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Public spending reforms Czech Republic

Public spending reforms Czech Republic. April 8, 2013. Zuzana Šmídová, OECD. Lecture outline. What is public spending/why does it need reform Fiscal sustainability and frameworks Main spending items: -Pensions -Healthcare. What is public spending?. Provision of public goods

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Public spending reforms Czech Republic

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  1. Public spending reformsCzech Republic April 8, 2013 Zuzana Šmídová, OECD

  2. Lecture outline • What is public spending/why does it need reform • Fiscal sustainability and frameworks • Main spending items: -Pensions -Healthcare

  3. What is public spending? Provision of public goods • Security, • Infrastructure, • Education, • Healthcare • Social benefits (pensions, unemployment benefits, housing benefits, …)

  4. How much do governments spend? General government expenditure, % of GDP, 2012

  5. How much do they collect? General government receipts, % of GDP, 2012

  6. Ageing populations

  7. Declining labour force at unchanged policies

  8. How to make public expenditure more efficient? • Fiscal policy framework • Public finance/Budget management and control • Public pensions reform • Public healthcare reform

  9. Czech public finance development

  10. Fiscal policy challenges … • Election cycle • Myopia • Mandatory expenditures • Pro-cyclicality

  11. … and solutions • Stability and Growth Pact (EU) and its latest upgrade Fiscal compact: deficit below 3%, structural deficit 1%, debt below 60% of GDP. • Fiscal councils (e.g. UK, Sweden, Ireland… CR) and other wise men/advisory bodies (e.g. Netherlands’ CPB, Australia’s Productivity commission)

  12. Fiscal rules – popular choice?

  13. Current proposal for a constitutional debt brake • Constitutional law on budgetary responsibility • In the Parliament, http://www.psp.cz/sqw/text/tiskt.sqw?O=6&CT=821&CT1=0 (Budgetary committee) • 60% of GDP debt brake with ‘alarm’ thresholds at 45%, 48%, 5o% • Debt limit on sub-central governments • Fiscal council appointed by the Parliament

  14. Budget management and control • Transparency ( A citizen’s guide to state budget) - http://www.mfcr.cz/cps/rde/xchg/mfcr/xsl/vf_sr_vladni_navrh_zakona.html, • Ex-post assessment of policies (systematic assessment based on performance indicators) • Tax expenditures (3.1%GDP) - e.g. tax deductable interest rate of mortgages, …

  15. Budget management and control • Public procurement ( saving of 2.5% GDP?) - investment, purchase of private sector services • Sub-central governments (regions, municipalities) - how many layers of government? • Management of state assets - state owned enterprises ( ČEZ, Lesy, ČSA, airport, Ceske Drahy …) • Supreme control office (NKÚ, www.nku.cz)

  16. Average population per municipality2009-2010, thousands

  17. Pension reform 2010-2013 • Public pension systems – consumption smoothing/distribution of income over life-cycle • Increasing the statutory age of retirement (today: 61, 60; born in 1990: 69 yrs) • Strengthening the link between the contributions and benefits – but only up to a point

  18. Pension reform 2010-2013 • Motivation to remain active/working longer • Diversification of savings - introduction of a new (second) pillar : • PAYG (pay-as- you-go) defined benefit • funded defined contribution (second pillar, “state contribution”) • funded defined contribution (third pillar, employer contribution, state contribution) • www.duchodovakalkulacka.mpsv.cz

  19. Expenditure on healthcare, 2010 or latest

  20. Healthcare reforms • Analysis of OECD countries healthcare systems (Joumard et al., 2010) – no one “perfect/most efficient” healthcare system • Rising expenditure – both demography but also progress/innovation • Demand management (fees, soft/hard-gatekeeping) • Mutli-insurer system - “imitating competition”- govn’t to set and oversee the rules of the game

  21. Literature • Kumar et al, Fiscal Rules: Anchoring Expectations for Sustainable Public Finances, IMF, December 2009 • Rogoff K., Bertelsmann I.J., Rationale for fiscal policy councils: Theory and evidence • Johansson, Å. et al. (2013), “Long-Term Growth Scenarios”, OECD Economics Department Working Papers • Health at a glance Europe 2012, OECD Publishing • OECD Economic Surveys: Czech Republic 2011, OECD Publishing

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