April 20, 2016 / 1:25 PM / 4 years ago

EU to consider single "expenditure rule" to cut through budget morass

BRUSSELS, April 20 (Reuters) - Years of changes and additions to European Union rules have made meeting targets so complex they are difficult to follow, prompting an attempt to simplify them.

The Dutch, who currently preside over the EU, want the bloc’s finance ministers to consider using a single indicator with which to judge budgetary compliance.

Finance ministers from the bloc will meet on Saturday in Amsterdam for a discussion on the rules, currently used to decide which countries are holding deficits below 3 percent of gross domestic product and public debt below 60 percent

The rules are contained in the Stability and Growth Pact, which was created in 1997, but then revised in 2005, 2011 and 2013 to take account of economic and political realities and to incorporate intergovernmental treaties.

“The sheer number of indicators in the current framework poses a massive challenge for the national implementation of the fiscal framework, the Dutch presidency said in a paper prepared for the ministers’ meeting on April 22-23 in Amsterdam.

“It contains targets, upper limits, and benchmarks for the nominal balance, structural balance, expenditure growth and debt development.”

Governments must strive towards a budget close to balance or in surplus in structural terms — a measure stripping off cyclical variations in income and spending and one-offs. Such balance is called in EU jargon a medium term objective (MTO).

One plan is to focus on a single indicator, called the expenditure rule, which was introduced into the Stability and Grotwh Pact during the revision in 2011.

The rule now means that a government can increase annual spending only as much as a country’s medium-term potential economic growth rate. If it wants to spend more, it needs to find matching revenue, rather than borrow.

“The benefit of a well-designed expenditure rule is that it is under more direct control of policy makers, thus significantly increasing predictability,” the paper said.

“Moreover, an expenditure rule allows for macroeconomic stabilisation...and...can be made consistent with the structural balance, which is deeply embedded in our current framework, as a medium-term target,” it said.

The ministers will also discuss if the focus on the current rules should shift from annual to medium-term budget plans.

“The current cycle of European fiscal surveillance is foremost an annual cycle, where politicians are held accountable for year-on-year changes in unobservable indicators,” the paper said.

“A more medium-term orientation could foster the quality of public finances and structural reforms. Thus budgetary planning should be as medium-term oriented as possible,” it said. (Editing by Jeremy Gaunt)

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