The perverse effects of budgetary savings

When three members of the Federal Council appear together in front of the media, it is because the issue is sensitive. In fact: on September 20, 2024, the big money manager Karin Keller-Sutter and two of her colleagues presented an ambitious budget savings plan. To curb the expected deficits and consolidate federal finances, spending should be reduced by 3.5 to 4.3 billion from 2027. The cut catalog includes 60 measures in various areas, for example: 900 million less for nurseries, 400 for property renovations, 300 for contributions to the AVS and 200 for railway infrastructure.

Although the Confederation’s debt is relatively modest in international comparison, this consolidation plan goes in the same direction as that of many European countries. Whether center left or center right, governments in these countries all consider austerity to be the appropriate policy to guarantee prosperity and social stability. From an economic point of view, the case seems clear: limiting public spending frees up resources for investments and increases productivity, which then promotes growth.

Moreover, what the State saves today, it will recover later through debt interest relief. But what are the (unintended) political consequences of an austerity policy and a reduction in state benefits? The financial crisis of 2007-2008 and the public debt that followed in many countries led political science to take a closer interest in this question. Our colleagues Evelyne Hübscher, Thomas Sattler and Markus Wagner have, for example, examined the effects of austerity measures on electoral participation, voting for extreme parties and polarization.

This study, which covers 166 elections in sixteen OECD countries since 1980, shows that a course of austerity is accompanied by a decline in electoral participation and primarily benefits small radical parties on the left and right. The latter attract disappointed voters, while the ruling parties suffer – often greatly. Latest example: the electoral successes of the National Rally and La France insoumise after the contested pension reform and other unpopular measures taken under the Macron presidency.

Austerity policies also exacerbate political divisions. When states spend less money, it leads to greater polarization and greater instability of democracies. Other studies show that the mortality rate in general and suicide in particular is higher in times of budgetary savings. The population is also more stressed and public services are deteriorating. Finally, the reality of the figures also contradicts economics textbooks: an austerity policy does not necessarily lead to a reduction in the debt rate. In times of economic slowdown, austerity measures may even lead to a further increase in debt. For what? Because, as the IMF found in its April 2023 “World Economic Outlook,” spending cuts cause economic performance to fall.

The message is clear: when the state cuts benefits, polarization and redistributive conflicts increase, and it becomes increasingly difficult for a government to credibly and coherently defend its policies. This ultimately promotes blockages and political instability. Paradoxically, rather than limiting public spending and containing deficits, budgetary savings measures produce the opposite effect. In view of these results, we would like to recommend that Finance Minister Karin Keller-Sutter follow her own advice, not only in her private life, but also in her work in the service of the State: “Privately, I I’m rather generous. Of course, no waste, that wouldn’t fit the way I was raised. But you also have to have fun.”

“The Tribune of Opinions”

With the Tribune of Opinions, find analyzes, editorials, readers’ letters, expert opinions… So much insight to form your own opinion every Monday.

Other newsletters

Log in

Did you find an error? Please report it to us.

3 comments