Transcript Chartedchoices:calculatingfiscal and

Charted choices:
calculating fiscal and
economic effects of
election manifestos
Johannes Hers
Head of Public Finance
CPB
Centraal Planbureau
Budapest
31 January 2014
Structure of talk
Background on role of CPB
Evaluation of election manifestos
Bird’s eye view of results
Take away
Centraal Planbureau
Formal position of CPB
• Department within Ministry of Economic Affairs
• Staff of 100-120 large compared to other countries
• CPB wants to be a widely trusted source of independent economic
analysis
• Works for Cabinet and ministries, opposition parties, social partners:
– macro-economic forecasts next year and cabinet period
– Sustainability analysis government finance
– Impact of government agreements and budget packages
– Costing of major reforms, cost-benefit analysis, think tank
– Evaluation of election manifestos
• Strong position based on reputation, not on legal position
• De facto independence, requires vigilance and reticence
Centraal Planbureau
Election cycle
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Mid-term economic forecast incl sustainability of public finance
Advisory Group on Fiscal Policy gives advice on budgetary goals
Publication of CPB analysis of election manifestos
Elections
Negotiations on new coalition agreement
Publication of CPB analysis of coalition agreement
• Start: about 5-6 months prior to elections
Centraal Planbureau
Structure of talk
Background on role of CP
Evaluation of election manifestos
Bird’s eye view of results
Take away
Centraal Planbureau
Evaluation election manifestos: merits
• On request of political parties
• 3 parties participated in 1986 (first time)
• 10 parties participated in last evaluation in 2012
• Merits:
– Same underlying economic scenario
– Evaluation by identical standards
– Makes programs comparable
– Improves concreteness in proposals
– Check on practical and juridical feasibility
– Facilitates subsequent coalition negotiations
Centraal Planbureau
Evaluation election manifestos: drawbacks
• Objections / critics:
– Constrains political debate (e.g. juridical feasibility)
– Bias in debate to proposals that are easily evaluated
› e.g. institutional reform in health care not effective
– Not all trade offs are visible
› e.g. long term purchasing power effects
– Too detailed, lot of work for parties and CPB
Centraal Planbureau
Rules of the game: transparent and accountable
• communicate publicly at start about "rules" (e.g limits on unspecified
spending cuts, laffer curve limits on large increases of tax rates etc)
• be transparent about models used and key assumptions
• communicate exclusively and bilaterally with parties: NEVER share
party X's plan with party Y
• CPB does not check if measures that parties hand in are part of their
election manifesto: this is for the media
• check during the process if you understand proposals by sending
back a neutral refrasing of it [eliminate propaganda texts]
• reduce gaming: parties see the scores of other parties (ie their
relative score) for the first time at publication day
Centraal Planbureau
Structure of talk
Background on role of CPB
Evaluation of election manifestos
Bird’s eye view of results
Take away
Centraal Planbureau
Bird’s eye view of results 2012
Effects of manifestos on 5 main topics:
1. Policy measures: ex ante fiscal costs and benefits
2. Medium term macro-economic outcomes (gdp, unemployment,
purchasing power, ex post fiscal balance).
3. Structural labour market effects: long term employment
4. Sustainability of government balance
5. Special topics (5 in 2012): energy/climate, education, innovation,
mobility, environment
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Start from scratch: fiscal effects are the first and crucial step
•
If more: important to show the crucial trade offs
Centraal Planbureau
Example of outcomes and key trade off's
VVD PvdA
PVV
CDA
changes compared to baseline
(1) EMU balance (2017, ex ante, % GDP)
SP
D66
GL
2.5
2.4
1.1
2.1
1.6
2.2
2.4
1.4
-0.2
0.8
-1¼
-2
1.1
-2.3
1.3
-¼
3¾
1.3
0.7
-0.5
2
¼
1.1
-0.6
1.2
-3¼
-½
0.8
-1.8
0.4
3
6¼
1.0
-1.1
1.3
-2½
-¾
1.0
-2.0
1.1
2½
1
(3) Structural employment (2040, pp)
3¾
-1
-¼
2¼
-3¾
1½
2¼
(4) Sustainability (% GDP)
3.2
2.4
0.4
3.4
1.6
3.3
3.2
-14
2.9
-0.2
-0.01
-34
2.7
0.4
0.02
5
-0.2
-0.9
-0.02
-7
0.7
-0.1
-0.02
-23
0.5
-0.4
0.01
-31
3.5
0.1
0.04
-63
1
0.7
-0.04
(2) EMU balance (2017, ex post, % GDP)
(2) GDP volume (2017, %)
(2) Unemployment (2017, pp*)
(2) Purchasing power median (2017)
(2) Lowest and highest income ratio (2017)
(5) Greenhouse gases (2020, Mt CO2 eq)
(5) GDP effect education (structural, %)
(5) Housing market (welfare gains, % GDP)
(5) Transport and mobility (welfare gains, % GDP)
Centraal Planbureau
