(1)

In order to ensure Member States’ compliance with the obligations under the Treaty on the Functioning of the European Union (TFEU) in the area of budgetary policy, and in particular with regard to avoiding excessive government deficits, Council Directive 2011/85/EU (3) lays down detailed rules concerning the characteristics of the budgetary frameworks of the Member States.

(2)

Building upon the experience gained with the economic and monetary union since Directive 2011/85/EU came into force, it is necessary to amend its requirements regarding the rules and procedures forming the budgetary frameworks of the Member States.

(3)

In its Special Report No 22/2019 entitled ‘EU requirements on national budgetary frameworks: need to further strengthen them and to better monitor their application’, the European Court of Auditors examined the Union requirements on national budgetary frameworks and recommended the Commission to review those requirements, taking into account international standards and best practices. The European Court of Auditors proposed specific actions to improve the scope and effectiveness of national budgetary frameworks, particularly as regards medium-term budgetary frameworks and independent fiscal institutions.

(4)

In its communication of 5 February 2020 entitled ‘Economic governance review. Report on the application of Regulations (EU) No 1173/2011, 1174/2011, 1175/2011, 1176/2011, 1177/2011, 472/2013 and 473/2013 and on the suitability of Council Directive 2011/85/EU’, the Commission pointed out substantial but uneven progress in the development of national budgetary frameworks considering that Union law only sets minimum requirements and that implementation and compliance with national provisions had been very diverse. That communication also considered the extent to which the framework would support economic, environmental and social policy needs related to the transition towards a climate-neutral, resource-efficient and digital European economy, complementing the key role of the regulatory environment and structural reforms.

(5)

In its communication of 11 December 2019 entitled ‘The European Green Deal’, the Commission called for a greater use of ‘green budgeting’ tools to redirect public investment, consumption and taxation to green priorities and away from harmful subsidies. Regulation (EU) 2021/1119 of the European Parliament and of the Council (4) sets a Union-wide climate neutrality objective by 2050 and requires Union institutions and Member States to make progress in enhancing adaptive capacity. The Commission committed to working with the Member States to screen and benchmark green budgeting practices. In its communication of 24 February 2021 entitled ‘Forging a climate-resilient Europe — the new EU Strategy on Adaptation to Climate Change’, the Commission pointed to the macro-fiscal relevance of climate change and highlighted the need to increase the Union’s resilience in relation to the impact of climate change. The European Semester provides an additional framework to support such efforts and the Technical Support Instrument, established by Regulation (EU) 2021/240 of the European Parliament and of the Council (5), offers practical assistance for their implementation.

(6)

In its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the Commission highlighted the need to strengthen debt sustainability and reduce high public debt ratios while promoting sustainable and inclusive growth in all Member States. The key objectives of the orientations are to improve national ownership, simplify the framework and move towards a greater medium-term focus, combined with stronger and more coherent enforcement.

(7)

In order to enhance compliance with the provisions of the TFEU, and in particular to prevent excessive government deficits within the meaning of Article 126 TFEU, the laws of the Member States should contain specific provisions to strengthen national ownership, in accordance with the Commission communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, beyond those currently required by Directive 2011/85/EU. Building on the evidence of the implementation of that Directive, amendments thereof should concern transparency, statistics, forecasts and medium-term budgeting to address weaknesses identified during its previous implementation.

(8)

This amending Directive is part of a package together with Regulation (EU) 2024/1263 of the Parliament and of the Council (6) and Council Regulation (EU) 2024/1264 (7). Together, these three legislative acts (hereinafter jointly referred to as ‘the economic governance framework reform’) reform the economic governance framework of the Union, incorporating into Union law the substance of Title III (Fiscal Compact) of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (8) of 2 March 2012 (the ‘TSCG’), in accordance with Article 16 of that Treaty. By building on the experience of the implementation of the TSCG by the Member States, the economic governance framework reform retains the Fiscal Compact’s medium-term orientation as a tool to achieve budgetary discipline and growth promotion. The economic governance framework reform includes a strengthened country-specific dimension aimed at enhancing national ownership, among others by maintaining the advisory role for independent fiscal institutions, which draws essentially on the Fiscal Compact’s common principles on national fiscal correction mechanisms proposed by the Commission in its communication of 20 June 2012 in accordance with Article 3(2) TSCG. The analysis of expenditure net of discretionary revenue measures for the overall assessment of compliance required by the Fiscal Compact is set out in Regulation (EU) 2024/1263. As in the Fiscal Compact, temporary deviations from the medium-term plan are only permitted in exceptional circumstances in accordance with Regulation (EU) 2024/1263. In a similar vein to the Fiscal Compact, in the event of significant deviations from the medium-term plan, measures should be implemented to correct the deviations over a defined period. The economic governance framework reform strengthens fiscal surveillance and enforcement procedures to deliver on the commitment of promoting sound and sustainable public finances and sustainable and inclusive growth. The economic governance framework reform thus retains the fundamental objectives of budgetary discipline and debt sustainability set out in the Fiscal Compact.

