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Medium-term budgetary framework in the EU Member States

What are medium-term budgetary frameworks (MTBFs)?

Medium-term budgetary frameworks (MTBFs) are defined as those fiscal arrangements that allow government to extend the horizon for fiscal policy making beyond the annual budgetary calendar. Although the approval of the annual budget law remains the key step in which important decisions on budgetary policy are adopted, most fiscal measures have budgetary implications that go well beyond the usual yearly budgetary cycle. As a result, a single year perspective provides a poor basis for sound fiscal planning. MTBFs usually cover the preparation, execution, and monitoring of multi annual budget plans and contain both expenditure and revenue projections as well as the resultant budget balances.

In general, medium term budgetary objectives included in a MTBF represent a weaker form of commitment than a pure rule incorporating binding targets. However, they may help ensure fiscal discipline by making more apparent the impact of current policies on the government balance in the coming years. Likewise, the existence of a MTBF may facilitate monitoring by providing benchmarks against which budgetary developments can be assessed over time. Overall, a well designed MTBF should reflect the impact of past budgetary commitments as well as the future cost of new policy measures.

Finally, the strengthening of the MTBFs can efficiently complement the introduction of other institutional reforms such as the introduction of an expenditure rule or top down budgeting.

Database on medium-term budgetary frameworks

The Commission services have surveyed the existing medium-term budgetary frameworks and current budgetary procedures across EU Member States via several rounds of questionnaires (2006, 2008, 2009, 2010, 2011 and 2012). As Stability and Convergence Programmes can be considered a specific type of a medium-term budgetary framework, they are also covered by the survey and provide useful information especially about those countries which do not have a domestic medium-term framework. The information collected on budgetary procedures, medium-term frameworks and Stability and Convergence Programmes covers issues of preparation, status, implementation, and connectedness with the budget (including supplementary and corrective budgets). This information is available in a database reflecting the situation as of 2012.

Quality of medium-term budgetary framework index

Using the above survey information, DG ECFIN constructed an index on the quality of medium-term budgetary frameworks, that is also included in the database. The index takes into account both the existence and properties of national medium-term budgetary frameworks and the preparation and status of Stability and Convergence Programmes. The index captures the quality of the medium-term budgetary framework through five criteria: (i) existence of a domestic medium-term framework, (ii) connectedness between the multi-annual budgetary targets and the preparation of the annual budget, (iii) involvement of national parliaments in the preparation of the medium-term budgetary plans, (iv) existence of coordination mechanisms between general government layers prior to setting the medium-term budgetary targets for all government tiers, and (v) monitoring and enforcement mechanisms of multi annual budgetary targets.

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