1. Medium Term Expenditure Framework in the Federal Republic of Germany 16 March 2004

2. Principles for MTEF Historical development Need for MTEF Object of MTEF and planning period

3. Historical development Budget Reform 1969: Revision of Budget Provisions (Art. 109 an 115 GG) in the constitution Law on Budget Principles Länder Budget Code Federal Budget Code (BHO)

4. Budget Reform 1969 Requirements for macroeconomic equilibrium (Art. 109 GG) Borrowing may not exceed expenditure for investment (Art.155 GG) Introduction of MTEF for Federation and Länder Setting up of Financial Planning Council

5. Budget Reform 1969 Standardised Budget System –classification by object –classification by function Federation and Länder can compare their budgets MTEF: useful tool to avoid excessive demands

6. Budget classification by object 4 Personnel expenditure – 42 Payments and incidental services 422 Payments and incidental services for civil servants and judges 425 Payments for employees

7. Budget classification by function 3 Health, environment, sport and recreation –31 Institutions and Measures of Health Care 311 Health Authorities 312 Hospitals and Sanatoriums

8. Need for medium term financial planning Anticipate developments in public finance Identify financial impact of reform projects etc. Assess the scope for fiscal policy in future years Identify undesirable trends and counteract

9. Object of financial planning Financial Planning = Process Financial Plan = Product Detailed planning: all revenue and expenditure titles Comprehensive planning: developments, risks, reserves

10. Object of financial planning Macroeconomic orientation –Medium-term projection of aggregate economic development –e.g. Labour market expenditure –Tax revenue (Working Party on Tax Revenue)

11. Planning period Rolling Plan: Current fiscal year 2004 Draft budget next year 2005 Three planning years 2006-2008

12. Participants Federal Ministry of Finance –Overall control of the budget –Update/re-evaluation of budget titles –Setting-up of financial plan –Negotiations of estimates with other departments

13. Working Party on Tax Estimates –Estimation of future tax revenue –Twice a year; may estimates for financial plan –Including all economic experts in Germany Participants

14. Financial Planning Council –FMF, finance ministers of the Länder, associations at local level, representative of the Bundesbank –Agreements on future spending policy / spending ceilings

15. Procedure of medium-term financial planning Update / re-evaluation of all individual budget titles Aggregation and analysis of financial plan  measures? Negotiation of draft budget and financial plan with departments Alignment with macroeconomic data / tax revenue estimates

16. Benchmark figures

17. Financial Plan

18. Macroeconomic projection

19. MTEF-coordination Federation and Länder European Monetary Union: –Annual deficit < 3% GDP –Total indebtedness < 60% GDP Federation and Länder are autonomous in their fiscal adminstration

20. MTEF-coordination Federation and Länder National Stability Pact (51 HGrG) –Discussion of budgetary developments –Recommendations for fiscal discipline Agreements on future spending policy / expenditure ceilings

21. Budget preparation procedure December 2003: Circular to the departments for the preparation of the budget (2005) and the financial plan (2004- 2008)

22. Budget preparation procedure January / February 2004: Preparation of the estimates of the budget and the financial plan Re-evaluation and planning of the budget titles Fixing of macroeconomic benchmark data

23. Budget preparation procedure March / April 2004 Departmental bids sent to FMF; Start of negotiations FMF/departments at technical level for the draft budget (2005) and the financial plan (2004- 2008)

24. Budget preparation procedure May 2004: Medium-term projection of economic development and medium-term tax revenue estimate; Financial Planning Council

25. Budget preparation procedure June / July 2004: Start of budget negotiations at ministerial level Cabinet resolution on draft budget and financial plan

26. Budget preparation procedure August 2004 Draft budget sent to Bundestag (BT) and Bundesrat (BR) for deliberation and financial plan for information