(9)

Complete and reliable public accounting practices for all sub-sectors of general government are a precondition for the production of high-quality statistics that are comparable across Member States. The availability and quality of the European System of National and Regional Accounts (‘ESA’) based statistics is crucial to ensure the proper functioning of the Union’s fiscal surveillance framework. ESA 2010 relies on information provided on an accrual basis. It is therefore desirable to improve the collection of accrual data and information needed to generate accrual-based statistics in a way that is comprehensive and consistent across all sub-sectors of general government.

(10)

The availability of high frequency data can reveal patterns warranting closer surveillance and improve the quality of budgetary forecasts. Member States and the Commission (Eurostat) should publish quarterly deficit and debt data applying the definitions set out in Article 2 of the Protocol (No 12) on the excessive deficit procedure annexed to the Treaty on European Union (TEU) and to the TFEU. Publication of budgetary data with higher frequency that are tailored to national budgetary definitions should be determined on the basis of national transparency requirements and user needs, to improve national ownership.

(11)

Biased and unrealistic macroeconomic and budgetary forecasts for the annual and multiannual budget legislations can considerably hamper the effectiveness of fiscal planning and consequently impair commitment to budgetary discipline. To improve baseline assumptions, Member States should compare their macroeconomic and budgetary forecasts with the most updated ones of the Commission and, if appropriate, those of other independent bodies.

(12)

Macroeconomic and budgetary forecasts for annual and multiannual fiscal planning for the general government should be subject to regular, objective and comprehensive ex post evaluations performed by an independent body or other bodies with functional autonomy vis-à-vis the fiscal authorities of the Member States different from the one producing the forecast in order to enhance their quality. Those evaluations should include scrutiny of the economic assumptions, comparison with forecasts prepared by other institutions, and evaluation of past forecast performance.

(13)

Independent bodies charged with monitoring public finances in the Member States are an effective building block of budgetary frameworks. Regulation (EU) No 473/2013 of the European Parliament and of the Council (9) requires Member States whose currency is the euro to have independent fiscal institutions tasked with the endorsement or production of macroeconomic forecasts and establishes specific safeguards regarding their independence and technical capacity. Without prejudice to the requirements under that Regulation, the task of the independent fiscal institutions to produce, assess or endorse macroeconomic forecasts in accordance with this Directive should take into account the established national procedures and practices in Member States, including those concerning at which point in time the task is undertaken.

(14)

In order to achieve strengthened responsibility in fiscal policy, independent fiscal institutions should have a high degree of operational independence, the necessary resources to perform their tasks and extensive and timely access to necessary information. Member States may establish more than one independent fiscal institution and each of them may discharge one or several of the tasks laid down by this amending Directive, as long as there is a clear allocation of responsibility and there is no overlap between them in terms of remit. Excessive institutional fragmentation of monitoring tasks should be avoided. The design of those monitoring bodies should take into account the existing institutional setting and the administrative structure of the Member State concerned.

(15)

To improve budgetary planning, due attention should be paid, to the extent possible, to the macrofiscal risks resulting from climate change, including its environmental and distributional impacts. Understanding the potential channels through which climate-related shocks affect public finance is key to national strategies to limit and manage fiscal risks stemming from climate change and related disasters.

