Comparison of Comprehensive Balance Sheets

The IMF has derived comprehensive balance sheets for the G7 countries. This is based on long-term projections of the costs of delivering existing expectations of public services, and of government revenues based on current taxation policy. Present values of these future costs and revenues are treated as “implicit” liabilities and assets and are added to the current PSBS. This then provides a means for estimating the scale of fiscal adjustment required to meet a given financial target. There are considerable differences in demographic profile and current financial position across the G7, and this is reflected in different levels of fiscal adjustment. Depending on the basis of comparison, the UK, US and Japan emerge as the G7 countries with the greatest long-term fiscal challenges. Overall, there are implications for intergenerational fairness, and questions about whether governments with quite short terms of office are likely to be able to address these long-term challenges effectively, and about whether financial markets are able to impose effective disciplines on long-term government finances.