The Public Finance Council (CFP) argues that the Budgetary Framework Law (LEO) should introduce an adjustment to the level of justification to be given by the Government for the need to recognize the existence of a significant deviation in LEO. The CFP considers it desirable to institute the practice of “justifying” any deviations that may occur and also proposes that aspects such as the “insufficient provisions regarding the operationalization of the correction mechanism” be improved.
"The Public Finance Council considers that it would be useful to detail more than correcting the deviation and the CFP's own competences in this matter", defended Nazaré da Costa Cabral, president of the CFP, this Friday, July 10, at hearing in Parliament on the amendment of the Budgetary Framework Law.
In the proposal presented by the Government, which is under discussion in the specialty phase, Nazaré Cabral proposes a new article in which, she says, "the objective is to clarify how this correction is carried out and regularly monitored".
To the deputies, the CFP president also signaled that this entity "wants that whenever the Government does not follow the alert from the Public Finance Council, it must explain why it does not do so in accordance with the provisions of European legislation", thus proposing this addition to the proposed amendment to LEO.
Nazaré Cabral told the deputies of the Budget and Finance Commission (COF) that the Public Finance Council demands “the possibility of alerting when there is a significant deviation” with a view, he stresses, “to an early intervention in a situation of deviation”.
The CFP president reaffirmed in Parliament that “there are still gaps in the transposition, which can be improved in the context of discussion in the specialty”, namely in terms of the justification to be given by the Government for the need to recognize the existence of a significant deviation in the LEO and the “insufficient provisions regarding the operationalization of the correction mechanism” of this deviation.
Regarding budgeting on the basis of the increase, as foreseen in the initial version of LEO, Nazaré Cabral argues that it would involve the preparation of information about the future, adopting a perspective different from that used until then, based exclusively on the cash basis ”. The CFP maintains here that it would encourage “better management of public assets”, limit “political motivations aiming at privileging short-term management” and would allow “the transparent disclosure of the economic effects of budgetary decisions, as well as the determination of deviations and associated accountability ”.
For these reasons, the CFP considers that the budgeting on the basis of the addition “should be maintained in LEO, since it is an effective instrument of good management, transparency and accountability”.
CFP wants LEO to maintain forward-looking financial statements
In the opinion on the LEO proposal, which is currently being discussed in Parliament, the CFP considers that there is "a clear setback in the provision of forecast information on the basis of the increase".
The entity led by Nazaré Cabral argues that LEO should maintain the forecast financial statements on the basis of the increase, contrary to the intention of the proposal presented by the Government, which is under discussion in the specialty stage. In the opinion published on Tuesday, July 7, the CFP also stresses that the proposed law leads to several postponements of the entry into force stipulated in LEO.
“The proposed amendment to the LEO under consideration introduces some improvements regarding the transposition of European legislation, which is welcomed, but it also introduces new delays in the entry into force of the 2015 LEO provisions, as well as a clear setback in the provision of information. forecast on the basis of the increase, defrauding the expectation of the original law to place Portugal at the European forefront of applying the basis of the increase, ”the opinion maintains.
Government wants to deliver OE on October 10 and increase voting deadline
On June 9, the Council of Ministers approved changes to LEO, which include a proposal to change the delivery of the State Budget to October 10 and increase the voting time in parliament. The proposal also foresees a “relaxation of the limits of the multiannual framework”, as well as “an increase in transparency, both within the scope of the elements of the OE and its budgetary execution, or within the scope of the decision-making process of the HR”.
The proposal, which is in the specialty phase, was criticized by UTAO, which considers that "it brings several changes that worsen the framework for public finances", but also by representatives of the various political parties.
The CFP considers that the proposed amendment to LEO “intends to return to the cash base as the only possible perspective for preparing forecast information”, which says “it is not compatible” with “a set of objectives of good public management”. The entity that analyzes public finances maintains that the ornamentation on the basis of the increase, foreseen in the initial LEO, which translates into a preparation of forward-looking financial statements would allow to capture the economic and financial effects of budgetary policy decisions, in addition to the treasury effects, since it would take into account, for example, the cash flow statement or the income statement and the balance sheet.
Advancing with this model would oblige the Government to present information on depreciation, financing through leases or public-private partnerships and impairments in the forward-looking financial statements. For the CFP, “this could result in incentives for a better management of public assets, in terms of planning acquisitions, choosing the contracting options with the best value for money, maintenance, replacement and disposal ”.
In this way, also the economic effects of the decisions, "provided they are captured by the concepts of assets and liabilities provided for in the Accounting Standardization System for Public Administrations, would be included in the forward-looking financial statements", which would allow scrutiny even in the planning phase.
“In this way, there would be a limitation of political motivations in order to privilege short-term management, to the detriment of the long-term public interest and intergenerational equity”, he highlights.
The CFP considers, therefore, “that the budgeting on the basis of the increase should be maintained in LEO, since it is an effective instrument of good management, transparency and accountability”.
Changes to the Multi-Annual Public Expenditure Framework are undesirable
It also considers “undesirable” that the Multi-Annual Public Expenditure Framework (QPDP) “may undergo subsequent changes by the Government, an aspect that was already unduly due to the initial version” and “that is now accentuated by the proposed amendment”.
“It does not seem desirable to open the range of situations in which the limits of the QPDP can be revised - as is the case in the proposed law now under consideration - because this goes against the multi-annual budget programming model and the construction of a two-year budget process. phases, which presided over the creation of the LEO in force ”, he maintains.
It also argues that the review of the LEO should include a reference to the fact that the scenarios underlying the budgetary programming were effectively endorsed by the CFP, thus ensuring that the macroeconomic scenario is always subject to the CFP's appreciation.
He also notes that “five years later, most of the LEO 2015 provisions that made these options concrete have not been implemented, and have been successively postponed”, since they were to come into force in 2019, they were postponed to 2021 and now are postponed to 2023.
Nazaré da Costa Cabral is being heard at a hearing on this topic on Friday, at COF, in Parliament, before the Court of Auditors and the Secretary of State for the Budget were heard by deputies, in hearings on 14 July.