Issue Tax cuts and inflexible spending are said to threaten fiscal sustainability

Summary

The government warns that fiscal policy has fallen into a vicious cycle that lowers fiscal sustainability. Discretionary spending is described as low in productivity and results, while excessive tax cuts have badly damaged the revenue base. Most spending growth goes to mandatory items, leaving little room for an active fiscal role. Rigid fiscal procedures and a performance evaluation of public institutions focused on financial results further limit what public spending achieves. The government also expects population ageing to add to fiscal pressures, making the balance between strategic investment and sustainability a central policy question.