Public Expenditure & Budget Management

Until the 19th century public expenditure was constrained by laissez-faire philosophies, and at the century's end average public spending stood at around 10 percent of GDP. The United States spent only 7 percent, while the United Kingdom, Germany and the Netherlands did not exceed 10 percent; Australia, Italy, Switzerland and France exceeded 12 percent, then regarded as significant state involvement in the economy. This baseline marks the starting point from which modern budget management grew.

Keynes contended that the role of public expenditure was decisive in determining levels of income and distribution within an economy. The argument established public spending as an instrument of fiscal policy for stabilising the macroeconomic business cycle, rather than merely a residual cost of government.

The First World War caused a global rise in the share of public expenditure in GDP, with the United Kingdom, Germany, Italy and France exceeding 25 percent. Anticipation of the war had already accelerated spending growth in Austria, France, the United Kingdom and Germany from an average of about 12 percent. Wartime finance permanently enlarged the scale of budgets governments had to plan and account for.

From the start of the First World War until 1960 the average share of public expenditure in GDP rose slowly from 22 to 28 percent, driven largely by military spending growth caused by the Second World War. Spain, Switzerland and Japan remained below 20 percent of GDP. The post-war settlement embedded a permanently larger state budget.

The Swedish economist Erik Lindahl set out a theory of public expenditure in 1919. It provided an early analytical basis for deciding how collective spending should be determined and financed.

During the interwar period average public expenditure shares continued to rise, with the United States increasing spending under the New Deal and other governments spending to create employment. The increase accelerated in the second half of the 1930s as European states anticipated another war. By 1937 the average public expenditure share stood between 22 and 23 percent, roughly twice the pre-1914 level.

Average public expenditure as a share of GDP rose rapidly between 1960 and 1980, from around 28 to 43 percent. By 1980 no industrial country had a share below 30 percent, and Belgium, Sweden and the Netherlands exceeded 50 percent. This was the decisive expansion in the scale of budgets that modern expenditure management systems had to control.

In the last two decades of the twentieth century the public expenditure share kept rising but growth slowed markedly, reaching around 45 percent on average by 1996. During 1980–1996 the share actually declined in a number of countries including the United Kingdom, Belgium and the Netherlands. The reversal reflected growing scepticism about government intervention in the economy.

Since the late 1980s the average public expenditure to GDP ratio has continued to increase slowly across industrialised economies. Only New Zealand, Ireland and Norway achieved significant reductions, attributed in part to growing scepticism about governmental intervention in the economy.

According to the World Health Organisation, health spending in low-income countries rose by 7.8 percent annually between 2000 and 2017 while their economies grew by 6.4 percent. Over the same period the high-income countries' share of global health spending fell from 87 to 81 percent. The shift marked a broadening of public health budgeting capacity beyond the richest states.

Following the presidential Campaign to Cut Waste, the OMB directed the heads of federal departments and agencies to avoid wasteful spending. The memorandum identified practical steps and set specific reduction targets for travel, conference attendance, real property and fleet management, an example of executive-led expenditure control within budget execution.