I would like to thank the Dutch Presidency for the very productive and very well-organised informal ECOFIN.
Some observations on today’s discussion on how to simplify and make more predicable the way we apply the Stability and Growth Pact.
First of all, we all agreed that – to uphold sound public finances - we need a consistent application of our fiscal rules. This is all the more important for countries in the Euro area.
In the last decade the Stability and Growth Pact has undergone several reforms to make it more refined. Now, when assessing the structural budget balance, we take into account the economic situation in the Member States. And we have a preventive arm of the SGP, concentrating on fiscal performance of Member States also if their public deficit is below 3% of GDP.
These reforms have also highlighted the importance of the level of debt. The structural balance is a key indicator of the fiscal policy stance but it is difficult to estimate precisely and, to an extent, it lies beyond the control of governments. In practice, a number of other indicators have been introduced to cross-check the indications from the structural balance.
However, despite that the Commission has improved the transparency of how the rules are applied, there is a perception that the rules have become too complex. We need to acknowledge and address this perception, for the sake of budget planning and public understanding of it.
Clearly, there will be no very easy solutions or alternatives for such a complex matter. But we can agree on two principles to work on: predictability and simplicity while preserving the capacity to take into account economic conditions in the Member States.
Our approach is to work within the current legislation and in close consultation with Member States.
The Commission has identified already in a Communication of October last year three ways to improve the implementation of the rules:
· First, we have to ensure more consistency between the debt rule and the adjustment path of Member States towards the medium term budgetary objectives.
· Second, unforeseen variations in economic activity should be taken into account, both when the economic situation turns out better or worse than initially foreseen.
· Finally, we need to simplify the assessment of compliance with the targets under the SGP. Today, so many different indicators exist, that it is difficult to see clearly.
Today’s discussion focused mainly on this third point. The Commission has been studying the possibility of reducing the number of operational indicators. Our intention is to focus more on what is really in the hands of the Ministers of Finance, namely the evolution of primary expenditure and new revenue measures. This does not mean that we will put aside the deficit and the debt objectives. It is rather about making it clear what governments are expected to do to achieve these objectives. There was I would say broad support to pursue the work in this direction.
Ministers have also asked the Commission to look into the way the output gap is currently calculated and we will address this issue in cooperation with the Member States. At the same time, we need to be realistic in our expectations, as many underlined that there is no perfect method of calculating the out-put gap, it will always be an approximation.
In the shorter term and more specifically, we have also been asked to follow-up on the letter by the 8 Finance Ministers about aligning the forecasting horizons used by the Member States and the Commission in calculations of the potential output gaps.
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And on today's second topic, on fight against VAT fraud.
Every year, in the EU, almost €170 billion of VAT revenues are lost, of which around €50 billion euros to cross-border transactions, also called carrousel fraud. This is why the Commission recently presented VAT Action Plan with a series of short term and medium term steps that form our strategy to fight against VAT fraud. There has been broad support for the fact that we need to tackle this issue.
In the short term, we must boost cooperation between VAT tax administrations in different Member States. This will help us detect the networks of companies that commit so-called carrousel fraud at a cost of billions of euros to our national budgets.
Today’s discussion on upgrading and linking up our IT systems is an important step because it will mean that our tax authorities will get critical information much faster.
The Commission welcomes the wide support for this direction of the work and also will finalise the feasibility study on the Social Network Analysis tool, also called Transaction Network Analysis (TNA) soon.