Mandatory spending in budgeting in selected OECD countries

1. Mandatory spending in selected OECD Member countries

This section provides a synthesis of the governance policies and practices across five dimensions based on the case study information in eight OECD Member countries as shown in the annex of this report. The five dimensions consider technical aspects of how mandatory spending is defined, the legislative framework and budget rules, the way mandatory spending is included in the budget process, the methods and tools available to review and report mandatory spending in the budget, and the relevant accountability and oversight arrangements. These dimensions were identified in the context of the project work with the Korea Institute of Public Finance and are relevant to restoring public finances to settings that are sustainable over the medium and long term.

1.1. Defining mandatory spending

Within the eight OECD Member countries in this report, two countries define mandatory spending as an overarching term in legislation (Table 1). These are Korea, where mandatory spending refers to the sum of legal expenditure and interest expenditure, and the United States, where mandatory spending is defined as all spending that is not subject to annual appropriations. The Korean definition of mandatory spending is defined under both its National Finance Act and its National Fiscal Management Plan, and in the United States mandatory spending is covered by authorising legislation rather than budget appropriation legislation.

Table 1. Definitions of mandatory spending in the case study countries

Country	Context	Annexed Case Study	Overarching legal definition
France	Budget classifications do not refer to mandatory spending, but estimated allocations refer to costs that cannot be precisely determined, such as interest expense, and much the Social Security Budget provides for social guarantees.	1	No
Germany	No overarching definition of mandatory spending. The budget refers to social security legislation, but not the broader use of mandatory spending.	2	No
Ireland	Refers to spending that does not require annual approval by the Irish Parliament.	3	No
Japan	No overarching definition of mandatory spending, but many spending programmes are established through statutory provisions.	4	No
Korea	The term is defined in legislation as the sum of legal expenditure and interest expenditure.	5	Yes
Netherlands	No overarching definition of mandatory spending, although the budget systematically highlights proportion of budget expenditure that is obligatory.	6	No
United Kingdom	Annually Managed Expenditure is not defined as a standalone concept in legislation, however it is a budgetary category.	7	No
United States	Mandatory spending refers to all spending that is not subject to annual appropriations.	8	Yes

In the six other countries, while a single definition is not in legislation, the concept appears well understood. The countries recognise, either in budget documentation or in documentation used to review expenditure, that certain components of government expenditure will continue from one budget to the next on the basis of pre-existing legislation. The extent may vary for instance, in the United Kingdom the Treasury distinguishes between expenditure that can be determined via the annual budget cycle, and expenditure that is less predictable and harder to control. Similarly, France does not use the term ‘mandatory,’ but does refer to budget allocations where the precise amount of expenditure is unpredictable and therefore difficult to determine, while the Netherlands explicitly highlights the proportion of expenditure that is legally required in each of its budget items.

Several countries within this report make distinctions between social expenditure, such as pension and welfare spending, and other expenditure in the budget. This is the case when the expenditure is funded, or partially funded via mandatory contributions, rather than general taxation. While in most cases, budgets do not explicitly state that such expenditure is mandatory, this is almost always the case, as it is an expense that is specified in legislation separate from the budget. Perhaps the most explicit example of such a distinction is in France, where since 1996, two budgets are submitted to Parliament, one which considers social security and another which considers all other expenditure. The former notes that social security is an obligation and is, on the whole, funded by mandatory contributions. While the Netherlands does not have two distinct budgets, it notes that for three ministries (Defence, Public Health, and Welfare and Sports, Social Affairs and Employment) expenditure is allocated between general expenditure, and mandatory contributions, (or ‘premiums,’ the term used in the Dutch budget documentation).

The transfer of funding from a national or federal budget to subnational governments can also be a form of mandatory spending in that it is prescribed by legislation and implemented through the budget process. For example in Korea, mandatory spending includes transfers, such as local education finance grants. In the United Kingdom, Annual Managed Expenditure (AME) includes, amongst other things, grants to local authorities when central government extends relief on business rates that would otherwise reduce income to local authorities. In the United States, some transfers to state governments have mandatory features, such as Medicaid, where the federal government provides funds to states. In the Netherlands, central government transfers to subnational governments are structured through a legal framework that defines the formulas for the allocations. The formula includes factors, such as population, fiscal capacity, and demographic variables.

The interest expense from public debt is considered mandatory spending as governments have contractual obligations to pay for the cost of public debt. Box 1 considers how information on public debt is included in budget processes and reports.

