REPORT ON "QUALITY OF PUBLIC FINANCES" ISSUES
─ WORK ACCOMPLISHED AND WAY FORWARD ─
Economic Policy CommitteePaper completed: May 2007Executive Summary
The "Quality of Public Finances" is a broad concept which refers to the conduct and organisation of
budgetary policy and its potential positive impact on the long-term growth of the economy. Increasing
the efficiency of public spending is in this context one of the most pressing challenges facing the EU
Member States. Good value for money, i.e. maximising output with the input available, is essential
because of the increased challenges on public finances stemming from globalisation and ageing.
In January 2006 the ECOFIN Council invited the Economic Policy Committee (EPC) and the
Commission to analyse the following aspects linked to the quality of public finances: (i) national fiscal
rules and institutions in the EU, (ii) data availability to better monitor the composition of public
expenditures, and (iii) the measurement of public expenditure efficiency. This report describes the
progress achieved so far in relation to these Council requests as well as in the analysis of the revenue side
of public finances and suggests a possible way forward.
Cross-country comparison of public spending efficiency revealed significant differences across Member
States and showed that efficiency gains are possible. Structural reforms and institutional features such as
fiscal rules can help to improve the efficiency performance of public spending. For example, structural
reforms contribute to a more business friendly environment and institutional arrangements, such as fiscal
rules and institutions, could improve the conduct of fiscal policy.
Approaches on the institutional side concentrate primarily on changing budget procedures, and
introducing results oriented approaches to budgeting. The use of performance information in the budget
process is an important tool for decision-making. Performance information delivers a better picture of the
governments ́ goals and priorities and acts as a signalling device showing which measures are working,
and which are not. More systematic and independent evaluation of existing policies could help to
strengthen the efficiency of public spending, and there is a strong need for making better use of reliable
methodological approaches towards assessing the success or failure of government programmes.
Further work in these areas should include exchange of information and best practices among Member
States in order to be able to better identify the key drivers of efficiency. To measure the efficiency of
public spending, better data on governments' inputs and outputs are essential. A more robust
methodology and measurement framework should be established. Member States and the Commission
could include analyses on effectiveness and efficiency in the Lisbon National Reform Programmes and
the Community Lisbon Programme.
Progress has been made to improve the methodology and to increase the availability of data on the