Promoting Transparency About Long-term Sustainability of Public Finances – the Case of Germany
Sound public finances are fundamental to the capacity to carry out public policies. For South East European countries, the importance of fiscal sustainability is a matter of shared concern; it has been particularly highlighted in countries having accumulated high public debts while also facing ageing population. If not addressed timely, these demographic challenges can lead to higher and higher public spending, eventually leading to an unsustainable level of public debt.
Under the European Semester, the European Commission promotes transparency on long-term fiscal risks as part of its macro-fiscal surveillance of EU member states. Accordingly, EU members states regularly report on the solvency of their public sector, and identify potential macroeconomic and fiscal dangers to ensuring sustainability of public finance also in the mid- to long-term. Fiscal Sustainability Reports quantify foreseeable fiscal effects of demographic factors vis-à-vis the budget consolidation needed for expected revenues to cover all future expenditures, including those linked to accumulated public debt.
Demographic trends influence the sustainability gap. Early identification of a widening gap, and timely action can significantly reduce the need for later substantial adjustment, which leaves a country greater fiscal flexibility and can ensure sustainable pension, health care and long-term care policies. Sustainability analyses are intended as a basis for adjusting fiscal frameworks rather than steering current policy.
To learn more about how such Fiscal Sustainability Reports look like, and how they can be used in support of better informed current public expenditure decision-making, we have interviewed Dr. Werner Ebert from the German Ministry of Finance for our YouTube-Channel ‘You Wanted to Know, We Asked’. He is a member of the EU Working Group on Aging, and has been involved in preparing Germany’s Fiscal Sustainability Reports.
With intention of bringing more attention to such challenges, in 2018 the CEF will organize several learning initiatives addressing fiscal implications of health care policies (Managing Health Care Costing and Financing and Introducing Evidence-Based Budgeting), as well as Implications of EU Budget 2020+ negotiations for South East Europe.