Box 1. Government debt and mandatory spending

The case study countries in this report maintain a range of practices when reporting the cost and stock of government debt in their respective budgets. Examples include:

• France: The Ministry of Economy and Finance prepares a report that analyses the debt sustainability of the general government and its sub-sectors, including social security, and provides scenarios from potential changes to interest and inflation rates.

• Ireland: The Department of Finance prepares an annual report on public debt, which includes an analysis of Ireland’s credit rating, debt maturity profile, and interest burden, as well as an overview of long-term issues such as age-related and climate-related costs.

• United States: The budget refers to the interest expense the federal government must pay on debt in its budget. It divides spending into three broad categories – mandatory spending, discretionary spending, and net interest, which it defines as government interest payments on debt offset by interest income the government receives.

Finally, the impact from differences in the definition of mandatory spending across the case study countries means the coverage of spending in each country differs, and as such it is not practical to compare the rate or level of mandatory spending in one country relative to another. Regardless of terminology, there is a broad agreement that certain types of spending – most notably those tied to legal obligations and funded through dedicated contributions – are distinct from discretionary allocations.

1.2. Governance arrangements for mandatory spending

1.2.1. Legal bases for mandatory spending

The legal bases for mandatory spending fall within two broad categories, legislation that requires mandatory spending to be treated in a certain manner in the budget, and legislation separate from the budget that mandates expenditure on certain programmes. The eight countries in this report all have legislation that falls under the second category.

In countries with formal definitions of mandatory spending, the legislation specifies how the spending should be treated. This is most evident in the United States, where mandatory spending receives ‘authorising legislation,’ allowing departments and agencies to spend money on the programme in question without further approval from Congress. A similar concept of prior authorisation can be seen in Ireland Korea, even though mandatory spending is not defined in legislation for these countries. In Ireland, the Social Insurance Fund (SIF) and the National Training Fund (NTF) have independent legal bases and do not need to be voted on by parliament. In Korea, the National Finance Act states that mandatory spending is exempt from requiring approval by the National Assembly.

All eight countries have legislation obligating certain social programmes, for example in Germany, most social legislation is regulated by the Social Code, which sets the requirements for financing and disbursing social security funds. While the Social Code is not a budget law, it is frequently referred to in German federal budget documentation, particularly in cases where it mandates federal expenditures, such as subsidies to the pension system. In the Netherlands, a comparable law exists known as the Social Insurance Financing Act, which states that while most social programmes are funded by mandatory contributions (or ‘premiums’), the Minister may determine any further amounts to be paid as a government contribution. In the other countries, social security legislation is not necessarily accounted for under a single Code or Act, but rather comes into being via a variety of legislative acts. The legislation tends to set out not only contribution levels, but also the administrative requirements around disbursement and regulation.

Within many of these eight countries, there are legal distinctions between general accounts and special accounts. While definitions vary slightly from country to country, special accounts refers to an account that is legally distinct from general government funds and established for a specific project. Japan makes extensive use of special accounts for a variety of purposes, including for mandatory and non-mandatory spending. For example, a special account provides the financial basis for the Fiscal Investment and Loan Programme, which has both mandatory elements, such as automatic stabilisers during downturns, and discretionary elements, such as large-scale investment projects.

1.2.2. Expenditure rules and mandatory spending

Even where mandatory spending is not explicitly classified as mandatory, the expenditure still falls within the scope of fiscal rules, which helps to maintain control over budget aggregates. Table 2 shows that fiscal rules are commonplace across the eight case study countries. Legal requirements are the most common, particularly for debt and expenditure rules.

Table 2. Overview of fiscal rules in case study countries

Country		Budget balance	Public Debt	Expenditure	Revenue
France		⦿❏	●	⦿	⦿❏
Germany		●⦿	●⦿	⦿	⦿
Ireland		⦿	⦿	⦿❏	❏
Japan		⦿❏	⦿	❏
Korea		❏	❏
Netherlands		⦿	⦿	⦿	⦿
United Kingdom		❏	❏	❏
United States			⦿	⦿	⦿
Key
●	Constitution
⦿	Law
❍	Regulation/Rule
❏	Strategic policy document/ political commitment

Source: 2023 OECD SBO Survey of Budget Frameworks.

