Budget Surpluses:

Experiences of Other Nations and Implications for the United States

AIMD-00-23: Published: Nov 2, 1999. Publicly Released: Nov 2, 1999.

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Paul L. Posner
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Pursuant to a congressional request, GAO provided information on the experience of six nations--Australia, Canada, New Zealand, Norway, Sweden, and the United Kingdom--with budget surpluses, focusing on: (1) how they achieved budget surpluses and what their fiscal policies were during periods of surplus; (2) how they addressed long-term budgetary pressures; (3) how they adapted their budget process during a period of surplus; and (4) the lessons these nations learned from their experiences with budget surpluses that might be applicable to the United States.

GAO noted that: (1) the case study countries generally chose to continue with a fiscally cautious approach, with three countries--New Zealand, Norway, and Sweden--aiming for sustained surpluses; (2) New Zealand and Sweden have focused on the need to reduce debt as a justification for sustained surpluses, while Norway has focused on the need to save for long-term budget and economic pressures; (3) to maintain support for their policies, these three countries have also devoted some portion of their surpluses to tax cuts or spending increases, addressing critical needs while still aiming for a surplus; (4) each of the case study countries has taken actions to address long-term budgetary and economic concerns; (5) for Norway in particular, long-term budget and economic pressures were a major factor leading the government to decide that surpluses were needed to ensure the long-term sustainability of its fiscal policies; (6) for other countries, programmatic reforms aimed at addressing long-term pressures enacted prior to the arrival of surpluses resulted in increased fiscal flexibility during a period of surplus; (7) over the last two decades, four of the case study countries have reformed their pension systems, improving their long-term sustainability; (8) as a result, as these countries entered a period of surplus, their debate focused on other needs; (9) each case study country changed its budget process during the 1990s in an attempt to better control spending or to guide fiscal policy decisionmaking; (10) GAO's study suggests that it is possible to sustain support for continued fiscal discipline during a period of surpluses while also addressing pent-up demands; (11) however, a fiscal goal anchored by a rationale that is compelling enough to make continued restraint acceptable is critical; (12) for each country in GAO's study, the goal and the supporting rationale grew out of its unique economic experience and situation; (13) GAO's long-term model simulations illustrate the need for continued restraint by saving some of the surplus along with structural reform of public retirement and health programs; and (14) while eliminating a deficit is arguably self-defining and straightforward, other nations' experiences suggest that sustaining even a portion of the nation's surpluses calls for a different framework featuring explicit fiscal policy goals and targets to both inform the allocation of surpluses and to promote public acceptance of the choices.

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