In February 2024, the Council and the European Parliament agreed on a reformed EU economic governance framework. The reformed framework aims to provide greater clarity and predictability for fiscal policy and debt sustainability, while promoting sustainable and inclusive economic growth via stronger incentives for reforms and investments addressing country-specific challenges and common EU priorities.

After adoption[1], Member States will need to prepare their first medium-term fiscal structural plans, outlining fiscal, structural, and investment policies for the next 4-5 years. These plans must include a macroeconomic outlook spanning at least 4 years, potentially extending to 7 years based on investment and reform details.

DG REFORM has played a pivotal role in providing Public Financial Management support to member States, and such efforts need to be sustained and expanded in the future.

Key areas of focus for technical support in budgeting practices have included:

• Laying the groundwork: Promoting sound accounting practices, enhancing IT systems, and improving the quality of statistical data production.
• Strengthening support aligned with the Economic Governance Framework: Focusing on medium-term budgetary frameworks, good budgeting practices, and developing methods for evaluating the impact (including distributional impact) and integration of structural reforms and investments into multi-annual budget planning, and for estimating the economic returns to social reforms and investment.
• Establishing performance-oriented budgeting practices: Aligning budgeting practices with the Sustainable Development Goals (SDGs) and crucial EU policy priorities (as EU Green Deal and the European Pillar of Social Rights). Ongoing efforts in social investments[2] and green Budgeting[3] are also noteworthy.
• The TSI2024 flagship initiative on the "Quality of Public Finances": This initiative promoted the areas of (i) spending reviews, (ii) budget preparation & implementation – Medium-Term Budgetary Frameworks (MTBFs), and (iii) debt sustainability analysis.

[1] The agreement on the new framework will be voted by the European Parliament and the Council between April and May.

[2] On 28 November.

[3] https://economy-finance.ec.europa.eu/economic-and-fiscal-governance/green-budgeting-eu_en; EU Green Budgeting Reference Framework.

This flagship project that focuses on enhancing the quality of public finances aligned with the new economic governance framework, to stimulate sustainable, inclusive growth, enhance economic and social resilience and deliver of the twin-transition while ensuring medium-term debt sustainability. This project could include the following modules.

1. Medium-term fiscal planning and strengthening fiscal sustainability analysis: This module would provide methodological support for the design of these frameworks, including building capacity for ageing costs projections for the design of fiscal trajectories, as well as assessing the macroeconomic impact of investments and reforms. The module will address the need to strengthen fiscal sustainability analysis and its integration into medium-term planning, ensuring alignment with national planning requirements. 
    
2. Performance-based budgeting, spending reviews and ex-ante and ex-post impact evaluations/assessment aligned with the new Economic Governance framework and the EU priorities identified therein: This module would provide methodological support for developing agency-specific budgeting frameworks tailored to the complex relationships between spending and outcomes, including in terms of estimating the economic returns to structural reforms/investments (also with regard to labour market, skills and social policies).  It also supports the impact assessment of reforms and investments, with a focus on the policy fields relevant for the EU priorities identified in the new Economic Governance framework.
    
3. Priority budgeting: This module would focus on areas such as gender budgeting, green budgeting, and SDG budgeting, where DG REFORM has a wealth of experience from successful past flagship and multi-country projects. This module also aims to broaden and deepen participation at regional/local level in the Green/Gender/SDG-Budgeting initiatives. It could also explore the option of a Regional Budgeting Academy.
    
4. Budgeting for capital expenditure: This module would provide methodological support for improving good public investment management practices to support the EU priorities identified, and the emphasis on supporting investment in the revised economic surveillance framework. 
    
5. Fiscal reporting and fiscal risks: This module would address the growing use of artificial intelligence (AI) by ministries to automate and enhance their fiscal and budgetary reporting processes – automating data collection and processing, analysing data, generating reports, and identifying and mitigating risks.[1] This module would also provide support to Member States aiming to improve their practices for reporting macro-fiscal risks from climate change and its environmental impacts. It would also include developing fiscal risk scenarios or stress tests, conducting fiscal risk assessments, and leveraging AI for identifying and mitigating fiscal risks.
    
6. Social impact analysis: This module focuses on the systematic implementation of social impact analysis to properly assess distributional effects of planned policy measures and provide methodological support and recommendations to Member States aiming to improve their practices.[2]

This Flagship also foresees offering technical support for accounting and statistics reforms, and to strengthen public sector audit functions.

[1] This module will take into account the AI regulatory framework and notably the proposed AI Directive. It could also address unexplained gaps between accounting outcomes and statistical reporting to enhance the quality of fiscal reporting practices.

[2] In the context of the new reporting requirements under Article 9(2)(d) of the amended Directive 2011/85 on national fiscal frameworks and in line with the Commission Communication on strengthening Distributional impact assessment COM/2022/494 final (link).

Template

DG REFORM List of topics

REFORM-B1ec [dot] europa [dot] eu (REFORM-B1[at]ec[dot]europa[dot]eu)