On 29 April 2024, the EU Council approved two Regulations[1] and one Directive[2] that form the basis for the new EU economic governance framework, while on 30 April the legal acts were published in the Official Journal of the EU and entered into force.
Under this framework, EU Member States have to prepare a medium-term Fiscal-Structural Plan, replacing the annual Stability Programme and National Reform Programme, every four or five years in April, setting out the fiscal trajectory (net expenditure path – after endorsement by the Council). The fiscal trajectory sets a tolerable growth level of expenditure from which a number of items will be excluded: interest expenditure, discretionary revenue measures (government-approved changes in taxes, non-taxes, charges for services and other own revenues), expenditure on EU funds programmes and public co-financing of EU funds programmes, as well as cyclical elements of expenditure on unemployment benefits.
The fiscal trajectory is set in a way that during the period of the Fiscal Structural Plan and for 10 years thereafter the projected general government deficit does not exceed 3% of Gross Domestic Product (GDP) and the debt does not exceed 60% of GDP, as the deficit and debt reference values (set out in the Treaty on the Functioning of the European Union) are maintained unchanged. If the reference values are exceeded before the plan is prepared, then a credible reduction in debt and deficit must be ensured. In fact, the fiscal trajectory is set for countries with higher deficits and debts to be stricter, while the fiscal trajectory for countries with lower deficits and debts to be more flexible. In this way, elements of debt sustainability analysis are incorporated into the new EU economic governance framework and an individual approach to countries is ensured.
The European Commission (EC) provides prior guidance to countries when developing their fiscal trajectory – countries with actual or planned deficits and/or debt exceeding the reference values receive a reference trajectory, while countries with deficits and debt below the reference values are provided with technical information indicating the level of structural primary balance that should be achieved or maintained in order to comply with the provisions of the new regulation. The reference trajectory is stricter and provides for a gradual reduction in the budget deficit, while in the case of technical information, countries have more flexibility, but they must ensure that the deficit and debt remain below the specified reference values. The fiscal trajectory becomes binding after the approval of the Fiscal Structural Plan by the EU Council.
Every year, between the development of the current and the next Fiscal Structural Plan, an Annual Progress Report will be prepared by the Member State. Annual Progress Report has to provide information on how the objectives set by the country's medium-term Fiscal Structural Plan are being achieved, including how the net expenditure path set by the Council is being implemented, as well as information on reforms and investments.
In accordance with Article 36 of Regulation (EU) 2024/1263 of the European Parliament and of the Council of 29 April 2024 on effective coordination of economic policies and multilateral surveillance of budgetary developments and repealing Council Regulation (EC) No. 1466/97, Member States had to submit their first Medium-Term Fiscal Structural Plans by 20 September 2024, unless the Member State and the EC agreed to extend the deadline by a reasonable period of time. The Fiscal Structural Plan of Latvia for 2025-2028 was prepared and submitted to the EC on 15 October 2024, together with the Draft Budgetary Plan for 2025.
[1] Regulation (EU) 2024/1263 of the European Parliament and of the Council of 29 April 2024 on effective coordination of economic policies and multilateral surveillance of budgetary developments and repealing Council Regulation (EC) No. 1466/97;
Council Regulation (EU) 2024/1264 of 29 April 2024 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure.
[2] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02011L0085-20240430&qid=1729153107138