Debt measures typically ignore most assets – notably, the public sector’s real commercial assets – and some significant liabilities, including the present discounted value of public-sector pension entitlements
only New Zealand uses the IPSAS [International Public Sector Accounting Standards] as the basis for its financial-management system...
governments often base their fiscal rules on narrow debt and deficit measures
the accounts produced by the public sector focus on short- and medium-term cash flows – the general government budget deficit is a prime example – and on a subset of the public sector’s contractual liabilities, typically its gross or net financial debt
the value of land owned by the public sector. Property is usually the biggest single asset class in any economy, and governments tend to be the largest property owners, often by an overwhelming margin. Yet many governments report small (or even zero) property holdings; among those that do report land holdings, the average value is only about 25% of GDP.Public commercial assets (assets that can generate an income if professionally managed) are also frequently underreported, or not reported at all. And what is reported is likely to be undervalued, because management is often far from professional
Failing to account for these assets [fixed assets, financial assets, property assets, public commercial assets], and managing them unprofessionally, can cause lasting damage to the state’s ability to meet its obligations to current and future generations, including by undermining climate action
Public-sector pension obligations average 40% of GDP. Eight of the 24 countries – including five G7 countries – recorded negative public-sector net worth for 2020-21
producing conventional balance sheets that offer more reliable estimates of conventional net worth, which may well be negative. In order to manage assets and liabilities effectively, they must also produce comprehensive balance sheets (or intertemporal budget constraints), which include the present discounted value of anticipated future non-contractual revenue streams, such as taxes (implicit assets), and outlays, such as social security benefits (implicit liabilities).This would show the government’s comprehensive net worth
No one argues that we should not think about future generations. The real question is what current policies and fiscal commitments will better serve the interests of our children and grandchildren
Conservatives often make a big show of worrying about the debt burden that we are passing on to our children...
reckless disregard for the consequences of their actions
look at both sides of the balance sheet. What really matters is the difference between assets and liabilities. If debt increases, but assets rise even more, the country is better off — and so, too, are future generations. This is true whether one invests in infrastructure, education, research or technology. But even more important is natural capital
"Environmental debt" is different. It is a burden that cannot be eliminated with the stroke of a bankruptcy judge’s pen. Damage done today might take decades to repair and require spending money that could have been used to enrich the country. By the same token, wise spending to protect and rehabilitate the environment — like investments to reduce greenhouse-gas emissions — would leave future generations better off even if financed by debt.Suppose we could estimate the direct benefits of such investments — for example, the increased output (or the reduced costs of repairing damage caused by wildfires, hurricanes and other extreme weather events), and the value of improved health and longevity from reduced air pollution — in money terms. What rate of return should we demand?...If we require a high rate of return (as former US president Donald Trump’s administration did when it set the bar at as much as 7 percent per year), there would be little investment in climate-change mitigation, and future generations would roast in a world where temperatures have increased by 3°C or more.Given the inevitable consequences of inaction, investments in climate mitigation should be seen as a kind of insurance. The payoffs are highest when the effects of climate change are most adverse, and when the value of money is particularly high. The required returns on “insurance investments” ought to be lower than the safe real (inflation-adjusted) interest rate. That rate has actually been negative in recent years; but even taking a much longer-term perspective, it has been around 1 percent, plus or minus 0.5 percent. The appropriate “discount rate” therefore should be markedly lower than 7 percent, lower even than the 2.5 to 5 percent rate used by former US president Barack Obama’s administration, and possibly even negative... what discount rate is required to achieve the internationally agreed goal of limiting global warming to 1.5 to 2°C. Allowing temperatures to rise permanently beyond this threshold poses unacceptable risks. The fires, hurricanes, floods, droughts, frosts and other disasters that we have been enduring are merely a preview of what this future would hold
view the matter from the perspective of “future generations.” What value do we place on our children? ... If we value them as much as we value ourselves..., we must account for how damage done to the environment today would affect their well-being
balanced budget multiplier: an increase in government spending will inject more demand into the economy than will be withdrawn by an equal increase in taxation, since some of the money taken by the tax would have been saved, not spent
SALZBURG — In 2009, while the world economy was still reeling from the global financial crisis, Nobel laureate economist Robert Lucas observed that “everyone is a Keynesian in the foxhole”. The implication was that, when an economy is faced with a severe economic shock, conventional fiscal policy norms must take a backseat to stabilization.
economic shocks of the past two decades were not freak occurrences but rather the product of a profoundly flawed and corrupt system
