The composition of government expenditures by transaction gives an indication of policy priorities, such as the type of service delivery model (e.g. a focus on direct provision or on outsourcing) and the size of financial commitments resulting from public debt.
In 2016, government employee compensation was the highest expenditure category for SEA countries, at 30.7% of total government expenditures on average, compared to an OECD average of 23.2%. Lao PDR (33.8%), Indonesia and Thailand (both 30.9%) spent the most on employee compensation; Myanmar (17.4%) spent the least. In the same year, the share of expenditures on intermediate consumption (purchase of goods and services) was also higher in SEA countries (24.6%) than in the OECD (13.9%).
SEA countries also spent significantly more on investment (16.6%) than OECD countries (7.6%). A large part of investment spending in the SEA goes on infrastructure, boosting spending on airports, high-speed rail and so on to improve connectivity and increase economic growth.
The trend is reversed for social benefits. In 2016, SEA countries spent only 7.4% on average; in the OECD this accounts for the highest transaction, at 41.4% on average. Thailand has the highest expenditure on social benefits in the SEA, but at 11.9% of total expenditures is still far below the OECD average. There is also a wide disparity between ASEAN countries and the four OECD countries in the region in share of total expenditure on social benefits. Australia (28.6%), Korea (28.8%) and New Zealand (36.1%) all spend slightly below the OECD average, while half of Japan’s government expenditure (54.4%) goes on social benefits.
Social spending in ASEAN countries could be low for a variety of reasons. Countries such as Malaysia, Singapore and Thailand rely on compulsory savings; in Indonesia, the Philippines and Viet Nam, the system is organised around social insurance principles. This means that access to social insurance benefits is not universal and does not depend on proven need, but on contributions previously paid into an earmarked fund (Asher and Zen, 2015). Many SEA countries also see high levels of informal employment and highly unequal gender division of labour.
In 2008-16 there were large fluctuations in some expenditure categories. SEA countries saw a 5.4 p.p. increase in spending on intermediate consumption (the procurement of goods and services from the private or non-profit sectors) and a 5.5 p.p. average increase in spending on grants and other expenses. Meanwhile, subsidies declined by 11 p.p. and social benefit spending by 3.2 p.p. on average.
Breaking down expenditures by transaction as a share of GDP provides another angle to understand the relative importance of spending categories. For SEA countries with available information, public expenditures in GDP terms are on average lower as compared to the OECD countries. SEA countries vary: Myanmar spends less on average on employee compensation than other countries in the region, but significantly more on intermediate consumption. Cambodia, Lao PDR and Myanmar also spend around twice as much on investment as a share of GDP as other countries in the region.
