Austerity: The New Normal

This paper by Isabel Ortiz and Matthew Cummins - co-published by the ITUC, Initiative for Policy Dialogue, Public Services International, the Bretton Woods Project and the European Network for Debt and Developments - (i) examines historical and projected government expenditure trends for 189 countries; (ii) reviews the latest IMF country reports for countries to identify the main channels used by governments to adjust expenditures; (iii) discusses the negative social impacts of austerity measures; (iv) presents the renewed Washington Consensus advised to governments that are left with limited budgets—and the alternative UN Consensus on Development for All; and (v) calls for urgent action by governments to identify fiscal space to accelerate development, human rights, a green recovery with jobs and inclusive growth, and progress towards the Sustainable Development Goals (SDGs SDGs The Sustainable Development Goals were one of the outcomes of the Rio+20 Conference. The members States launched a new set of future international development goals, which will build upon the Millennium Development Goals and converge with the post-2015 development agenda. ).

The paper shows that, since 2010, governments have been cutting public expenditure. According to IMF fiscal projections, a new shock is to start in 2020-21, affecting 130 countries. Rather than investing in a robust recovery to bring prosperity to citizens, austerity has become the “new normal.”

As many as 69 countries will be undergoing excessive contraction, cutting expenditure below pre-crisis levels in terms of GDP, including countries with dire development and human needs such as Angola, Burundi, Congo, Djibouti, Egypt, Eritrea, Ethiopia, Iraq, Jamaica, Jordan, Nigeria or Yemen.

Analysis of IMF country reports in 161 countries in 2018-19 show that IMF policy discussions with government include:

  • Pension and social security reforms (86 countries)
  • Cutting or capping the public sector wage bill, including the number and salaries of teachers, health workers and civil servants delivering public services (80 countries)
  • Labor flexibilisation reforms (79 countries)
  • Reducing or eliminating subsidies (78 countries)
  • Rationalising and/or further targeting social assistance or safety nets (77 countries)
  • Increasing regressive consumption taxes, such as sales and value added taxes (73 countries)
  • Strengthening public-private partnerships (PPPs) (60 countries)
  • Privatising public assets/services (59 countries)
  • Healthcare reforms (33 countries)

Austerity measures have negative social impacts. Austerity will affect approximately 5.8 billion people by 2021—about 75 per cent of the global population. For billions of people, the persistence of a long jobs crisis and austerity mean a deterioration of living conditions, rising inequalities and social discontent.

After the financial sector had been bailed out in G20 G20 The Group of Twenty, or G20, is a forum for international cooperation on the most important aspects of the international economic and financial agenda. It brings together 19 countries and the European Union, which together represent around 90% of global GDP, 80% of global trade and two thirds of the world’s population. countries with nearly $10 trillion, fiscal consolidation was prescribed to cut back on public policies and the welfare state.

Further, public expenditure adjustment is being used as a trojan horse to induce Washington Consensus policies to cut back on public policies and the welfare state. Once budgets are contracting, governments must look at policies that minimize the public sector and expand PPPs and private sector delivery, often promoted and/or assisted by multilateral development banks.

The paper presents the renewed Washington Consensus advised to governments that are left with limited budgets—and the alternative UN Consensus on Development for All

Austerity and budget cuts do not need to be “the new normal.” There are alternatives, even in the poorest countries. Governments can find additional fiscal space to fund public services and development policies through at least eight options,

The report calls for urgent action by governments to identify financing options to accelerate progress towards the achievement of human rights and the Sustainable Development Goals (SDGs SDGs The Sustainable Development Goals were one of the outcomes of the Rio+20 Conference. The members States launched a new set of future international development goals, which will build upon the Millennium Development Goals and converge with the post-2015 development agenda. ).

Austerity: The New Normal