European Commission chooses wrong instrument risking waste of funds
The German SAI speaks out against plans to implement harmonised European Public Sector Accounting Standards EPSAS. The project will not accomplish the goal of sustainable public budgets.
“The key to avoiding sovereign debt crises in the European Union is a sound fiscal policy. Such a policy cannot be imposed by enforcing a specific public sector accounting system”, said Kay Scheller, President of the German SAI, on the publication of a special report on the proposed harmonisation of accounting systems in the EU. To enhance fiscal surveillance, the European Commission seeks to obtain more reliable and comparable public budget data from Member States. The costs of implementing EPSAS are estimated at €3.1 billion in Germany alone. Kay Scheller stated: “When it comes to fiscal surveillance the EU does not lack information but enforcement of fiscal rules. In many cases Member States do not practice the necessary fiscal discipline and are reluctant to make tough policy decisions with the ensuing consequences. To seek better comparability of budget data will not serve the purpose. We can strengthen confidence in the stability of the Economic and Monetary Union only, if all Member States apply European fiscal rules consistently. The applicable legal framework already stipulates the need for Member States to seek structurally balanced budgets and a reduction in public debt. Compliance with the fiscal rules in place is thus the best safeguard for a stable Economic and Monetary Union. By opting for EPSAS to cure what ails, the Commission misses the point. Member States should abandon the project and instead use the funds saved to consolidate their budgets.”
The Commission seeks to implement EPSAS as binding standards across all Member States. The purpose is to obtain more reliable financial data from the Member States to improve fiscal transparency. The Commission estimates the costs of implementing EPSAS to amount to €3.1 billion in Germany alone. However, the reliability of such estimates is doubtful. We believe that the financial burden is likely to exceed this amount by far and that substantial difficulties will emerge at the transition stage.
In our special report we urgently warn Federal Parliament against the Commission’s project of implementing EPSAS as binding standards in the Member States and particularly in Germany. In our view, harmonising public-sector accounting based on compulsory standards - which is the approach adopted by the Commission - does not serve the goal of putting in place sustainable public budgets.
It has become apparent, already at this time, that EPSAS will open up additional accounting choices, options and leeway for Member States in recognising individual budgetary items. This fact alone would undermine the goal of obtaining more reliable and comparable public budget data. In addition, the Commission has initiated this multi-billion euro effort without having developed an overarching framework or having explored any alternative options to implementing EPSAS.
Furthermore, the German SAI is concerned that from the outset the Commission largely relied on private sector audit firms in the entire planning and deliberation processes such as the wording of the standards and the substantive requirements for the future public sector accounting system. These companies are key players in the field and would be in the position to exert major influence on the development of EPSAS. The German SAI warns that in case EPSAS are implemented as compulsory standards the demand for support and consultancy services in the relevant Member States will create a multi-billion market for just these audit firms. “This conflict of interest is not tolerable. The scope for government action is strongly affected, if profit-driven private-sector firms are closely involved in developing the potential legal framework in the European Union”, said Kay Scheller. At national level, we repeatedly expressed strong opposition to such endeavours.
The new Federal Government should bring momentum to bear on the European Union in order to prevent the compulsory implementation of EPSAS. In addition to that, the Federal Government should urge the Commission to study alternative options that may help enhance the transparency and comparability of financial information obtained from Member States as needed. In doing so, the Commission needs to respect the various administrative and oversight structures in place in the Member States.
All Member States of the European Union have the duty to comply with the applicable European fiscal rules. In accordance with the Stability and Growth Pact, the Member States have undertaken to achieve a nearly balanced budget or a surplus budget in the medium term. To accomplish this objective, the structural public deficit ratio and the public debt ratio are not to exceed 0.5 per cent and 60 per cent of gross domestic product, respectively.