Fiscal policy and public-expenditure reform
Fiscal policy and public-expenditure reform
Fiscal policy and public-expenditure reform The importance of making fundamental reforms to public expenditure is increasing. As Chapter 1 illustrates, the widening deficit is reflecting strong increase in spending as a share of GDP against a relatively flat revenue profile. Looking forward, rapid growth in the number of old people in coming years will increase spending on pensions and boost demand for health care. In addition, the authorities must ensure appropriate investment in public infrastructure and make sure that sufficient funds are being spent on education and training to bring goals of developing a highly skilled and adaptable workforce to fruition. These spending pressures have to be addressed in an environment where revenues from privatisation are drying up and where increases in taxation add to a tax burden that is already adversely affecting job growth and detracting from the attractiveness of the Czech Republic as a place to invest. In addition to these general factors, meeting the deficit and debt criteria for entry to the euro area provide additional incentive to increase the efficiency and sustainability of public spending, The current administration is fully aware of the fiscal challenges it faces and has taken significant steps towards fiscal reform. In June 2003, the government approved a resolution proposing wide-ranging measures. The resolution, along with a first wave of implementation and a 2004 budget in concordance with reform plans, was passed by Parliament in November 2003. Further implementation is in progress and there are also plans for a “second phase” of reform, notably in pensions and health. However, some of the original reforms have already been diluted in the parliamentary process and there is a risk of further dilution as well as delay in the implementation of the remaining items on the reform agenda. This Chapter first takes a detailed look at the 2003 budget outcome. This is followed by an overview of the fiscal reform programme, an assessment of budgeting issues (including the new medium-term budgeting framework) and progress in active tax and spending measures. The final sections of the Chapter look at issues in public spending reform. The policy recommendations of the chapter are summed up in Box 2.1.iscal policy and public-expenditure reform The importance of making fundamental reforms to public expenditure is increasing. As Chapter 1 illustrates, the widening deficit is reflecting strong increase in spending as a share of GDP against a relatively flat revenue profile. Looking forward, rapid growth in the number of old people in coming years will increase spending on pensions and boost demand for health care. In addition, the authorities must ensure appropriate investment in public infrastructure and make sure that sufficient funds are being spent on education and training to bring goals of developing a highly skilled and adaptable workforce to fruition. These spending pressures have to be addressed in an environment where revenues from privatisation are drying up and where increases in taxation add to a tax burden that is already adversely affecting job growth and detracting from the attractiveness of the Czech Republic as a place to invest. In addition to these general factors, meeting the deficit and debt criteria for entry to the euro area provide additional incentive to increase the efficiency and sustainability of public spending, The current administration is fully aware of the fiscal challenges it faces and has taken significant steps towards fiscal reform. In June 2003, the government approved a resolution proposing wide-ranging measures. The resolution, along with a first wave of implementation and a 2004 budget in concordance with reform plans, was passed by Parliament in November 2003. Further implementation is in progress and there are also plans for a “second phase” of reform, notably in pensions and health. However, some of the original reforms have already been diluted in the parliamentary process and there is a risk of further dilution as well as delay in the implementation of the remaining items on the reform agenda. This Chapter first takes a detailed look at the 2003 budget outcome. This is followed by an overview of the fiscal reform programme, an assessment of budgeting issues (including the new medium-term budgeting framework) and progress in active tax and spending measures. The final sections of the Chapter look at issues in public spending reform. The policy recommendations of the chapter are summed up in Box 2.1.
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