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Medium Term Expenditure Framework in the Federal Republic of Germany 16 March 2004

Medium Term Expenditure Framework in the Federal Republic of Germany 16 March 2004. Principles for MTEF. Historical development Need for MTEF Object of MTEF and planning period. Historical development. Budget Reform 1969:

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Medium Term Expenditure Framework in the Federal Republic of Germany 16 March 2004

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  1. Medium Term Expenditure Framework in the Federal Republic of Germany 16 March 2004

  2. Principles for MTEF • Historical development • Need for MTEF • Object of MTEF and planning period

  3. Historical development Budget Reform 1969: • Revision of Budget Provisions (Art. 109 an 115 GG) in the constitution • Law on Budget Principles • Länder Budget Code • Federal Budget Code (BHO)

  4. Budget Reform 1969 • Requirements for macroeconomic equilibrium (Art. 109 GG) • Borrowing may not exceed expenditure for investment (Art.155 GG) • Introduction of MTEF for Federation and Länder • Setting up of Financial Planning Council

  5. Budget Reform 1969 • Standardised Budget System • classification by object • classification by function • Federation and Länder can compare their budgets • MTEF: useful tool to avoid excessive demands

  6. Budget classificationby object • 4 Personnel expenditure • 42 Payments and incidental services • 422 Payments and incidental services for civil servants and judges • 425 Payments for employees

  7. Budget classificationby function • 3 Health, environment, sport and recreation • 31 Institutions and Measures of Health Care • 311 Health Authorities • 312 Hospitals and Sanatoriums

  8. Need for medium termfinancial planning • Anticipate developments in public finance • Identify financial impact of reform projects etc. • Assess the scope for fiscal policy in future years • Identify undesirable trends and counteract

  9. Object of financial planning • Financial Planning = Process • Financial Plan = Product • Detailed planning: all revenue and expenditure titles • Comprehensive planning: developments, risks, reserves

  10. Object of financial planning • Macroeconomic orientation • Medium-term projection of aggregate economic development • e.g. Labour market expenditure • Tax revenue (Working Party on Tax Revenue)

  11. Planning period Rolling Plan: • Current fiscal year 2004 • Draft budget next year 2005 • Three planning years 2006-2008

  12. Participants • Federal Ministry of Finance • Overall control of the budget • Update/re-evaluation of budget titles • Setting-up of financial plan • Negotiations of estimates with other departments

  13. Participants • Working Party on Tax Estimates • Estimation of future tax revenue • Twice a year; may estimates for financial plan • Including all economic experts in Germany

  14. Participants • Financial Planning Council • FMF, finance ministers of the Länder, associations at local level, representative of the Bundesbank • Agreements on future spending policy / spending ceilings

  15. Procedure of medium-term financial planning • Update / re-evaluation of all individual budget titles • Aggregation and analysis of financial plan  measures? • Negotiation of draft budget and financial plan with departments • Alignment with macroeconomic data / tax revenue estimates

  16. Benchmark figures

  17. Financial Plan

  18. Macroeconomic projection

  19. MTEF-coordinationFederation and Länder • European Monetary Union: • Annual deficit < 3% GDP • Total indebtedness < 60% GDP • Federation and Länder are autonomous in their fiscal adminstration

  20. MTEF-coordinationFederation and Länder • National Stability Pact (51 HGrG) • Discussion of budgetary developments • Recommendations for fiscal discipline • Agreements on future spending policy / expenditure ceilings

  21. Budget preparationprocedure December 2003: • Circular to the departments for the preparation of the budget (2005) and the financial plan (2004-2008)

  22. Budget preparationprocedure January / February 2004: • Preparation of the estimates of the budget and the financial plan • Re-evaluation and planning of the budget titles • Fixing of macroeconomic benchmark data

  23. Budget preparationprocedure March / April 2004 • Departmental bids sent to FMF; • Start of negotiations FMF/departments at technical level for the draft budget (2005) and the financial plan (2004-2008)

  24. Budget preparationprocedure May 2004: • Medium-term projection of economic development and medium-term tax revenue estimate; • Financial Planning Council

  25. Budget preparationprocedure June / July 2004: • Start of budget negotiations at ministerial level • Cabinet resolution on draft budget and financial plan

  26. Budget preparationprocedure August 2004 • Draft budget sent to Bundestag (BT) and Bundesrat (BR) for deliberation and financial plan for information

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