(16)

Although the approval of annual budget legislation is a key step in the budget process as regards democratic accountability, a single-year perspective for budgetary planning provides a limited basis for sound fiscal policies, as most measures have implications that go well beyond the annual budgetary cycle. As such, effective medium-term fiscal planning strengthens the credibility of fiscal policy while taking into account debt sustainability. It should rest on a clear and consistent definition of national budgetary objectives over the medium term for the general government, which are presented in national medium-term plans. In order to enhance a multiannual budgetary perspective, the planning of annual budget legislation should be consistent with national budgetary objectives over the medium term.

(17)

To be effective in promoting budgetary discipline and the sustainability of public finances, budgetary frameworks should comprehensively cover public finances. For that reason, particular attention should be given to operations of those general government bodies and funds that do not form part of the regular budgets but are part of the general government, including sub-sectors, and that have an immediate or medium-term impact on Member States’ budgetary positions. Member States should also publish values corresponding to the combined impact on general government balances and debts of those bodies and funds. Detailed information on the impact of tax expenditures on revenues should be published.

(18)

Green budgeting tools can help redirect public revenue and expenditure to green priorities. In that respect, the regular reporting of relevant information improves budget deliberations. Member States could publish information on how the relevant elements of their budgets contribute to achieving climate-related and environmental commitments at national and international level and the methodology used. Member States should publish data and descriptive information separately for expenditure, tax expenditure and revenue items. Member States could publish information on the distributional impact of budgetary policies and take into account employment-related, social and distributional aspects in the development of green budgeting as referred to in Regulation (EU) No 473/2013 and the communication of the Commission of 28 September 2022 entitled ‘Better assessing the distributional impact of Member States’ policies’.

(19)

Due attention should be paid to the existence of contingent liabilities. Contingent liabilities encompass possible obligations depending on the occurrence of an uncertain future event, or present obligations where payment is not probable or the amount of the probable payment cannot be measured reliably. They comprise, for instance, government guarantees, non-performing loans, liabilities stemming from the operation of public corporations and, to the extent possible, disaster- and climate-related contingent liabilities.

(20)

Natural disasters and extreme weather events have affected most Member States and climate change is expected to amplify the frequency and intensity of such events. Governments invest in climate adaptation measures and step in to cover disaster costs for emergency relief, recovery and reconstruction and to act as the insurer of last resort in some cases. Considering the existing and future challenges for the sustainability of public finances, particular attention should be paid to government obligations and risks to government finances stemming from natural disasters and climate-related shocks, starting with collecting and publishing information on the fiscal cost of past events to the extent possible.

(21)

Reporting on macrofiscal risks from climate change, climate-related contingent liabilities and fiscal costs of disasters is improving but remains at an incipient stage, with methodologies and indicators for such reporting still being developed. Implementing such reporting will require significant effort from public administration. Taking into account those challenges and, to the extent possible, reporting in those areas should be carried out and evolve in parallel to such methodological advances.

(22)

The Commission should continue to regularly monitor the implementation of Directive 2011/85/EU. Best practices concerning the implementation of that Directive should be identified and shared.

(23)

Directive 2011/85/EU should therefore be amended accordingly.

(24)

In view of the existing deadline under the Stability and Growth Pact, this Directive should enter into force as a matter of urgency on the day of its publication in the Official Journal of the European Union,

(1)

Article 2 is amended as follows:

(2)

Article 3 is replaced by the following:

(3)

Article 4 is amended as follows:

(4)

Article 5 is replaced by the following:

(*2)  Regulation (EU) 2024/1263 of the European Parliament and of the Council of 29 April 2024 on the effective coordination of economic policies and on multilateral budgetary surveillance and repealing Council Regulation (EC) No 1466/97 (OJ L, 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj).’;"

(5)

Article 6 is amended as follows:

(6)

Article 7 is replaced by the following:

(7)

Article 8 is deleted;

(8)

the title of Chapter V is replaced by ‘INDEPENDENT FISCAL INSTITUTIONS’;

(9)

in Chapter V, the following Article is inserted:

(*3)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).’;"

(10)

Article 9 is amended as follows:

(11)

Articles 10 and 11 are replaced by the following:

(12)

the title of Chapter VI is replaced by ‘TRANSPARENCY OF GENERAL GOVERNMENT FINANCES’;

(13)

Article 12 is replaced by the following:

(14)

Article 14 is replaced by the following:

(15)

Article 16 is replaced by the following: