According to a succession of Reports on the Observance of Standards and Codes (ROSC) published by the International Monetary Fund (IMF) in 2000, 2001, 2002, and 2004, the French fiscal policy process is highly transparent and has been subject to ongoing improvement. Key to the progress achieved in recent years has been the passage and progressive implementation of a new Organic Law on the Budget Acts, first achieving parliamentary approval in 2001 and attaining full implementation in 2006. France scores an 86% (extensive) rating in the International Budget Project's Open Budget Index of 2006 as compiled by Michel Bouvier for the Open Budget Initiative. The IMF's 2007 Article IV Consultation report announced that France had recently embarked upon a comprehensive review of its public policy, with positive implications for its approach to fiscal reform.

General Overview

The IMF first conducted a fiscal transparency ROSC in 2000, at which time it reported that France displays "a high level of fiscal transparency and has introduced a number of improvements in coverage and presentation of fiscal information in recent years." Nonetheless, the report found some areas in which more improvements could be achieved, particularly to do with quasi-fiscal activities of public enterprises and deregulation issues. Fiscal ROSC updates were carried out in 2001, 2002, and 2004 by the IMF, marking points of progress toward even more fiscal transparency. Perhaps the most significant changes derive from the implementation of the new Organic Law on the Budget Acts of August 1, 2001 which, as the IMF's 2004 ROSC reported, "becomes fully effective on January 1, 2006" (p. 1). Changes to the fiscal policy process include the formal submission of a multi-annual framework to parliament every year along with the annual appropriations as part of the Budget Act. Four-year projections of revenue, spending, and balances are required, and must be presented according to national accounting conventions. The budget document must also include "a presentation of the government's policy with respect to European Union (EU) commitments" (IMF ROSC 2004, p. 1). Budget debate as carried out by parliament is now institutionalized by the new law. The parliamentary debate also reviews prior year budget execution, facilitated by the State Audit Office's preliminary report. The 2004 ROSC update added that, beginning in 2004, parafiscal levies were eliminated, and in 2005 the budget's 47 component "Annual Performance Plans" had to detail the appropriations allocated to each component mission, along with performance indicators to enable ex-post assessment. Finally, there must be "an estimate of the government's off-balance-sheet commitments" (p. 2). The new Organic Law also assigns to the State Audit Office the responsibility of certifying the public accounts.

Writing for the International Budget Project, Open Budget Initiative (OBI), Michel Bouvier calculated a score of 89% for France on the OBI's Open Budget Index for 2006, earning France a rating of "extensive" openness. Scoring for the OBI is based on whether or not a country produces and makes public seven key budget documents: Pre-Budget Statement, Executive's Budget Proposal, Citizens' Budget, In-Year Reports, Mid-Year Report, Year-End Report, and Auditor's Report. France produces all seven, and makes them all publicly available. Of the seven documents, the Executive's Budget Proposal is of singular importance, and on this document, France earns a high score of 86% thanks to the comprehensiveness of the information provided. However, the OBI still finds some room for improvement. Additionally, the OBI report shows that although France does hold public budget hearings, there is no provision for public participation therein.

The IMF's 2006 Article IV Consultation noted that economic pedagogy and consensus building were key elements in the French approach to fiscal reform. Reports and an annual national conference have contributed to widespread public awareness of the need for spending restraints, for instance. It is understood by French authorities that a highly sensitive public creates a need to pursue consensus and gradualism in policy and reform efforts. France recognizes the general direction of IMF policy recommendations, but finds it appropriate to adopt a slower implementation schedule that is "subject to more tradeoffs in order to preserve social cohesion, generous welfare arrangements, and a narrow income distribution" (IMF Article IV 2006, p. 14). The IMF report found that the principle threats to fiscal sustainability were high deficits and the costs associated with an aging population, which needed to be addressed through structural reforms and fiscal adjustment. The IMF also found that France has progressed in fiscal consolidation and in strengthening fiscal governance and spending restraint. It observed that the new Organic Budget Law has helped to introduce a change in civil service culture, trending it toward a stronger results-based orientation. In addition, the Court of Account has been given greater independence in its budget oversight role. The IMF called for greater specificity in the selection of policy choices dealing with spending restraint.

According to the IMF's 2007 Article IV Consultation report, the French government "has launched a comprehensive review of public policy to secure better public services and lasting expenditure efficiency and reduction" (p. 16). Key to this initiative is an emphasis on refocusing the core economic mission and "rationalizing the overlapping functions of multiple levels of local government" (p. 16), for instance by reforming and streamlining the tax administration structure. Public spending is to be placed in a strategic framework, and multiyear budgeting is planned beginning with the 2009-2011 period. As many as 100 streamlining measures have already been identified. A review of the tax system, motivated in part to enhance France's position within the global economy, is aimed at reducing the degree of systemic distortion arising from the present system of deductions, credits, and exemptions. Success will depend on a "sharp reduction" in tax expenditures. According to the report, it will also be important to enshrine "the principle that all such tax decisions be taken only in the context of the budget" (p. 17), eliminating the practice of taking tax expenditures outside of the budget cycle. However, according to the IMF, "the authorities, while noting the staff's proposals, saw a tension in the call for stepped-up fiscal adjustment and its concomitant support for tax reform which, they noted, is seldom revenue-neutral" (p. 17).

The Principles

Clarity of roles and responsibilities.

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The original 2000 IMF ROSC found that "the boundary between general government and the rest of the economy is well defined." According to the report, France employs the European System of Accounts (ESA95), and the legal underpinning of the fiscal policy process offers a clear allocation of roles between the government and the broader society. The allocation of responsibilities across the various levels of government and across government agencies is well defined in law as well. Local authorities receive their mandate from the Constitution, which grants them autonomy within parameters set in law, particularly the Decentralization Act of 1982. The division of power across the three branches of government is also spelled out. One problematic area was the continued public sector involvement in quasi-fiscal activity, but the ROSC acknowledged that this was changing with ongoing efforts at privatization and regulatory reform. The 2000 ROSC noted that "deconcentration of administration within state service agencies has strengthened the powers of the prefects of administrative districts to coordinate all services of the state within their districts, as well as to coordinate with local authorities." The Tax Code and related laws are publicly accessible, and changes thereto are discussed annually in parliament as part of the budget debate. The Ministry of Finance offers public access to a "taxpayers' charter" that explains avenues of recourse in the case of challenges to decisions by the tax administration. The 2002 ROSC added that the new Organic Law on Budgetary Procedures mandates truthfulness in the annual budget law regarding disclosure of the central government's financial resources and obligations, and mandates that a review of any new legislation or regulations that affect government finances be done in the same year in which such laws or regulations are implemented.

Open budget processes

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Writing for the OBI, Michel Bouvier calculated a score of 89% for France on the Open Budget Index for 2006, earning France a rating of "extensive" openness. Scoring for the OBI is based on whether or not a country produces and makes public seven key budget documents: Pre-Budget Statement, Executive's Budget Proposal, Citizens' Budget, In-Year Reports, Mid-Year Report, Year-End Report, and Auditor's Report. France produces all seven, and makes them all publicly available. Of the seven documents, the Executive's Budget Proposal is of singular importance, and on this document, France earns a high score of 86% thanks to the comprehensiveness of the information provided. However, the OBI still finds some room for improvement. Additionally, the OBI report shows that although France does hold public budget hearings, there is no provision for public participation therein.

The IMF's 2000 ROSC describes the French budget process as "open and clearly documented." The basic policy statement and framework are provided in the Spring Report to parliament for use in formulating the budget document that is filed in the following October. The economic context and revenue, spending, and balance targets are all included in the report, covering all general government components. Every two months, the Ministry of Economy, Industry and Employment (Ministère de l'Économie, de l'Industrie et de l'Emploi, or MINEFE) updates the parliament on the budget situation. Existing and new policy initiatives are clearly distinguished. The budget package includes the Economic, Financial, and Social Report, which details the underlying assumptions of the budget. The report also provides risk and sustainability analyses. In addition, according to the 2000 ROSC, "the stability program submitted to the EU includes sensitivity analysis of the effects of interest rate increases and reduced export demand." The report to the EU considers two different growth scenarios in order to explore possible risk alternatives, and takes up the consideration of medium-term sustainability, as well. The ROSC did note, however, that "long-term analysis of sustainability issues is not... systematically integrated into budget processes."

The ROSC went on to add that there is a process by which to monitor aggregate fiscal targets, and that the accounting practices applied are appropriate to help ensure statistical reliability to this end. One year after the end of the budget year, a detailed Budget Review Law must be presented to parliament, along with reports generated by the Court of Audit. ESA95 standards are used in the preparation of fiscal reports for the national accounts and stability programs. The legal framework governing budget management is also clear, according to the 2000 ROSC. Public fund disbursement must be compliant with budget appropriations. Budgeting must be done on a gross basis and the nomenclature used for appropriations must match that used in the budget. The budget must be comprehensive, which has led to a reduction in the number of expenditures that are treated off-budget.

While the 2000 ROSC found that France's fiscal targets are clear and are subject to review by the EU council of Economic and Financial Ministers, control mechanisms could be clarified, particularly with regard to slippages in the local government and healthcare elements of the budget. The 2002 ROSC Update noted that transparency in accountability and budget presentation had been improved in the budgets for 2001 and 2002. Prior year implementation of central government spending objectives was clarified, and cost-sharing contributions were included for the first time in the budget documents. Greater methodological detail and more complete disclosure of underlying assumptions were also provided on the revenue side of the budgets of those years, particularly with regard to taxes.

The 2002 ROSC update noted that the Law on Budgetary Procedures received parliamentary approval and that the law was aimed at "improving the quality of public expenditure by emphasizing results and efficiency and increasing transparency and Parliament's role in fiscal management." Although the ROSC would not be fully implemented until 2006, many of its provisions were set to be phased in gradually during the intervening years. Among its provisions is an acceleration of the calendar according to which the annual budget review law must be submitted to parliament. Accountability is enhanced by the requirement that the review be accompanied by an explanation of any deviation in outcome from spending objectives.

The 2004 ROSC fiscal update noted that the annual budget package now must include a presentation of the multi-year framework, including revenue, expenditure, and balance forecasts for the each of the general government's component units, per the provisions of the new Organic Budget Law. Additionally, parafiscal levies were eliminated beginning in 2004, and in 2005 the budget's 47 component "Annual Performance Plans" had to detail the appropriations allocated to each component mission, along with performance indicators to enable ex-post assessment. Finally, there must be "an estimate of the government's off-balance-sheet commitments" (p. 2). The new Organic Law also assigns to the State Audit Office the responsibility of certifying the public accounts.

Public availability of information.

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The 2000 ROSC noted that "budget documents provide a comprehensive coverage of general government," including information on expenditures that, in the past, were handled off-budget. While cost-sharing contributions are estimated, they are not made explicit in the actual budget projections. The annual Spring Report of the National Economic Commission documents the debt, expenditure, taxes, and deficits that occurred in the two prior years, the current year, and estimates them for the upcoming year. Updates to these figures are provided in the Economic, Financial, and Social Report that is published in the fall of each year. Four-year forecasts (for the upcoming budget year and three years ahead) are also produced, in line with the EU Stability and Growth Pact requirements. The Treasury provides regular and timely reports on government debt data, according to the 2000 ROSC. Monthly reports are produced with a two and a half month lag, and summary annual debt reports appear withy a lag of about three and a half months. For a more detailed annual debt report, the lag is about nine months. The Treasury also provides a monthly Summary of Treasury Operations that contains information on the government's financial assets. France has long been a subscriber to the IMF's Special Data Dissemination Standard, and has met all specifications for its metadata and the provision of advance release calendars since 2000. The 2002 ROSC adds that the new Organic Budget Law confers on parliamentary budget committees the right to access financial and administrative documents bearing on their oversight function and the right to call hearings. It also requires that the Court of Audit respond to parliamentary queries relating to the budget.

Independent assurances of integrity.

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According to the IMF's 2000 ROSC, the Constitution provides the mandate for the Court of Audit, an independent body of judges that are charged with the task of overseeing the management of fiscal policy. Members of the Court are professionals who review the execution of the budget and oversee the financing of social security. The Court reports to parliament on the government accounts and the social security system, "verifying the regularity and accuracy of the accounts and verifying the quality of management and the proper use of public funds." In addition, the Court provides occasional reports on particular topics of interest to the legislative and executive branches, and may undertake to carry out inquiries at the request of parliament. Parliamentary budget committees are empowered by law to review financial and administrative information and can schedule hearings when needed, according to the terms of the 2001 Organic Law on Budgetary Procedures, and can oblige the Court of Audit to come to respond to the questions of parliamentary committees.

The 2000 ROSC also noted that "internal management controls are open and effective." Both civil service and procurement policies are subject to clear laws and regulatory provisions. The procedures for internal audit are also transparent and effective. Financial controllers from the Budget Directorate of the MINEFE are charged with making sure that the commitments of spending units comply with budget appropriations. Inspections of authorizations and operations for all ministries and public agencies are carried out by the MINEFE Inspectorate General of Finance. For data compilation and dissemination, the primary agency is the National Statistical office. The National Institute of Statistics and Economic Studies is the authoritative and independent agency that publishes fiscal data for broad public dissemination. ESA95 standards are employed in the production of quarterly national accounts and the annual general government accounts, using source data from the Directorate General of Public Accounting, also part of MINEFE. The government's statistical coordinating agency is the National Council for Statistical Information, chartered under Decree 84/28 of 1984, which mandates quality assurance in statistical data.

With regard to the integrity of data, the 2000 ROSC reported that "the basis of macroeconomic forecasts is subject to external scrutiny" provided by the 22-member National Economic Commission whose membership is drawn from economic and financial experts. The commission is chaired by the MINEFE. A technical group and key independent institutes and banks assist the commission in its work. Assumptions that underpin the annual budget document are specified in the accompany Economic, Financial, and Social Report. The same assumptions are used in the formulation of submissions to the stability program, and are reviewed by the EU Council of Economic and Financial Ministers.

The Code of Conduct for public servants is clearly defined and buttressed by legislation aimed at establishing ethical standards, including behavior that may constitute conflicts of interest (outside employment, the use of public funds, etc.). Professional guarantees and oaths of office are required of public accountants.