As governments respond to the health, economic and social threats of the COVID-19 pandemic, it is clear that the crisis will have a lasting impact on all our lives. It is also clear that, in many countries, responding to the pandemic has forced governments to quicken the pace of their own transformation.
Countries around the world are viewing this as a moment to reimagine the future of government.
EY has identified four strategic priorities for governments as they seek to reimagine their future:
Here, we look at the task of repairing public finances.
The response of governments to COVID-19 has come at a spectacular cost. First, the direct cost of providing health and social-care services. Second, the sheer scale of the economic support packages for businesses and individuals during lockdown. And third, the steep decline in revenues caused by the resulting economic contraction. All of this means that governments around the world are spending more and taking in less.
In many countries, public debt was already high because of the 2008–09 global financial crisis. Since then, some governments have worked to shore up their balance sheets by adopting fiscal austerity programs to try to reduce their debts. But it’s been a difficult task: aging populations require higher spending on public services, years of slow and uneven economic growth has depressed income tax receipts, and the shift to a digital world has weakened governments ability to tax economic activity.
The unprecedented levels of fiscal support provided to address the pandemic have now pushed global public debt up to record levels, in some countries above 100% of GDP, according to the IMF.