Net saving is the difference between current revenues and current expenditures. It is the fiscal balance without taking into account capital expenditures, such as investment expenditure or capital transfers. Net saving is associated with the “golden rule” of public finance, which advocates that, over the course of an economic cycle, current expenditures should be fully paid for by current revenues. This rule implies that public debt should only be issued to pay for investments which promote growth. Operating in accordance with this rule helps governments maintain a sustainable fiscal stance.
In 2019, 21 of 36 OECD countries recorded positive general government net savings, although the OECD average was -2.3% of GDP. Net savings worsened substantially in 2020. Among the 26 OECD countries for which data are available, 24 had negative net savings in 2020, and all had lower net savings than in 2019. This sharp fall was due to high levels of current expenditure and falling tax revenues caused by the COVID-19 crisis. Among countries with data available, the United Kingdom (-10.4% of GDP) and Spain (-10.1% of GDP) had the lowest net savings rates in 2020. Only Denmark (1% of GDP) and Norway (0.1% of GDP) recorded positive net savings. These were the two countries with the highest net savings in 2019, and both were able to maintain positive net savings in 2020 while still providing sizeable fiscal policy responses to COVID-19 (Figure 2.3). Denmark entered the crisis on a strong economic footing. Norway maintains a fiscal rule under which revenues from offshore petroleum production (i.e. withdrawals from the Norwegian Wealth Fund) can only cover the non-oil budget deficit up to a ceiling. COVID-19 has been a major shock to public finances, and, as with fiscal balances, it is appropriate to maintain negative net savings in order to fund the crisis response. However, maintaining the golden rule over the course of the economic cycle implies future net savings will be needed to offset the resulting net dissaving.
The difference between government net savings and government net lending/borrowing (i.e. the fiscal balance) indicates the size of general government capital expenditures. These may be either government investment expenditures or outflows caused by capital transfers, e.g. to publicly owned enterprises or financial institutions. In 2019, average national savings in OECD countries were -2.3% of GDP, while the average budget deficit was -3.2% of GDP. This implies average government capital expenditures across the OECD were 0.9% of GDP. In 2020, 23 out of 26 countries for which data are available are estimated to have increased national investment (Figure 2.4). This is not necessarily a reaction to COVID-19. Some of the increase may reflect extra investment in infrastructure in critical areas, such as health or IT, or spending to stimulate the economy. However, it is likely that some of the apparent increase is due to public investment levels being held constant in 2020 while GDP fell (for instance if governments were partway through multi-year investment projects, such as major infrastructure projects), or because investment simply fell more slowly than GDP.
