In accordance with article 8 of the law of 12 July 2014, the CNFP is tasked to carry out regular assessments relating to :
- the monitoring of fiscal rules as per articles 2 to 4 of the law of 12 July 2014 ;
- the monitoring of the application of the automatic correction mechanism in the presence of a "significant deviation" vis-à-vis budgetary objectives ;
- the assessment of macroeconomic and budgetary forecasts used in budgetary programming.
Fiscal rules
The public finances of Luxembourg must respect the objective of a balanced budget.
The CNFP monitors the adherence to the balanced budget rule.
In accordance with the law of 12 July 2014, the budgetary balance rule is considered to be met when the structural balance is greater or equal to the medium-term objective ("MTO") or rapidly converges towards it. This fiscal rule applies to the general government as a whole (as defined by ESA2010) which is comprised of the sub-sectors of central government, local governments and social security.
The CNFP also monitors the adherence to rule concerning the maximum amount of central government expenditure.
Assessments also include the verification of a number of formal requirements for a multi-annual budgeting law, as foreseen by the law of 12 July 2014.
For consistency, EU fiscal rules and fiscal targets agreed upon in the context of the governmental programme are also assessed by the CNFP.
Automatic correction mechanism
If the public finances present a significant deviation from the balanced budget rule, an automatic correction mechanism is activated.
If a significant deviation occurs from the MTO, an automatic correction mechanism is activated that obliges the Governement to take corrective budgetary measures, at the latest within the draft budget for the following fiscal year.
The monitoring by the CNFP will focus on the occurence of circumstances leading to the activation of the correction mechanism, on the implementation of the correction in line with national rules & plans as well on the occurence of exceptional circumstances justifying the application, extension and termination of escape clauses.
Macroeconomic and budgetary forecasts
Macroeconomic and budgetary forecasts need to be regularly assessed.
The CNFP is mandated to assess macroeconomic and budgetary forecasts in order to judge upon their realism and reliability.
More detailed analyses of economic and budgetary forecasts will also be carried out, e.g. to identify to potential biases or to assess models and methodologies that were used.