A New Revenue Sharing Act and a New Stability Pact for Austria – No Fundamental Changes
The new Austrian domestic Stability Pact aims at the achievement of a zero deficit until 2008. At the federal level, the Maastricht-relevant deficit is to be reduced to 0.75 percent of GDP, states and municipalities together are obliged to obtain a surplus of 0.75 percent of GDP in 2008. The new revenue sharing agreement will not change fiscal relations fundamentally. The weight of shared federal taxes will increase; most of them will be distributed according to uniform revenue shares. The revenues of the smallest municipalities from the horizontal apportionment of shared federal taxes will increase. The states' strong dependency on intergovernmental transfers will not be reduced, the tax autonomy of the subnational levels of government will remain low.
Sluggish Growth and the SGP Fiscal Rule: Model Simulations
In the last decade, many OECD countries have experienced with budgetary rules in order to help restore or safeguard fiscal sustainability. The most prominent examples are the USA with the 1985 Balanced Budget and Emergency Deficit Control Act (Gramm- Rudman Act) which was relaxed and renamed in the 1990 Budget Enforcement Act (BEA) introducing caps on discretionary spending. The caps could be exceeded in the event of “emergencies”. In the end most of its provisions elapsed in September 2002, without being extended or replaced.4 In the United Kingdom, two fiscal rules were set out in 1997: the so-called “golden rule”, which states that over the cycle current outlays, including the consumption of fixed capital should not be financed by borrowing; and a debt rule, or “sustainability investment rule”, stipulating that over the cycle the ratio of net debt to GDP should not exceed a prudent level, defined for the time being as 40 per cent. Several other OECD countries have adopted new rules since the 1990s (e.g. New Zealand and Switzerland with its debt brake — “Schuldenbremse”)
Fiscal rules for sub-national governments: what lessons from EMU countries?
The paper analyses the interaction between fiscal rules applying to European Union (EU) member states and fiscal decentralisation, a process which has gained momentum in some European countries since the early ‘90s. Three critical areas are identified. First, while compliance with European rules depends on the behaviour of all levels o f government, it is the central government that is held accountable at the EU level; this asymmetry increases the need for rules applying to lower government tiers. Second, European rules demand that the overall budget (both current and capital) be balanced over the medium term; applying this rule at the sub-national level may unduly reduce capital outlays. Third, European rules allow margins to deal with the budgetary effects o f the economic cycle; replicating this feature at the sub-national level, although desirable, may prove difficult. The paper examines the solutions available in principle to deal with these problems and compares them with those actually adopted by five European countries. It is argued that since European rules call for clear accountability and rapid adjustment, in theory the introduction of explicit domestic rules, mimicking the European ones, has marked advantages over purely co­ operative mechanisms. However, in practice the strengthening of consensus-based institutions and procedures has been privileged, with little recourse to formal rules. While co-operation has proved effective in terms of general government deficit reduction, it may be sub-optimal in terms of allocation of resources and it may not withstand stress-testing in terms of both economic and institutional developments.