployment rate is projected to fall further towards 5%. As spare capacity wanes, inflation is expected to pick up towards the 2% inflation target. The current account deficit, which has widened to above 5% of GDP, should narrow as the euro area recovers.

    • United States

      Output growth paused in early 2015, weighed down by the stronger dollar and adverse weather. Nonetheless, the labour market has continued to improve, as evidenced by job gains in the private sector and a falling unemployment rate. Supportive monetary conditions and lower energy prices should underpin a sustained pick-up in aggregate demand as the fiscal policy drag dissipates and ongoing increases in household wealth lift consumer spending and residential construction.

    • Monitoring and managing the finances of sub-national governments

      In most OECD countries, the finances of sub-national governments (SNGs) form a significant component of overall national finances. SNGs have also been significantly affected by the recent economic and financial crisis. This chapter discusses recent trends in the management of SNG finances and of fiscal relations across levels of government, including the main drivers of SNG debt levels, the limitations on SNGs’ capacity to improve their fiscal situation, the various types of fiscal rule and models such as "rainy day funds" that govern and stabilise SNG finances, and related issues and challenges for monitoring and managing SNG finances.

    • Budgetary impacts on human resource management in the public sector

      In parallel with the Survey of the State of Public Finances 2015, the OECD has undertaken an analysis of Central Public Administration employment has responded to the impacts of the budgetary crisis and how Civil Service HR trends and practices have been affected by fiscal consolidation over the period 2008-13. Compensation of employees accounted for 23.6% of public expenditures on average across OECD countries in 2013, and it is natural that governments will seek to find economies and efficiencies from this significant block of expenditure as part of a broader strategy of fiscal correction.

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