composition of public expenditures. It is expected that data availability will improve significantly in the
course of 2007, provided countries stick to their commitments and countries that deliver data agree to
publication. However, some large Member States have not yet transmitted any COFOG second level data
to Eurostat. As these countries account for a large proportion of government expenditures in the EU, it
would be welcome if these Member States stepped up their efforts. Only a strong commitment by the
national authorities to effectively deliver these statistics would allow for further progress in the
assessment of changes in the composition of public expenditure in line with the Integrated Guidelines for
jobs and growth and the Lisbon National Reform Programmes.
The stocktaking of the prevailing national fiscal rules and institutions showed that a lot of initiatives have
been taken by Member States to strengthen their national fiscal framework. National fiscal frameworks
have a positive impact on budgetary outcomes and have proved to help Member States in achieving their
budgetary targets. The recently introduced or planned reforms go in the direction of an improved quality
of the fiscal framework. A strengthening of national fiscal institutions and budgetary procedures has -to a
lesser extent- also been implemented or at least announced. However, further efforts are still needed to
reinforce domestic fiscal governance, which in turn will support the respect of the SGP provisions.
Further work should address in particular the interaction of fiscal rules with other elements of the
budgetary policy making as well as their influence on expenditure composition.
The quality of public finances is not just a question of the expenditure side but also of the revenue side.
Discussions at the Informal ECOFIN in Berlin have welcomed the analysis made on the revenue side
within the context of "Financing the Future". Work could continue to present a quantification of the
effects of shifting taxes across tax bases in the context of the quality of public finances and to assess the
relative merits of alternative revenue bases (profit versus. non-profit, green taxes, Public-Private-
Partnership).
1. Introduction and background
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. A
comprehensive analysis should examine both the expenditure and the revenue side of the budget, while
considering those institutional aspects of national fiscal frameworks that influence the developments in
the budgetary aggregates (i.e. national fiscal rules and institutions and budgetary procedures) as well as
the organisation of public administration.
This concept is acquiring a growing importance in the fiscal policy debate in the EU. The pursuit of
fiscal stability oriented policies within the EU fiscal framework calls for an efficient and effective use of
public resources. Similarly, the upward pressure on public spending resulting from age-related
expenditure, which affects not only the overall size of public budgets but also their composition, requires
due attention in order to avoid the crowding out of possible growth-enhancing budgetary items, such as
education or R&D. Against this background, efficiency and effectiveness has to be measured and
assessed and the availability of sufficiently detailed data is important to draw conclusions on the
composition of overall spending. Demographic changes and globalisation pose new challenges to the
revenue side of the budget as well. These new phenomena make it increasingly important to have
growth-supportive revenue systems and to ensure an adequate and stable level of resources in order to
finance public expenditure. Optimal framework conditions have to be in place to improve the quality of
public finances: well designed fiscal rules and institutions but also structural reforms can support the
quality agenda.
The importance of budgetary quality has been taken up in the main instruments for economic policy
coordination in the EU, such as the Integrated Guidelines for Growth and Jobs^1 and the National Reform
(^1) In particular, the Integrated Guideline no. 3 specifies that to promote a growth- and employment-orientated and efficient