OECD Stat of the week

Net saving and net lending/net borrowing of general government

Net lending/net borrowing of government represents the well-known concept of government surplus (net lending) or deficit (net borrowing). It is the difference between total revenues (such as taxes and social contributions) and total expenditures of government, including capital expenditures. Whereas government saving is the difference between total current revenues and total current expenditures and does not take into account public investments and paid (minus received) capital transfers.  Net saving represents saving after deduction of depreciation. Government saving is associated with the “Golden Rule”, namely that government saving should be zero over the course of an economic cycle. In other words, over the economic cycle, the government should borrow money only to fund investments (and capital transfers) that will benefit future generations, and current expenditures should be covered by current revenues. The European Commission uses the concept of net lending/net borrowing to assess general government finances, other countries are more in favour of using saving.

It’s interesting to compare the two indicators, net lending/ borrowing and net saving. There are some remarkable differences across countries. For Greece, Portugal and Czech Republic, in 2011, net saving is actually more negative than net borrowing. This indicates very low public investments and/or substantial capital transfers received. For Hungary the two indicators are opposite sign in 2011, net saving is negative indicating current expenditures exceed current revenues whereas net lending is positive due to the reversal of Hungary’s policy to build up funded pension schemes outside government.

The results for the other OECD countries are as expected, net saving being less negative or more positive than net lending. The difference between the two indicators is relatively high for Ireland, Slovenia, Mexico, and Spain; and relatively low for Slovakia, Estonia, Italy and Finland.

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