Coverage

CG.

Time period

Dimension 15.1: Last three completed fiscal years.

Dimensions 15.2 and 15.3: Last completed fiscal year.

Measurement guidance

A fiscal strategy enables government to clearly articulate to central government units, the legislature, and the public its fiscal policy objectives, including specific quantitative and qualitative fiscal targets and constraints. It provides a framework against which the fiscal impact of revenue and expenditure policy proposals can be assessed during the annual budget preparation process. This ensures that budget policy decisions align with fiscal targets.

Dimension 15.1 assesses the capacity of the government to estimate the fiscal impact of revenue and expenditure policy proposals developed during budget preparation. The assessment of the fiscal implications of policy changes is critical to ensure that policies are affordable and sustainable. A failure to accurately estimate the fiscal implication of policies may result in a shortfall in revenues or higher expenditures, leading to unintended deficits and increased debt, undermining the ability of the government to deliver services to its citizens.

The fiscal impact of policy proposals should be documented and prepared by the Ministry of Finance (or equivalent central government entity) or consolidated by the Ministry of Finance in cases where individual budgetary units prepare the estimates for their respective policy areas. With regard to revenue policy, assessors should focus on proposals with significant and direct impact on revenue, including, for example, changes to the rates and coverage of corporate Income tax, value added tax, personal income tax, customs and excise taxes, and taxes on natural resources. Revenue policy proposals should specify the estimated revenue impact for the budget year and the two following fiscal years. Similarly, for expenditure policy proposals, the focus should be on ensuring that significant proposals are fully costed for the budget year and the two following fiscal years, and that they include the recurrent costs associated with capital investment projects. For policy proposals that are expected to have only a limited effect on aggregate revenue or expenditure, such as minor changes to fees and charges or minor adjustments to line item allocations, it is sufficient for the Ministry of Finance to prepare an estimate of the total fiscal impact of such adjustments for revenue and expenditure.

Details of the costs and assumptions of policy proposals approved by government should be included in the budget documentation, submitted to the legislature and published. Assessors should mention in the narrative if the significant fiscal implications of actions taken outside the budget process are also estimated, submitted to the legislature, and published.

Dimension 15.2 assesses the extent to which government prepares a fiscal strategy that sets out fiscal objectives for at least the budget year and the two following fiscal years. A well-formulated fiscal strategy includes numerical objectives, targets or policy parameters (such as the level of fiscal balance), aggregate central government expenditures or revenues, and changes in the stock of financial assets and liabilities. A fiscal strategy may be presented as a formal statement or plan, specified as targets within the annual budget documentation, or as fiscal rules established through legislation.

Dimension 15.3 assesses the extent to which the government makes available—as part of the annual budget documentation submitted to the legislature—an assessment of its achievements against its stated fiscal objectives and targets. The assessment should also include an explanation of any deviations from the approved objectives and targets as well as proposed corrective actions. Actions should refer to specific initiatives that directly link to improvements in fiscal outcomes.