Methodological notes - Public Finance

Public expenditure growth is often broken down into two components: the “trend”, sometimes referred to as “unchanged policy” trajectory, and the “measures” that are adopted in relation to this trajectory. However, the concept of unchanged policy can have several meanings, sometimes leading to different messages about the nature and scale of the efforts made. This note aims to clarify these meanings, both in terms of their substance, to identify their significance and uses, and in terms of their computation methods, to explain the assumptions and their implications.

The High Council of Public Finance is responsible for issuing an opinion on macroeconomic forecasts, in particular growth and inflation forecasts, and on public revenue and expenditure forecasts produced by the Government prior to the presentation to Parliament of the main texts governing public finances. This note sets out the methodology used by the High Council to prepare its opinions. This methodology is based on external expertise, tools developed internally and studies and notes produced by the High Council.

The elasticity of compulsory levies (CLs) with respect to GDP, i.e. the ratio between the growth rate of CLs with unchanged legislation and the value of GDP, is a useful concept for reporting on the evolution of CLs in an aggregate manner, but is not sufficient for judging whether a CLs forecast is too high or too low.