Evaluation of compliance with the balanced budget rule in 2015

Since 2012, the cumulative deviation from the adjustment path set to meet the original medium-term objective by 2017, reached almost 0.6% GDP. The adjusted expenditure since 2012 increased by 6.4 p.p. above the expenditure benchmark (with a negative impact on the balance at 2.4 % of GDP). In addition to these two indicators, in its evaluation the CBR also took into account the impact of other measures which widen the deviation (reduced contribution rates to the fully-funded pillar, windfall revenues, anticipated future financial corrections to EU funds) or which may narrow it (increased effectiveness of VAT collection, lower co-financing expenditures and upward revision of the 2015 tax revenue). Moreover, the CBR took into account the fact that albeit the debt still remains within the sanction brackets set by the Fiscal Responsibility Act the government has not yet adopted sufficient measures to reduce it. With all relevant factors taken into consideration, the CBR concludes that the 2015 deviation from the adjustment path was significant and it would be necessary to trigger the correction mechanism.

Unless the MTO deadline is amended, the correction mechanism should eliminate the deviation in order for the original medium-term objective to be met by 2017. Since in April 2016 the deadline for meeting the medium–term objective (MTO) has been postponed to 2019, the expenditure ceilings should be set at least at the level of the present plans presented in the Stability Programme for 2016–2019 (published in April 2016). This would, at least partially, prevent repeated future postponements of the MTO in line with the principles of fiscal compact.