Expenditure rules often take the form of expenditure ceilings. In some cases, these ceilings include sub-ceilings for discretionary and mandatory spending. The sub-ceilings for mandatory spending generally tend to be less strict than those for discretionary spending. This is the case in France, where in 2018, the legislation on expenditure was expanded to include a new rule for expenditure that cannot be strictly limited, but which should still be tracked. In 2023, the law was modified to introduce savings targets for social security and health administrations.

In other countries, namely Ireland, the Netherlands, and the United States, expenditure rules do not distinguish between mandatory and discretionary spending. In Ireland, expenditure within the SIF and the NTF are considered within the government’s expenditure ceiling. In the Netherlands, expenditure ceilings are created when a coalition agreement is formed post-elections (normally every four years). In Ireland and the Netherlands, the ceilings exclude such things as expenses related to inflation, or automatic stabilisers, consistent with the EU Economic Governance Framework, but otherwise include government expenditure, legally obligatory or not (Box 2).

The United States also sets limits on mandatory spending, for example, the Pay-As-You-Go legislation states that any new legislation that changes the mandatory spending rules must not increase projected deficits over 5- and 10-year periods. If the proposed changes increase the projected deficit, the increases must be offset with across-the-board spending cuts known as sequestrations.

The United States is not the only OECD Member country with legislation that specifies a correction mechanism in the event mandatory spending exceeds certain thresholds. For example, in Sweden, a ratio is calculated every year to determine the balance between pension assets and liabilities. If this ratio falls below 1, a balancing mechanism is triggered, automatically adjusting the indexation of pension entitlements.

Box 2. Fiscal Rules and the European Union

The European Semester is an annual process designed to co-ordinate the economic and social policies of the 27 EU Member States and align the policies with EU objectives and rules. During the process, EU Member States prepare their respective economic and budgetary plans and agree key priorities in an effort to align national policies with the parameters within the EU Economic Governance Framework.

The EU Economic Governance Framework, which has its origins in the 1992 Maastricht Treaty, as codified in the 1997 Stability and Growth Pact and its revisions, is based on country-specific debt sustainability analyses and uses a benchmark rule of net expenditure as a fiscal policy target for each EU Member State. The benchmark rule is to ensure that:

“assuming that there are no further budgetary measures, the projected general government debt ratio is put or remains on a plausibly downward path, or stays at prudent levels below 60% of GDP over the medium-term” (Regulation (EU) 2024/1263). 

EU Member States prepare medium-term Draft Budgetary Plans that outline net public expenditure, commitments and public investments. The expenditure benchmark rule sets a maximum annual growth rate for nationally financed net expenditure. Net expenditure is defined as general government expenditure excluding interest expense, one-off expenditure, EU-funded spending, national spending on EU co-funded programmes, and temporary spending on unemployment benefits related to the economic cycle. It adjusts for the net impact of tax measures and includes adjustments for the lumpsum nature of capital expenditure.

The calculation of net expenditure excludes some aspects of mandatory spending, e.g. interest expense, but includes other aspects, such as social security benefits. The exclusion for unemployment benefits related to the economic cycle is to allow self-adjusting costs within a budget to stabilise the economy without requiring any new policy actions.

In March 2025, the European commission presented it’s ‘ReArm’ Europe Plan, which proposes to identify around EUR 800 billion in defence spending over the next four years. One way the Plan is to achieve this is to allow EU Member States to activate their escape clauses from within the Stability and Growth Pact. This means that expenditure related to defence would not be included within the expenditure benchmarks of the fiscal rules, allowing countries flexibility for defence spending within their national budgets. This enlarges the scope for larger budgets without triggering deficit rules.

Expenditure ceilings can also be divided into sub-ceilings, such as personnel costs, within government (see Table 3 and Box 3).

Table 3. Specification of top-down expenditure ceilings

	France	Germany	Ireland	Japan	Korea	Netherlands	United Kingdom	United States
Staff/personnel costs	Yes	No	Yes	Yes	Yes	Yes	Yes	Yes
Other current expenditure	No	No	Yes	No	Yes	Yes	Yes	No
Interest expense	No	No	No	No	No	No	No	No
Subsidies, including benefits	No	No	Yes	No	No	Yes	No	No
Capital spending	No	No	Yes	No	No	No	Yes	No
No sub-ceilings in place	No	No	No	No	No	No	No	No

Note: In Japan, ceilings are also set for social security and allocation tax grants. In the Unites States, sub-ceilings vary significantly depending on the programme and specific appropriations, although subceilings for staff and personnel costs are almost always present.

