the national budgetary procedures for the annual budget preparation was launched in December 2006.
This exercise intends to shed some light on how to improve the functioning of the preventive arm of the
SGP, and how Member States can stick to their budgetary objectives. In particular, some elements such
as a the use of medium-term budgetary frameworks, a greater involvement of National Parliaments in the
preparation of the SCPs as well as the strengthening of the Medium Term Budgetary Review to assess
the consistency between budgetary plans for next year and fiscal objectives included in the latest SCP,
may reinforce the preventive arm. The analysis of this survey has provided abundant and useful
information in this respect, and a deeper analysis will be included in the up-coming 2007 Public Finance
Report.
The Commission also plans to carry out further research on the issue of fiscal rules, particularly by
analysing their interaction with other elements of budgetary policy making such as budgetary procedures
and the use performance budgeting. Further work also needs to be undertaken on the influence of
budgetary rules on expenditure composition. Finally, additional monitoring of the role of independent
fiscal institutions may also be envisaged.
5. The revenue side of public finances
As noted previously, a comprehensive analysis of the quality of public finance shall examine both the
expenditure and the revenue side of the budget. In preparation of the Informal ECOFIN, the Commission
has therefore also prepared a note on "Tax revenues in the European Union: developments and economic
issues". The note reviews recent developments in tax revenues in the European Union and points to
several key findings:
Over the last few years, we have witnessed a certain stabilisation in the overall tax-to-GDP ratio. This
follows many years of increasing tax-to-GDP ratios in most Member States, reflecting the need to
finance increasing public expenditures. More recently, overall levels of expenditure have started to
decline in an effort to consolidate public finances, followed to some extent by some reduction in
revenues as a percentage of GDP since the peak in the late 1990s.
The EU, by and large, combines relatively high taxes with relatively high public expenditure levels,
although there are many differences across countries.