6 - The ‘Optimal’ Size of Government

Summary

How ‘big’ should government be? How much lower can public spending be, if countries still want to be amongst the better or even best performers? A pragmatic ‘optimum’ for the size of government, something that is realistic and reachable, is normally not more than 30–35% or perhaps 40% of GDP. This is the spending ratio of top-scoring countries, such as Switzerland and Australia, and they do well on their core tasks. Ireland and Singapore do so with even lower spending. This implies a lot of room for expenditure savings in many countries, given a total average of almost 44% and highest spending above 56% of GDP. ‘Big spenders’ with a poor performance and an uneven income distribution can gain in particular from cutting the size of the state. There is also a group of countries, with high spending and good performance, such as the Nordic countries. For these, the picture for the optimal size of government is nuanced. Experience nonetheless shows that comprehensive reform can make a big difference to performance and efficiency everywhere.