Source: 2023 OECD SBO Survey of Budget Frameworks.

Box 3. Public sector salaries

Public sector salaries are not considered mandatory spending, but they have similar characteristics to mandatory spending in that they are often subject to obligations on the amount they are adjusted from one year to the next. Public sector salaries are adjusted through periodic and multi-annual pay agreements set via negotiations between employers, employees and social partners, including trade unions.

In Ireland, funding for salary adjustments is provided for in the annual budget process, and the cost is approved in the same way as other voted expenditure in the budget. In the United Kingdom, the HM Treasury sets an upper limit on how much can be spent on salaries and the limit informs wage negotiations. Similarly, in France, public sector salary adjustments are based on an index which is established in legislation. Japan, Korea, the Netherlands and the United States all also use upper limits within their respective budget frameworks.

In several of these countries, public sector salaries are determined through job classifications. For example, in France, Germany and the United States, public sector salaries are set by pay grade and level, and changes to salaries resulting from collective bargaining occur within these frameworks. This approach means that salaries are structured and more standardised, which is designed to improve the comparability of the data collected, contribute to better planning of personnel/payroll expenditure and improve the predictability of budget management.

Government spending that is authorised outside of budget legislation can be difficult to change to increase or decrease the spending. This can include public sector remuneration, particularly where the spending is subject to multi-year contractual obligations. Such spending is rigid in nature as it cannot be adjusted easily and, in this regard, displays characteristics that are similar to mandatory spending.

In Japan, the expenditure from special accounts can also be described as rigid rather than mandatory, as even the non-mandatory spending in a special account can be difficult to change through the budget process. Similar examples exist in Germany and Korea, where special accounts are established by legislation, and once established can operate independently of the government’s core revenue and expenditure budget. In Germany, the Federal Court of Audit has cautioned against creating an excessive reliance on the use of special accounts, as could the rigid nature of the spending from special accounts could risk undermining fiscal sustainability within the framework of parliamentary budget law.

The scope of this report does not consider rigid spending in detail, but such spending can impact budget flexibility and fiscal sustainability and warrants further investigation across the five dimensions covered in this report.

1.3. Mandatory spending and the budget process

The extent to which government ministries have responsibilities for mandatory spending during the budget planning formulation process depends on how mandatory spending is included in the budget process. As an example, in the United States, the budget resolution excludes the income and expenditure of Social Security Trust Funds from which funding for social security is disbursed. However, the administrative cost of the disbursement is included in the federal budget.

In other countries, ministries of finance and line ministries have separate roles in the budget process. In France, the Ministry of Economy and Finance is responsible for preparing the general budget and the Ministry for Social Security is responsible for preparing the draft laws on financing of social security. Even with this distinction, the French Minister of Finance is responsible for the overall balance of social accounts. In Japan, the Ministry of Finance is responsible for the budget process and line ministries prepare the budgets for the Special Accounts that they administer, for example, the Ministry of Health, Labour and Welfare administers the Government Pension Fund, which is outside the government’s budget process.

Multi-year macro-fiscal forecasts play a key role in budget planning and formulation of mandatory spending. The forecasts help to inform analyses on long-term fiscal sustainability and the limits or ceilings on expenditure. For example, in the Netherlands, the Central Planning Bureau is responsible for preparing economic analyses and forecasts on the expenditure ceiling. The ceiling includes the sub-ceilings for social security and health expenditure, and are an integral part of the budget process. In a similar manner, the French Budget Directorate, within the Ministry of Economy and Finance, prepares three-year forecasts within each budget on likely social security revenue and expenditure, based on macroeconomic predictions.

For several of the case study countries, mandatory spending is administered by operating agencies that are separated from government ministries. In Germany, for example the Federal Employment Agency operates under the guidance of its own administrative board that sets strategic objectives for the agency. The federal government provides funding for the agency’s operations and supplements certain social security payments. Consequently, it retains significant authority over the agency’s budgetary decisions. In the Netherlands, the agencies responsible for social security schemes must send their budgets to their responsible Ministers. The documents are to include explanations of any new items and/or variations. In other cases, such as the United Kingdom Department for Work and Pensions, mandatory spending is directly administered by the department.

