Posted by Natalia Nolan Flecha
Times are challenging and “austerity” is the watchword. After all, the pressure is on- with the OECD estimating that, on average, a total fiscal surplus of nearly 4% of potential GDP will be needed over the next 15 years just to stabilise public debt levels. Nearly 7.5% will be needed over the same period to reduce debt-to-GDP ratios to the Maastricht-approved level of 60% of GDP.
With their backs against the wall, what choices are governments making regarding their (current and future) obligations to citizens and firms? Where are governments holding their ground, and where are they willing to retreat and make more room for other service providers? Choices taken now could be telling and, to those looking for signs of what’s to come, may even provide some clues into the changing role of the State in a post-crisis world.
A 2011 survey of OECD member countries’ fiscal consolidation plans shows some interesting trends. Noteworthy was that, on average, more than two-thirds of planned retrenchment efforts will take the form of spending cuts (as opposed to revenue raising measures). Operational cuts were a staple of all countries surveyed; on average making up 27% of countries’ total retrenchment efforts. These included across-the-board reductions and/or freezes on such line items as staff wages, IT, procurement, as well as expected efficiency gains from mergers and restructuring of public sector organisations. Second, “big ticket items” also emerged as important targets of finance ministries. As of the end of 2010, 20 of the 30 OECD countries who participated in the study had announced cuts to social protection spending (e.g., pensions, unemployment and other social benefits). Health was next in line, with 15 countries reporting planned reductions here. In total, these two government functions accounted for about half of total general government spending in pre-crisis times.