Key messages
The long-term fiscal pressures associated with climate change and reducing greenhouse gas emissions; ageing populations and shrinking labour supply; and rising health care and social care costs continued to mount. Interest expenditures are now increasing significantly. The current geopolitical tensions are adding further new spending pressures, including in the defence area, as well as greater economic uncertainty.
OECD Spending Better Framework
Budgets are about more than money. They are a statement of a nation’s priorities. Engagement and oversight of the budget process by Independent Fiscal Institutions, parliaments and the public is fundamental to democratic governance and trust in government. Empowering the public to understand fiscal challenges is essential for generating the will to solve them
Governments must have credible public financial management frameworks to build trust in budgetary governance and maintain enough fiscal space to be able to finance crisis responses when needed.
Context
Governments must have credible public financial management frameworks to build trust in budgetary governance and maintain enough fiscal space to finance crisis responses when needed.
Each of the crises of recent years has shown the importance of preserving the resilience of public finances; countries need to be able to finance large and unexpected expenditures, such as in the aftermath of major natural disasters, to support a distressed sector or to address the consequences of a major pandemic. However, debt levels in OECD countries have risen significantly in recent years.
General government expenditures amounted to 46.3% of GDP on average across OECD countries in 2021
Between 2019 and 2021 general government expenditures as a percentage of GDP increased by 5.4 percentage points, from 40.9% in 2019. This increase is largely explained by the COVID-19 pandemic, which led to significant economic disruption. This prompted large-scale fiscal stimuluses, including increased spending on healthcare, social welfare programmes, and support for businesses and individuals affected by the pandemic, while at the same time GDP was falling.
General Fiscal Balance
The fiscal balance is the difference between a government’s revenues and its expenditures. It signals if public accounts are balanced or if there are surpluses or deficits. Recurrent deficits over time imply the accumulation of public debt and may send worrying signals to consumers and investors about the sustainability of public accounts which, in turn, may deter consumption or investment decisions. Nonetheless, if debt is kept at a sustainable level, deficits can help to finance necessary public investment, or in exceptional circ*mstances, such as unexpected external shocks (e.g. pandemics, wars or natural disasters), can contribute to maintaining living conditions and preserving social stability.
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Report
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