The OECD also found that across the eight countries, budget circulars play an important role in setting expectations for budget formulation and helping to operationalise the responsibilities held by ministries and agencies in the budget process, although the extent to which the circulars discuss mandatory spending varies. In France, budget circulars do not systematically refer to mandatory spending, but the 2024 budget circular clarified that while many appropriations would be affected by to delays in the legislative process, programmes with inflexible expenditure components (known as evaluative credits) would remain unaffected. In Ireland, the guidance emphasises the requirements for financial accounts in relation to all voted expenditure, and Japan’s guidelines state that mandatory spending should be reviewed as part of the budget process. In the United Kingdom, the HM Treasury provides guidance for DEL to explain the budget process and the ways in which ministries can request additional funding, while the Central Government Guidance on Appraisal and Evaluation (Green Book) and the Guidance for Evaluation (Magenta Book) set government standards on evaluation. The United States has the most comprehensive overview of mandatory spending in its budget circular, in that the document provides detailed guidance on legal limitations, recording methods, and instructions on how to estimate the requisite budgetary resources for mandatory spending.

1.4. Methodologies and tools to review mandatory spending

The methodologies and tools that countries use to review mandatory spending provide ways to highlight the budgetary impact of government policies and the actions that may be needed to restore public finances for medium and long-term fiscal sustainability.

1.4.1. Ex ante appraisal of new spending

In most of the case study countries, laws that introduce mandatory spending must undergo the same ex-ante analysis that applies to any other new bill. However, publicly documented examples of where mandatory spending laws undergo fiscal analysis are rare.

In France, most legislative bills must be accompanied by an impact assessment. These must describe the current situation, justify the need for legislation, and analyse the economic and financial impacts. They often also consider non-legislative alternatives. When legislation on mandatory expenditure is first introduced to parliament, an impact evaluation is required (Légifrance, 2023[1]).

However, ex-ante analysis of prospective legislation does not necessarily consider fiscal impact. For example, the Netherlands uses a framework known as the Policy Compass, which policymakers refer to when developing a new policy or revising an existing policy. The Policy Compass requires an assessment of regulatory, social, environmental and immediate economic impacts, but does not specify requirements for fiscal analysis (Rijksoverheid, 2025[2]).

In some cases, the legislation that introduces mandatory spending includes requirements to review the spending. For example, Ireland’s 2005 Social Welfare Consolidation Act, which codifies several elements of the social welfare system requires that actuarial reviews of the financial condition of the SIF are carried out at least every five years. These should determine the extent to which the Fund can be expected to continue meeting its demands. The results must be presented before parliament. In 2004, the Japanese government passed a major pension reform, which included raising the share of state subsidy for the basic pension. It also mandated that at least every five years, a financial verification is conducted to examine the current status and forecast the finances of the national pension system (Ministry of Health, Labour and Welfare, 2024[3]).

One example where requirements exist specifically for mandatory spending is in the United States. Here, legislation introducing both discretionary and mandatory expenditure is subject to a cost estimate by the Congressional Budget Office. Furthermore, the 2010 Pay-As-You-Go Act requires that all new legislation changing taxes, fees or mandatory expenditures must not increase projected deficits. As such, any bills increasing mandatory expenditures must be fully offset by revenue increases or cuts in mandatory programmes. This creates a de facto requirement for analysis of the fiscal impact of mandatory expenditure (OMB, 2010[4])

1.4.2. Spending reviews of existing spending

Spending reviews are a key budgetary tool for countries to analyse existing expenditure within baselines in order to support the fiscal sustainability of public finances. While there is no one-size-fits-all methodology for spending reviews, they are generally most effective when they have a clear, realistic scope, are aligned with the budget process, maintain a medium-term perspective, and respond to the policy priorities of the government (OECD, 2022[5]). The extent to which spending reviews within the eight OECD Member countries consider mandatory spending varies, ranging from occasional to systematic (Table 4).

Table 4. Overview of reporting and reviewing practices in budgeting

	Reporting on mandatory spending			Spending reviews include mandatory spending
	Within budget process	Outside the budget process	Includes a financial overview
France	Yes	Yes	Yes	Yes
Germany	No*	Yes	No**	Yes
Ireland	No	Yes	Yes	Yes
Japan	Yes	Yes	Yes	Yes
Korea	No	Yes	No	No
The Netherlands	Yes	Yes	Yes	Yes
United Kingdom	Yes	Yes	Yes	Yes
United States	Yes	Yes	Yes	Yes

Notes: *In Germany, expenditure that would typically be considered mandatory is included in the federal budget but is not identified separately. **In Germany, financial data on legally mandated spending is included in Germany’s federal budget, does not include a financial overview of mandatory spending.

