Administrative Reform Packages, pt. 2: On Fiscal Rule

Continuing the series on the sweeping constitutional changes proposed by SDS, SLS, NSi and DLGV, we turn our attention today to the so-called Golden (or fiscal) rule, where – broadly speaking – the constitution would be amended to limit the percentage of GDP up to which the state could borrow against or something along those lines. The idea is fairly simple. In order to keep public spending in check, a top limit of indebtedness should be set and anything above that would simply become impossible. The whole thing makes sense on a certain level, especially if you subscribe to the Thatcherian vision of having to run the economy the was you run home finances. The problem, however, is that should Article 148 of the Slovenian constitution be changed indeeed, we’re pretty much fucked.

20120307 budget Administrative Reform Packages, pt. 2: On Fiscal Rule
(source)

Namely: the last draft does not specify the percentage of GDP against which the state can borrow money, but rather institutes the demand for a balanced budget. And – truth be said – even though it is the coalition which came up with this piece of Merkozy-induced crap (or is that Merkonti-induced crap), Positive Slovenia and Social Democrats happily went along with it. That much became clear after Monday’s huddle chez Janša, despite some reservations being voiced by the two opposition parties. The gist of it: a balanced budget would be mandatory, with an automatix tax increase the following year should a deficit be run in the current year. Lovely, innit?

First and most important of all, the constitution is no place for setting budgetary and tax policy. A budget is an annual thing, basically an elaborate accounting document which is part guess-work, part wishful thinking and all politics. A budget is a government’s primary policy tool, despite the fact that as much of 60 percent of any given Slovenian budget was, is and probably will go for funding various public, state and welfare services. Constitutionally setting the basic outlines of a budget would therefore unnecessarily restrict incumbent and future governments in their policy-making abilities, especially if a tax-hike loomed every time something didn’t go according to plan.

Second: Getting everyone to agree to a constitutional change requires time and energy that would power a small-sized city. This will become even more apparent as more details of constitutional changes emerge and people’s brains finally get in gear. If changes to Article 148 are rammed through and end up having negative effects (which they will) the enthusiasm for any other, perhaps more necessary constitutional changes will have disappeared faster than capital gains in Iceland.

Third: budgets do not exist to be balanced, they exist to be well spent and invested. Balancing the budget is fairly easy. You just slash everything on the spending side until it rhymes with the income side. The trick is to keep everything going while keeping public finances (that is to say, the budget, public debt and various non-budget funds) in some sort of an order in the long term. A balanced budget will do you no good if it means you can’t pay the teachers, cops or soldiers, can’t build new roads or can’t invest in R&D (to give some examples at random).

Fourth: What if the dictate from Berl… eeeer…. Brussels changes? What if suddenly Merkonti were to realise all of a sudden that what we actually need is not across the board austerity but cutting some spending cuts combined with some pragmatic economic policies and – not compulsory, but welcome nevertheless – finally open that can of whoop-ass on the financial and banking sector (not unlike what Sweden did in the 90s and what Iceland is doing today). Will we be changing the constitution yet again? And will we be doing it over and over, every time some economic zealot gets a hard-on for one approach or another?

And last but certainly not least: if and when the political landscape is once again redrawn and the SDS finds itself in the opposition once again, you can bet your ass they will not be exactly reaching out to whatever government will come up with its own set of constitutional changes.

What the government of Janez Janša set out to do could very well be achieved sans all the constitutional hassle, simply pass a few laws and stick to a few pledges. But since this would include having buckets of shit thrown at them, it is much more convenient to point at the constitution and go “look, it says we have to do it!”. Thus, what we are seeing here is nothing more than political parties (the whole parliamentarian lot of them) shying away from their responsibilities thus letting economic ideology become enshrined in the constitution.

 Administrative Reform Packages, pt. 2: On Fiscal Rule


9 Comments to “Administrative Reform Packages, pt. 2: On Fiscal Rule”

  1. Pongra Says:

    Well if we have welfare state in the constitution, that is basically also an economical doctrine, I don’t see an issue with balanced budget.

    Personally I would have neither in it.

  2. pengovsky Says:

    Humm… Point, to an extent. But the welfare state provisions are broadly outlined as a concept and don’t specify triggers that come into effect if certain criteria are not met.

  3. Pongra Says:

    Did Jansa sign what that criteria will be? Also I thought the whole idea is, that in times of need, goverment will be allowed to go in dept.

    Just to clarify, my point was regarding your last sentence in the post. With welfare state article in our constitution, economic ideology is already enshrined in the constitution.

    So as I said, I would have neither :)

  4. dr. filomena Says:

    I think the final paragraph sums it nicely. If a government wants to implement a policy, it does not need constitutional changes to do so. All it needs is the balls it takes to stick to its policy.

  5. Sean Hanley Says:

    Interesting post – and I agree with you . Interestingly, the Czechs are doing the self same Balanced Budget in the Constitution thing, right down to the left-wing opposition going along with it. Not sure if this is getting in training for EU fiscal pact, fiscal conservatism or politicians try to avoid the political blame in advance for grim times to come

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