1. Ex ante fiscal effects policy measures
Calculation of direct fiscal costs and benefits based on:
• Information in the budget and of ministries (CPB checks)
• CPB models: model for income tax and social premiums, model for
other taxes, model for wage costs public sector etc
• CPB expert opinion on various topics
• No free lunches e.g.:
– Hard limit on size of unspecified budget cuts: practical and
juridical feasibility
– Wage freeze public sector only temporary effect: one labour
market
– Only policy measures starting in cabinet period: implementation
must be credible
Crucial: no free lunches and consistency between parties
Centraal Planbureau
Other instruments used:
1. Policy measures: ex ante fiscal costs and benefits [CPB tax-benefit
calculator etc]
2. Medium term macro-economic outcomes with CPB macroeconomic
model [Saffier II]
3. Structural labour market effects with CPB general equilibrium model
[Mimic]
4. Sustainability of government balance with CPB dynamic GE model
with overlapping generations [Gamma]
5. Special topics with various specific models
http://www.cpb.nl/en/models
Centraal Planbureau
Looking back at exercise in 2012
• General conclusion:
– unanimous on value of the exercise, especially on ex ante fiscal
costing of manifestos
• However:
– Size and amount of detail not manageable anymore
› E.g ca 3000 policy measures analyzed, 60 fte 3 months
› Lot of coordination internally and with parties
› More and more parties as result of political fragmentation
– Debate too focused on measures which “score”
› Especially in special topics, new measures without evidence
base for effects are excluded
•  Conclusion: back to basics, skip the special topics
Centraal Planbureau
Structure of talk
Background on role of CPB
Evaluation of election manifestos
Bird’s eye view of results
Take away
Centraal Planbureau
Take away for the evaluator:
• A reputation of quality and neutrality is crucial for trust of
parties; building this reputation takes time and sound analysis
• Be transparent and accountable about process and content
• Starting from scratch first step is direct costing of policy measures
– Very difficult without information and knowledge of ministries
– Where possible develop your own instruments to calculate costs
and benefits of policy measures (e.g. models for tax measures)
– This is doable with relatively small staff of experts (5-6 persons)
• If more output (models!): show crucial trade offs
– Supply side (incentives) vs demand side
– Fiscal effects vs purchasing power
– Short vs long run effects
– In order to do this you'll need models and experts
• Takes a lot of effort and institutional knowledge to do it right
Centraal Planbureau
Take away for parties
• Trust: helps to demonstrate reliability / quality of your plans
– “approved by IFI so no empty promises”
– And: if critical mass asks for analysis, lacking this approval is
disadvantageous in the political debate
• Concreteness and accountability:
– demonstrate to the voter that your program can be developed
into a viable government program
– facilitates quick (coalition) negotiations and implementation
after elections
• Comparability: quantifies your choices in terms of fundamental
trade offs
– E.g. fiscal consolidation versus purchasing power
– E.g. incentives for efficiency vs income equality
• Takes a lot of effort and institutional knowledge to do it right
Centraal Planbureau
More on:
http://www.cpb.nl/en/publication/charted-choices-2013-2017
Centraal Planbureau
Evaluation election manifestos: the process
0. Regular contacts outside “election season”
1.
2.
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5.
6.
7.
8.
Kick off document containing information for parties [week 1]
Kick off meeting with briefing on rules of conduct [week 1]
Parties hand in their concrete policy proposals [week 2]
CPB sends parties ex ante fiscal effects of proposals [week 6]
Parties hand in their amendments of policy proposals [week 8]
CPB sends parties macroeconomic and other outcomes [week 11]
Parties hand in last (small) adjustments [week 12]
CPB sends parties draft reports [week 13]
Centraal Planbureau
1. Ex ante budgetary outcomes: expenditure
VVD
Public administration
Security
Defence
Transport and mobility
Environment
Education
Health care
Social security
Transfer payments to
companies
Development aid
Other
Total EMU-relevant expenses
Centraal Planbureau
PvdA
PVV
CDA
SP
D66
GL
effect by 2017 compared with baseline in billion euros
-1¾
-1¾
-1¾
-1¾
-1¾
¼
-½
-½
-½
-¼
0
-1
-½
0
-1½
¼
-1¾
-¾
-¾
-1
-½
-¼
-¾
0
½
¼
¾
-2
0
-1
-8½
-4½
-1¼
-5¼
-¾
-7
-6¾
-1½
-6
-6¾
-½
-½
-1¼
-¼
-¼
-1
-½
-½
-½
1¼
1¾
-5
-7½
0
-1¾
-¼
-1
-¼
¾
2¼
-1¾
-8
-½
-2¾
-¾
0
0
-3½
-1¼
-½
-¼
¾
-¼
0
-½
¾
0
-22¼
-15¼
-14¾
-15¼
-11¼
-12¾
-9¾