DPM: Govt not legally bound to fiscal council recommendations
Across the world, governments are generally not beholden to the suggestions and advice of independent fiscal responsibility councils (FRC), Deputy Prime Minister and Minister of Finance Peter Turnquest said yesterday during debate on the Fiscal Responsibility Bill, 2018 in the House of Assembly. He added that The Bahamas will also not be legally bound to follow the suggestions and forecasts of this country’s FRC.
Turnquest said in June that when the country’s 2018/2019 budget was being developed, it was developed with the Fiscal Responsibility Bill in mind, adding that consultation with the private sector was not on the agenda. Despite the mandated consultation the bill will eventually require, he said then that government will not be beholden to any recommendations.
“If you read the draft, it mandates that the government puts forth a strategic plan and that the economic council would review that strategy. Government will maintain its right to determine what the budget is going to be,” he said in June.
“But this legislation will provide for much more inclusiveness, much more transparency and much more review and accountability at the end of the day.”
Turnquest explained in Parliament that global bodies like the Organization for Economic Cooperation and Development (OECD) have suggested government maintain its independence with regard to the final decision on fiscal matters.
“Indeed, the OECD’s principles for independent fiscal institutions (IFIs) clearly state that such institutions should explicitly be precluded from any normative policymaking responsibilities in order to avoid even the perception of political partisanship,” he said.
“As such, the international advice is that IFIs should not challenge the objectives of the government and that any recommendations should be grounded in objective analysis of relevant issues to ensure compliance with the fiscal policy objectives.”
Turnquest said that globally only four of the 39 governments with a fiscal responsibility council “are required to utilize the forecasts developed by their fiscal councils, and in only two of those cases are those forecasts binding on the government”.
He added that in less than half of those 39 cases are governments legally required to consult their FRCs.
“While governments do appreciate that an independent fiscal council can play a vital role in monitoring and assessing fiscal policies in respect of their compliance with legally mandated principles and targets, it is equally vital to respect the supremacy of the government in developing and implementing national fiscal policy,” he said.
“In developing the sections of the bill dealing with the fiscal responsibility council, we have been mindful of the work of the OECD that characterizes the key features of effective fiscal councils: strict operational independence from politics; the public assessment of budgetary forecasts; a strong presence in the public fiscal debate, principally through an effective communications strategy; and an explicit role in monitoring performance in relation to the stated fiscal policy rules and objectives.”
The Fiscal Responsibility Bill is expected to come into force on October 1 this year, while the provisions for the FRC will come into force on July 1, 2019, “in time for the council to review and assess the 2019/2020 budget”.
Turnquest said the Fiscal Responsibility Bill will end the days of reckless government spending, irresponsible fiscal management and unbridled deficit financing and debt build-up.