Lecture outline
• What is public spending/why does it need reform
• Fiscal sustainability and frameworks• Main spending items: -Pensions -Healthcare
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What is public spending?
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Provision of public goods
• Security, • Infrastructure, • Education, • Healthcare• Social benefits (pensions,
unemployment benefits, housing benefits, …)
How to make public expenditure more efficient?
• Fiscal policy framework
• Public finance/Budget management
and control
• Public pensions reform
• Public healthcare reform
… and solutions
• Stability and Growth Pact (EU) and its latest upgrade Fiscal compact: deficit below 3%, structural deficit 1%, debt below 60% of GDP.
• Fiscal councils (e.g. UK, Sweden, Ireland… CR) and other wise men/advisory bodies (e.g. Netherlands’ CPB, Australia’s Productivity commission)
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Current proposal for a constitutional debt brake
• Constitutional law on budgetary responsibility
• In the Parliament, http://www.psp.cz/sqw/text/tiskt.sqw?O=6&CT=821&CT1=0 (Budgetary committee)
• 60% of GDP debt brake with ‘alarm’ thresholds at 45%, 48%, 5o%
• Debt limit on sub-central governments
• Fiscal council appointed by the Parliament
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Budget management and control• Transparency ( A citizen’s guide to state
budget) - http://www.mfcr.cz/cps/rde/xchg/mfcr/xsl/vf_sr_vladni_navrh_zakona.html,
• Ex-post assessment of policies (systematic assessment based on performance indicators)
• Tax expenditures (3.1% GDP) - e.g. tax deductable interest rate of mortgages, …
• Public procurement ( saving of 2.5% GDP?) - investment, purchase of private sector services
• Sub-central governments (regions, municipalities) - how many layers of government?
• Management of state assets - state owned enterprises ( ČEZ, Lesy, ČSA, airport, Ceske Drahy …)
• Supreme control office (NKÚ, www.nku.cz)
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Budget management and control
Pension reform 2010-2013
• Public pension systems – consumption smoothing/distribution of income over life-cycle
• Increasing the statutory age of retirement
(today: 61, 60; born in 1990: 69 yrs) • Strengthening the link between the
contributions and benefits – but only up to a point
Pension reform 2010-2013• Motivation to remain active/working
longer
• Diversification of savings - introduction of a new (second) pillar :– PAYG (pay-as- you-go) defined benefit– funded defined contribution (second
pillar, “state contribution”)– funded defined contribution (third
pillar, employer contribution, state contribution)
• www.duchodovakalkulacka.mpsv.cz
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Healthcare reforms• Analysis of OECD countries healthcare
systems (Joumard et al., 2010) – no one “perfect/most efficient” healthcare system
• Rising expenditure – both demography but also progress/innovation
• Demand management (fees, soft/hard-gate keeping)
• Mutli-insurer system - “imitating competition”- govn’t to set and oversee the rules of the game
Literature• Kumar et al, Fiscal Rules: Anchoring
Expectations for Sustainable Public Finances, IMF, December 2009
• Rogoff K., Bertelsmann I.J., Rationale for fiscal policy councils: Theory and evidence
• Johansson, Å. et al. (2013), “Long-Term Growth Scenarios”, OECD Economics Department Working Papers
• Health at a glance Europe 2012, OECD Publishing
• OECD Economic Surveys: Czech Republic 2011, OECD Publishing
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