Fiscal Policies in Federal States by Dietmar Braun

Author:Dietmar Braun [Braun, Dietmar]
Language: eng
Format: epub
Tags: Political Science, General
ISBN: 9781351765596
Google: 2PhKDwAAQBAJ
Publisher: Routledge
Published: 2018-02-06T09:15:34+00:00

5.2 Spending

While tax policies remain overwhelmingly the task of the federal government, the opposite can be said from spending policies. During the state reform more and more expenditure areas were transferred to either communities or regions and practically all investment areas are now under the authority of regions. The federal government remains responsible for transfers to persons and for debt payments. This, of course reduces fundamentally each opportunity to engage itself into a more stimulation-oriented demand policy without contacting above all the regions. In this case, however, it is not possible to pay conditional grants or to engage all actors into joint decision-making. Again, as in the case of taxes, we find a separation of property rights in spending areas, which means that the government can only ask regions to spend more money in case of economic crisis. Its means to do so are either conviction or the promise to change existing endowment arrangements by a new special law in favour of subgovernments thereby reducing its own resources.

When investment expenditures were still the major task of the federal government, its room for manoeuvre was also limited because of the ‘waffle iron’ policy which needed rather ineffective and costly compensation payments in order to invest money in a region. This kind of compensation logic still exists in Belgium but the introduction of a clear separation of spending tasks since 1993 has reduced the perverse effects of this policy.

Today, the federal government cannot influence the economy through spending not only because most demand relevant items lie within regional or community jurisdiction. In addition, the federal government transfers about half of its resources to the regions and communities through endowments and about half of the federal share of tax receipts goes to the financing of the interests on the debt. Thus, the federal government does neither have the legal nor the financial resources to implement a demand-management policy. Moreover, high spending policies are not on the agenda for ideological reasons and because of the external constraint of the European Union, which imposes strict measures concerning the level of the deficit.

In the 1990s, therefore, we find, as in Canada, no attempt to use spending policies for stabilisation purposes other than for budget consolidation. Even the regions, which could have increased spending, did not do so, restrained by the Conseil Supérieur des Finances, which carefully framed their fiscal policies. The borrowing constraints and the Conseil Supérieur des Finances are there to ensure that the level of deficit and debt remain under control and to avoid that the federal government, which is responsible for the overall deficits and debt, finds itself in the situation of compensating for the regions and communities deficits. This mechanism has proven relatively effective as long as there was the pressure of the EMU. In such a context, the actors accepted to agree on budgetary goals and limits and respected the recommendations though one finds, as described, defiant behaviour. Belgium has managed to enter the European Monetary Union and the economy is doing better.

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