The Future of Public Money: From Fiscal Fantasy to Reality

With relentless pressures on the public purse and urgent demand to improve policy outcomes, it is time to reshape the management of public money. Governments around the world are in a fiscal fix. Debt is high, growth remains stubbornly low, and taxpayers are dissatisfied as they pay more for outcomes that are stagnating or getting worse. Given aging populations, creaking infrastructure, heightened defense, security risks, and the green transition, demand for public spending will not ease up. In today’s volatile world, the next shock—which would be costly for governments to manage—could be just around the corner. Some commentators say their governments are living in a “fiscal fantasyland”; that the trade-offs required to place public finances on a sustainable footing remain unconfronted and leave difficult decisions delayed. It is not hard to feel pessimistic about the situation and the prospects for the future. However, the authors of this report do not share this pessimism. That is because the ideas and technology are in place to get us out of this fiscal fix. Our working hypothesis is that the answer lies in focusing not just on the money—the facts of revenue, expenditure, and debt—but in engaging much more deeply with the productivity of the money that is spent; how it contributes to the actual outcomes achieved. To test this hypothesis and draw up a route map to guide governments out of “fiscal fantasyland,” representatives of the EY organization have been working with OMFIF’s Economic and Monetary Policy Institute. We joined an OMFIF-convened group of leading public finance thinkers from international finance institutions, public sector bodies, and the investor community to review how public finances are managed today and explore how public money could be better allocated in the future—through more effective rules and institutions, and better use of data and technology. Our discussions led to a consensus. Although many countries have good public finance institutional frameworks and practices in place, fundamental implementation issues in the various service delivery systems are impeding their effectiveness. For instance, long-term goals and horizon targets are undermined by short-term political cycles and priorities; insufficient accounting for future risks disincentivizes investment in resilience; and the lack of information on the impact achieved by expenditure hampers effective decisions on how to allocate money. The heartening news is that there are clear ways in which structure, rules, and decision-making can be overhauled, to improve dramatically the management of public finances. These ideas and approaches are set out in this report and the authors hope you find them to be a valuable contribution to this debate. How well governments manage public money to improve outcomes matters greatly to citizens and communities all around the world. This is a vitally important debate and it is one we are delighted to help convene and advance.