25 January 2012

ACCA: Financial discipline should be accompanied by growth-boosting policies for the eurozone

Ahead of the 30 January EU summit, ACCA (the Association of Chartered Certified Accountants) is hoping that the proposed fiscal compact aimed at stabilising the euro, entitled “Treaty on stability, coordination and governance in the Economic and Monetary Union’, will not only focus on fiscal consolidation, but will also push for economic convergence, growth, innovation and solidarity.

ACCA shares the European Parliament’s view that more European cooperation is needed and supports the view that Europe should not depart from the community method. Furthermore, ACCA acknowledges the need for bullet-proof rules but recognises that it is necessary to instil a limited degree of flexibility, which would allow Member States, in exceptional circumstances, temporarily to incur deficits and deviate from the strict requirements of the Growth and Stability Pact.

Chas Roy-Chowdhury, head of taxation at ACCA, says: "While we acknowledge that discipline and political will from all Member States and EU institutions is necessary to implement and comply with the new rules on economic governance, we would favour a model that didn't only focus on cutting all public spending and imposing austerity measures, such as automatic sanctions. Instead, we believe that robust pro-growth plans focused around large scale infrastructure works, such as investment in communications networks, energy grids, information technologies and renewable energy, as well as re-skilling of the work force, would produce a better - and fairer - result. Funding for this should come from a combination of public spending and private sector investment. For instance, the UK and Canada have in place agreements for pension funds to provide significant funding in this way. Where possible, the EU budget can also be utilised to provide funding for cross-border projects that can only be materialised when the financial resources of all Member States are combined (as in the case of Galileo).

"In addition, maintaining the principle of solidarity will be of paramount importance: we strongly believe that the existing disparities between the various members of the EU need to be addressed. ACCA is supportive of the gradual use of eurobonds as a stability mechanism, though only insofar as it would be a part of the solution but not the toolbox itself. It should go hand in hand with a stronger role for the European Central Bank. It is important to move slowly but surely towards closer economic and fiscal integration in the eurozone, with a permanent, credible and sustainable debt-funding mechanism. At a later stage, we are not opposed either to a potential progressive EU VAT which could contribute to the EU’s own resources", Chas Roy-Chowdhury adds.

ACCA also supports the view that the long-term financial sustainability of public finances will play a critical role both for the economic recovery of the EU but also in preventing future crises.

Gillian Fawcett, ACCA's Head of Public Sector, says: "Whereas we recognise that Member States compile national accounts which set out their economic and fiscal positions based on statistical measures and forecasts, we believe that they should also be producing government financial statements that consistently comply with international accounting standards, such as International Public Sector Accounting Standards (IPSAS) or International Financial Reporting Standards (IFRS). We believe that the current diversity in financial reporting practice is unhelpful and leads to inconsistency in reporting practice across Europe."

Gillian Fawcett continues: "We strongly support the call from the European Commission – backed by the European Parliament - in the Article 16 of the Directive on requirements for budgetary frameworks of the Member States, published on 8 November 2011, to assess the suitability of the International Public Sector Accounting Standards (IPSAS) for the Member States. DG Eurostat is currently undertaking such a feasibility study that is expected to be published by the end of 2012. ACCA is looking forward to a positive outcome of the study, as in our view individual Member States' financial statements based on international agreed standards would offer new insights into long term financial sustainability."

As a global accountancy body, ACCA argues that information on long-term financial sustainability should be a regular feature of public reporting and reflect Member States' ability to meet and pay their long-term commitments.

"At the moment, while there are a number of good practices around the globe, we observe that not all Member States currently report on the long-term sustainability of their public finances. Also, we should not forget that too much focus on a balanced budget is not a panacea: since balancing the bottom line does not necessarily mean that the rest of the financials are fine, it could hide a lot of divergent policy and financial practices", Gillian Fawcett concludes.

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