Panel Debate

Background

In September 2016, the Belgian National Bank (BNB) made the following statement in an article in its Economic Review on SGP fiscal rules:

“A significant proportion of suggestions and proposals to promote government investment call for changes to the European governance framework for public finances, as captured in the rules of the Maastricht Treaty and the Stability and Growth Pact. (…)

Proposed changes to the European budget framework typically involve the implementation of the classic golden rule for funding public finances. This states that current expenditure should be covered by current receipts and should not be defrayed from borrowings. Investment spending, by contrast, may be paid from borrowings. Several arguments in favor of this golden rule come up repeatedly : that, in economic terms, government investment is a source of potential future growth and so of tax revenues ; that it is socially imperative to ensure intergenerational equity, meaning that the benefits of government investment are spread across years and sometimes even generations ; that allowing capital spending to be funded through borrowing also spreads the costs over time ; and lastly that, from a financial perspective, investment is considered an asset that may serve as collateral for the loan agreed to fund it.”

The article concludes:

“As for the European fiscal rules under the Stability and Growth Pact, serious consideration should be given to the way public investment is handled and to making its treatment more favorable. This might be done by replacing investment spending by depreciation on public investment when setting the budget balance, implying that the overall government balance is adjusted for net investment. Facilitating an investment boost, this would be highly desirable in the current climate of low government investment, weak demand and low inflation, low potential growth and low interest rates.“

https://www.nbb.be/doc/ts/publications/economicreview/2016/ecorevii2016_h6.pdf, p. 12-13.