Rethinking fiscal policy: Strategies for achieving sustainable government efficiency

There is no doubt that fiscal policy settings in many advanced economies are not achieving the improvements in fiscal or budget outcomes required for medium- and long-term fiscal sustainability. The International Monetary Fund (IMF) Fiscal Monitor: Putting a Lid on Public Debt (Fiscal Monitor), released in October 2024, highlights these concerns at the global level.

Figure 1 below from the Fiscal Monitor identifies that projections of budget balances out to 2029 show the global average and global mean are all in deficit as a percentage of GDP.

The Fiscal Monitor also identifies these deficits as being financed by debt, with increasing debt-to-GDP levels, particularly in the US, where debt-to-GDP is increasing from the current rate of 121% of GDP to the projected rate of 131% of GDP in 2029.

With gross debt levels increasing for advanced economies, interest expenses are also increasing. As government interest expenses rise, the capacity to meet the other outcomes, objectives, and services of governments for citizens is diminished. In the US, the most recent budget identifies that, for the first time in recent history, Defence is no longer the second-largest expense after social security. The second-largest expense is now interest on public debt.

All the evidence from current global comparisons indicates that there is a fiscal problem, particularly for advanced economies. Current fiscal policy settings are not sustainable, and governments will have to make hard decisions.

So, how do we address the problem? Consider two alternative approaches: one being implemented right now, the Department of Government Efficiency (DOGE), and an alternative approach, the National Partnership for Reinventing Government, implemented many years ago. Both approaches share a common objective — making the United States federal government more efficient.

Department of Government Efficiency

The stated purpose of DOGE is “to implement the president’s DOGE Agenda by modernizing federal technology and software to maximize governmental efficiency and productivity.”

The actual operations of DOGE to date do not appear to have made federal technology and software modernisation or improved productivity. Technology transformation programs are multi-year programs of work. The benefits are not realized in a month or so. Rather, the focus of DOGE has been:

• Dismantling of the United States overseas aid program; and
• Mass dismissals of federal employees across a range of agencies, including the Federal Aviation Administration, Internal Revenue Service, and Social Security.

These current DOGE efforts are not addressing the material expenses of the US government:

• Overseas aid represents less than 1% of the total US budget expenses; and
• Federal employee expenses represent about $350 billion every year, out of a $6.5 trillion budget, or less than 6% of the total US budget expenses.

National Partnership for Reinventing Government

The National Partnership for Reinventing Government (Reinventing Government) aimed to make government more efficient and effective. DOGE has recently been compared to Reinventing Government; however, the approaches have significant differences.

Reinventing Government began in March 1993 and completed its work in 1998. It took a longer-term approach to achieving efficiencies.

Reinventing Government was based on:

• Working with congressional committees and more broadly with individual senators and representatives in Congress;
• Using evidence and data to support decisions;
• Establishing priority outcomes and objectives;
• Establishing assurance arrangements to ensure improvements were achieved by using inspectors-general within key agencies; and
• Monitoring effectiveness and efficiencies of programs and projects with non-financial performance standards.

The outcomes of a more considered, engaged, and longer-term approach to making efficiencies delivered significant improvements, including:

• Delivering budget surpluses throughout the whole of the second term of the Clinton/Gore administration;
• Achieving $136 billion in savings;
• Reducing the federal workforce numbers by 426,000;
• Cutting 16,000 pages out of federal regulations and reforming government procurement arrangements; and
• Backing up the efficiencies with performance metrics and service standards to measure real progress.

It’s an art, not a sport

Improvements to fiscal outcomes are needed, but government is a long-term endeavor. Major changes are not achieved overnight.

Significant changes require broad support in the community and across political parties to be effective, so engaging citizens, key business, community sector representative bodies, and politicians is a crucial factor leading to success.

Are there aspects of DOGE that should be considered? Absolutely: better use of technology, including:

• Using AI and more flexible technology platforms and shared systems to streamline and automate repetitive and time-consuming manual processes and provide a single point of truth; and
• Digitising service delivery to put information and services at the fingertips of citizens through mobile technology.

However, major technology transformations require time, careful planning, oversight, risk management, and appropriate assurance processes.

Achieving improved fiscal outcomes is less a function of taking a chainsaw to government agencies and programs and more a function of using a well-honed chef’s knife to cut away fat — not the muscle of public administration that delivers on important citizen outcomes.

READ MORE:

US court opens path for mass civil service sackings