Big, beautiful budgets: Not just an American problem
Copyright © HT Digital Streams Limit all rights reserved. The Economist 4 Min Read 30 Jun 2025, 07:14 AM IST France, The Land Foie Gras, has not seen a surplus since 1974. (Illustration: Economist) Summary on the rich world splashes governments the cash. What can go wrong? Last year, America had a budget deficit of 7% of GDP. It could be even bigger soon. President Donald Trump’s One Big Beautiful Bill Act, who now works through the congress, is permanently expanding tax cuts introduced in 2017, offers more to hospitality workers and old people, and increases the payments to poor children. The proposed legislation is trillions of dollars of extra loans in the next decade. The Mr. Trump’s performance is attracting attention – but America is not alone. Governments across the rich world are increasingly affected (see Chart 1). This year, France will have a deficit worth 6% of GDP; Britain will be just a little smaller. The German government will borrow the equivalent of 3% of GDP. Canada’s budget balance also moves to the red. Jean-Baptiste Colbert, a bureaucrat under Louis XIV, noted that the core of tax policy “picks so many feathers from the goose with the least”. The governments of today do not pick the goose. Like producers of foie grass, they fill it. Look at the full image map: The Economist governments have long -term deficiencies. France, the country of Foie Gras, has not seen a surplus since 1974. And a government can at the same time borrow money and become less debt if the economy grows faster than debt accumulates. However, what happens today is unprecedented. Deficit levels would not be uncommon if the economy was in recession. In reality, the rich world GDP grows properly. The unemployment rate is near a low. Corporations’ profit growth is healthy. Meanwhile, the borrowing costs jumped. The average rich world government, weighed by GDP, is now borrowing ten years at an annual interest rate of 3.7%, of 1% during the Covid-19 pandemic. In these circumstances, many textbooks will at least reduce your deficit. Today’s governments prefer to double. Many people promise to increase defense spending. While it can be inevitable, this is not true for other decisions. In Japan, political parties offer fiscal sweeteners, ranging from cash distributions to cuts in consumption tax, before an election to the upper house of parliament. The British government recently removed cash -saving measures that only a few months in advance, and repaired payments to old people to help with energy accounts. South Korea reduces heritage tax. Australia reduces income tax. Even once a former countries are working on the law. The German government intends to borrow € 800 billion ($ 940 billion) to invest in defense and infrastructure. “According to German standards, it is truly” whatever it is “fiscal policy”, “says analysts at Deutsche Bank. Switzerland, who had a major budget surplus before the pandemic, now has a small one. Next year, the country sets a 13th month of state pension payments. The silver hair that enjoys a late lunch on the banks of the Rhine does not appear to be on the breadline. But nowadays everyone gets a handout. Why were governments spent so much? During the pandemic politicians, politicians have developed a habit of expanding businesses and households. High inflation then urged claims for payments to alleviate a “cost-of-living crisis”. Many incumbents hope today to ward off populists by throwing money around. If a politician suggests a cut, 24-hour news and social media ensure that everyone hears a sob. Fiscal responsibility is more toxic than ever before. Until recently, it was painless for governments to carry out a loose fiscal policy. In 2021-23, nominal GDP grew fairly quickly, inflation was high and the interest rates were low. Under these conditions, the average rich world government can be substantial primary deficits (ie before interest payments) and still reduce their debt tax. Some countries, such as Japan, can reduce their debt-to-GDP ratio, even if they have a primary deficit of 12% of GDP. As such, two-thirds of the rich world governments today are less debt than five years ago. Japan’s debt-to-GDP ratio fell by 24 percentage points. Greece fell by 68 points. Today, growth and inflation are lower, and interest rates are rising. We calculate that, for the average rich country to cut its debt, he now has to balance his primary budget. For some, fiscal arithmetic has changed radically. In 2023, Italy’s debt -reducing primary balance swung from a deficit of 3.1% of GDP to a surplus of 1.3% of GDP. The Italians shrink their budget deficit, but not by enough. With many other governments making even less progress, and a trade war promising growth in growth, the public debt of the rich world is likely to begin to increase (see Chart 2). Look at the full image map: The Economist This is bad timing. Demographers have known for decades that the middle of the 2020s would be the point on which baby treeers would start retiring in large numbers, which would raise the demand for health care and pensions. In 2015, Britain’s budget responsibility, a watchdog, suggested that even under benign conditions were now the point on which the government would struggle to pick up debt. Therefore, a demographic crunch and fiscal policy for free spending are about to communicate in unpleasant ways. No one can predict or if investors will lose patience, which will force interest rates much higher. Yet there must be a restriction on the blame. As any lover knows about Foie Gras, the over -feeding of even the most greedy goose can cause his liver to explode. 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