The Government Proposes Three Fiscal Rules: Structural Balance Rule, Expenditure Rule, and Public Debt Rule

The government is expected to discuss a draft proposal for a law on fiscal responsibility on Thursday, which would introduce three fiscal rules, and the Fiscal Policy Commission would become a permanent, independent, and autonomous state body headed by a professional with a salary equal to that of the Deputy Chair of the State Electoral Commission.

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The first proposed rule is the structural balance rule, according to which the targeted value of the structural balance rule becomes a medium-term budgetary objective to be achieved according to the adjustment plan in accordance with the legal provisions of the European Union.

An expenditure rule is also being introduced. According to it, the annual growth of general budget expenditures must not exceed the reference potential growth rate of gross domestic product determined in accordance with the legal provisions of the European Union. Exceptions for certain categories of expenditures are also allowed.

According to the public debt rule, the introduction of which is also proposed, the share of public debt in GDP must not exceed the reference value of 60 percent, and if the share of public debt exceeds this level, the difference between the share of public debt in GDP and the reference value of 60 percent must be reduced at a pace consistent with the legal provisions of the European Union.

In addition to the three rules, the draft law designates the Fiscal Policy Commission as a permanent, independent, and autonomous state body. Its role as a supervisor over the application of the Law on Fiscal Responsibility, as well as over the implementation of the state’s fiscal policy in its entirety, is also strengthened, all with the aim of improving the public finance system.

Indeed, the Council of the European Union recommended back in July 2014, among other things, that the Commission established by Decision as the second working body of the Croatian Parliament be legally established to strengthen its independence and expand its powers.

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To emphasize the independence of the commission, it is proposed that the chairperson of the commission, who organizes and manages its work professionally, has the right to a salary equal to that of the Deputy Chair of the State Electoral Commission.

Public consultation on the proposed amendments was conducted from May 16 to June 16 of this year.