If public budgeting were a sport, it would be the national sport of nearly every nation. Political leaders, economists, investors, journalists, local and national commentators all line up to say something about how governments raise and spend taxpayers’ money. Few policy debates cut across so many domains of national life, and fewer still stir such enduring passions.
The rules of this sport appear simple: balance taxation and expenditure. Yet in practice, this has reduced to a stale and familiar game, with the political footballs of both boiling down to the simplest of arguments: taxes bad, expenditures good.
Citizens recoil from the thought of higher taxes but welcome new spending promises. Governments facing political pressures lean into this logic by attracting votes through spending promises. This results in a cycle where policy debate too often collapses into short-term trade-offs that neglect the bigger question of value.
Burden of debt
Debt enters as the tiebreaker. When expenditure consistently exceeds taxation, public debt accumulates. The discussion then expands slightly to whether debt burdens and associated risks are affordable, including how bond markets respond in the short and long term. Credit rating agencies reinforce this framing, measuring their risk assessments primarily through the ability to service debt and the implied space for future taxation. If tax capacity is perceived as sufficient, then a government is judged sound. If not, borrowing costs rise and fiscal risks deepen.
The resulting incentive structures are clear. Increasing taxes to create future fiscal space raises concerns about affordability and is politically unpopular. Meanwhile, maintaining or increasing public spending tends to be politically advantageous regardless of the long-term consequences. Over time, debt-to-gross domestic product ratios creep upward.
The empirical evidence across jurisdictions is stark: debt rarely declines without concerted action and, even then, the political rewards are minimal. From this vantage point, the future of public money can seem bleak. Is there a way to challenge the orthodoxy? We believe there is.
The critical mistake lies in what is being measured. The real game of public money is not taxation or expenditure, it is investment – investment in public goods and benefits that societies depend on: education, healthcare, infrastructure, defense. Yet, too often, we spend little time debating these as investments that should reap a positive return over time. We focus on how much is being spent, not what is being achieved. At its core, this is because of the misaligned timing of short-term gratification of spending, compared with the long-term sustainability of public investment and value.
Building public value
This narrow lens leaves out the most important question: what value is being created? Call this achievement public value. Public value means better-skilled citizens emerging from schools and universities. It means infrastructure that is not only delivered on time and on budget but also designed for value, resilience and productivity. It means health systems that prevent illness as much as they treat it, and communities that are safer and more secure. In short, public value is the return on society’s collective investment, and it is the foundation of dynamic, more resilient economies.
If we reframed the debate about public money as investment in public value, the discussion would shift quickly. Instead of asking how much governments spend, we would ask how much value that spending generates. Few would argue against wanting more value tomorrow than today. The natural next question is how to achieve higher levels of value over time. This becomes an issue of making investment decisions that improve productivity and the effectiveness of public money.
This approach also enables us to challenge assumptions. For example, more spending does not automatically equate to better outcomes. Evidence from multiple sectors shows that efficiency, design and delivery matter as much, if not more, than the absolute level of funding. Where public value is stagnant or declining, simply spending more is unlikely to fix the problem. Instead, governments can interrogate how systems are designed and how outcomes are measured. How public value is being produced is not set, and governments must put into play the current assumptions and seek input from stakeholders who take the long view, including public debt market investors.
Such a reset would demand a new approach from policy-makers. Under the current expenditure-driven mindset, the incentive is simply to spend more, as success is driven by political promises fulfilled in budget allocations. But in an investment-driven mindset, success would be measured by improvements in the productivity of public money: how much more value is generated per dollar, euro or pound of expenditure. This mindset creates room to challenge orthodoxy, opening space to redesign public services.
The implications are far-reaching. If governments were to reset the rules of the budgeting sport, focusing on public value, economic competitiveness and delivery of public services, fiscal choices would drive innovation in how education, healthcare, transport, defense and other systems are conceived, designed and executed. Instead of preserving inherited models, governments would be incentivised to re-engineer systems to deliver higher returns in terms of human capital, economic resilience and societal wellbeing.
This is the debate OMFIF and EY are advancing. Later this year, a report will be published on the future of public money, informed by new socioeconomic modelling. The report will challenge policy-makers, investors and citizens alike to think differently about what public money is for, how it is used and the public value it achieves.
Explore the reports and podcasts in the OMFIF-EY public money series.
Andrea Correa is Senior Economist at OMFIF and Mark MacDonald is EY Global Public Finance Management Leader at EY.
The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organisation or its member firms.
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