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The European Parliament adopted by 521 votes to 47 with
55 abstentions, a resolution on public finances in the EMU 2007-2008 in response to the Commission Communication on Public Finances in EMU - 2007 – Ensuring the
effectiveness of the preventive arm of the Stability and Growth Pact (SGP). The own-initiative report had been tabled for
consideration in plenary by Donata GOTTARDI (PES, IT) on behalf of the
Committee on Economic and Monetary Affairs. The resolution tackles the following main aspects: Consequences of the economic and financial crisis: Parliament expresses its concern at the
difficult economic and financial situation currently affecting Europe and the world, which is creating an unprecedented level of instability. In the face
of market failures and a lack of rules and supervision, public sector
intervention is reassuming a pivotal role, sometimes taking the form of
outright nationalisation. MEPs invite the Commission and the Member States to provide for an appropriate assessment of the repercussions for public finances of
public sector support and participation in major industries and the financial
and credit sector. They highlight the need to ensure that every intervention
and use of public funds for rescuing financial organisations is accompanied
by appropriate supervision, concrete improvements in the governance and
business conduct of the enterprise or institution, precise limits on the
amounts paid to executives and clear accountability vis à vis the public
authorities. The Commission should promote the introduction of guidelines to
ensure a consistent and coordinated implementation of the various national
action plans. Tax burdens, tax havens: given that the wholesale public sector intervention in
several Member States to rescue and support the banking and finance industry
will have clear repercussions for public finances and personal incomes, MEPs
consider it necessary for the tax burden to be equitably spread among all
taxpayers. This entails, on the one hand, the imposition of an appropriate
level of taxation on all financial players and on the other, provision for a
gradual and sharp reduction in the tax burden on mid to low level salaries
and pensions, in such a way as to reduce poverty and to promote consumption
and a growth in demand, thereby responding to the current economic crisis
which presages a recession. The resolution points to the importance of a
coordinated approach at Community level to combat tax evasion and tax havens. Exploit the flexibility offered by the SGP: MEPs stress that European macro economic
policies must provide a swift and coordinated response to the risks of
recession and financial instability, and urge the Commission and the Member
States – and particularly those of the Euro area - to make
intelligent and unidirectional use of the flexibility in the Stability Pact
and suitable counter cyclical mechanisms aimed at structural change,
efficient allocation of public funds, restructuring of public expenditure and
investments for growth, devoting special attention to the role of small and
medium-sized enterprises. In this context, MEPs emphasise the need for a common
approach on wage policies, which provides for wage increases in line with
actual inflation and productivity. Compulsory mechanism for consultation and coordination: MEPs emphasise that the revised Stability
Pact already allows for action to be taken in response to particularly
serious situations and that financial consolidation and the objectives set in
the stability and convergence plans remain fundamental to the prospects for
recovery and growth. They also consider that it would be useful to establish
a compulsory mechanism for consultation and coordination between the
Commission and the Member States –particularly members of the Euro Group –
prior to the adoption of major economic measures, in particular as regards
measures addressing the volatility of prices for energy, raw materials and
foodstuffs. Sustainability of public finances: MEPs considers the sustainability of public
finances to be a pre-condition and priority not only for stability and growth
and the formulation of each Member State's macro-economic employment, social
and environmental policies, but also for the future of the economy and the
European social model intrinsic to the development of the European Union.
They express their deep concern over the direct consequences of the current
international financial crisis on the sustainability and quality of public
finances in the Member States. They point out that deficit and public debt
are having a negative impact on growth. More targeted use of the SGP: MEPs consider that the corrective arm has been applied
in a satisfactory manner in previous years and stress the importance of the
preventive arm as a vital instrument in respect of the sustainability and
convergence of the financial policies of Member States, in particular those
in the Euro area. Member States are urged to make greater efforts to
consolidate their budgets and reduce the public debt during periods of growth
as a pre-condition for achieving a healthy, competitive and sustainable
European economy. In the light
of new international circumstances due to the present financial crisis and
the economic slump which has already begun to affect employment and growth in
the euro area, MEPs state that rising deficits are difficult to avoid. They suggest,
therefore, that Member States make more targeted use of the flexibility
provided by the SGP in order to encourage economic recovery and growth. The
Commission is called upon to examine the effects of the SGP criteria in the
current context. The resolution
stresses the importance of designing macroeconomic plans for tackling
external shocks (such as the subprime financial crisis) that take into
account not only the situation in the Euro area, but also that in the
catching-up economies of the European Union. Public
finance objectives: Parliament stresses that
public finance objectives should link up stability and convergence plans with
national reform plans in a coherent and organic manner. MEPs believe that the
added value of healthy and growth-oriented European public finances should be
reflected – in particular in the Euro area - in a European public infrastructure
investments policy, formulated and coordinated on the basis of shared
objectives, that can be funded not only from national budgets and (partially)
the EU budget, but also from new European financial instruments (e.g.
Eurobond or the European Investment Fund) aimed at sustaining the growth,
productivity and competitiveness of the European Union and the Euro area in
the international context. The importance of employment and social inclusion
policies are also highlighted. MEPs considers
that it would be useful: (i) to establish a compulsory mechanism for
consultation of the national parliaments, alongside the European
Parliament, with an eye on the coordinated development of stability and
convergence programmes, and of national reform programmes, in such a way that
these are linked and presented together, possibly in the autumn of each year;
(ii) to adopt a new approach to public finances which is systematic
and coordinated among the Member States, and in particular those of the Euro
area, and which aims to support long term economic growth. The quality
of public finances (QPF): MEPs consider it
essential that the Member States seek to implement QPF policies that are
convergent and based on a method of assessment that includes indicators and
objectives, the formulation and definition of which should involve the
European Parliament and the national parliaments. They urge the Member States
to adopt QPF policies together with a system for assessing budgetary policies
– such as performance based budgeting (PBB) (based on the OECD model)
– aimed at improving the quality of public spending by strengthening the link
between the allocation of resources and results. The report
advocates a system for assessing budgetary policies that focuses on
specific aspects such as composition, efficiency and effectiveness of public
expenditure, the structure and effectiveness of revenue systems, the
efficiency and quality of public administration, sound budgetary management
and a method for coordinating quality public finance policies among Member
States. It calls for a greater comparability of national budgets in order to
meet the above objectives. The resolution
draws attention to the core issue of the composition of public expenditure
aimed at sustainable growth and stresses that public expenditure should be
reorganised by reallocating budget items to growth-enhancing sectors,
using public resources more effectively and efficiently and providing for an
appropriate integrated public-private network. It also points to the need to reform
and modernise public administrations, to ensure that they meet criteria
relating to effectiveness. Tax reform
measures: while MEPs
acknowledge the difficulty of devising a homogeneous reform of taxation
leading to greater growth, they stress, however, that a number of common
tax reform measures could significantly improve the efficiency of the tax
system and tax revenue, increase employment, reduce distortions and increase
growth at European level, notably, inter alia: (i) introducing a broader tax
base (and lower rates) in order to reduce distortions and increase revenues;
(ii) reducing tax pressure on work through a fairer allocation of the tax
burden among the various categories of taxpayers; (iii) a reorganisation of
incentive and tax relief schemes. In the light of the above, the Commission
and the Member States are called upon to set up a coordination mechanism
to monitor and assess the quality of Member States' budgetary policies,
based on systematic quality reporting, QPF assessment through a PBB system
and periodic reviews of QPF.
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