Source: Authors.

Methodologies for spending reviews often include criteria to determine which topics to review, and frequently include mandatory spending. For example, in France, the law that established expenditure ceilings also established spending reviews. The methodology considers that a spending review should question the relevance, effectiveness, efficiency, equity and clarity of a public programme, and should be accompanied by the development of an institutional and governance framework to structure the process. It also noted that spending reviews should consider the ‘evolutionary dynamics’ of policy, which is central to the expenditure trends of mandatory spending programmes. The spending review process in France links reviews to the budget process. While these reviews do not focus exclusively on mandatory spending, they include all spending areas of government, thus including social expenditure. This practice of linking spending reviews with budgets and expenditure ceilings is shared with other countries, including the Netherlands and the United Kingdom, where decisions on spending reviews are anchored to budget negotiations.

In Ireland, the spending review methodology assesses the rationale, efficiency, effectiveness, impact and relevance of expenditure, and highlights key sectors to cover as health, education, justice, and social welfare. In Ireland, the Irish Economic Evaluation Service (IGEES) prepares between 20 and 40 reports each year to review spending. While much of this work relates to voted expenditure, the process has also produced spending reviews on improving the management of non-voted expenditure.

Spending reviews can improve programme efficiency and reduce administrative costs. However, they face limitations in making changes to mandatory spending, as legislative amendments are also required. Such amendments have occurred in OECD Member countries, and spending reviews, along with policy evaluations, are often an important step that can provide the basis for legislative change and improving fiscal sustainability. The following examples highlight legislated changes to pensions within the eight countries:

• France: The 2023 pension reform increases the retirement age from 62 to 64 by 2030, as well as the size and duration of pension contributions needed for a full pension. The reform’s justification focused on the pension system’s financial deficit, where the Pensions Advisory Council predicted that deficits were likely to persist for at least the next 50 years, and be between 0.6% and 1.3% of GDP in 2025 (COR, 2022[6]).

• United Kingdom: The State Pension Age is expected to rise to 67 between 2026 and 2028. This decision occurred in the context of the 2014 Pensions Act, which requires the Secretary of State for Work and Pensions to regularly review the eligible age for the state pension (UK Government, 2023[7]).

• United States: The 1983 pension reform gradually increased the age of eligibility for retirement benefits, set to reach 67 by the year 2027. This reform also required the Secretary of the Department of Health and Human Services to conduct a comprehensive study and analysis of the implications of the changes in retirement age (Social Security, 2025[8]).

Not all pension reforms have involved increasing the retirement age. For example, in the Netherlands in 2019, the government reached an agreement to reduce the rate at which the retirement age increased, in return for trade unions agreeing to other reforms, such as a transition to a defined-contribution pension system. These reforms were partially informed by advice from the Social and Economic Council, an advisory body to the Dutch government on social and economic policy.

1.4.3. Analytical assessments of mandatory spending within the budget

Impact assessments are frequently used in budget documents is to show the likely impact of budget initiatives on policy objectives. The assessments can cover both discretionary and mandatory spending. In France, the assessments are presented in a set of six social security policy evaluation reports, which examine the impact of the measures in the budget. These reports provide an overview of the various social security schemes, including the bodies and funds within the schemes. A similar assessment is available in the Netherlands, where, as part of the budget process, all ministries review their expenditure, including mandatory spending, in an annual report, which must show how actual expenditure compares to the expenditure ceiling and any variations.

Other countries include evaluations of public spending within budget processes. In Japan this is part of its Plan-Do-Check-Act approach to budgeting, which evaluates how budget funds are spent and what results have been achieved. In the United Kingdom, the economic and fiscal outlook, produced by the Office for Budget Responsibility (OBR), provides forecasts of and an overview of the uncertainties in the next five years on the basis of the most recent budget. The outlook includes mandatory spending – recently highlighting, for example, the fiscal risks from rising welfare costs. In the United States, the Office of Management and Budget (OMB) publishes an Analytical Perspectives report alongside the budget. This report provides both analysis of economic assumptions, as well as evaluations on the effectiveness of certain programmes, and discussions on efforts to enhance government performance. The report includes trust funds, the main mechanism through which mandatory spending is funded.

The point in the budget process when countries prepare analytical reports on mandatory spending varies. In France, evaluation reports on social security policies are annexed to the budget and submitted to the National Assembly. In Japan, ministries and agencies conduct evaluations after the budget process, which the Japanese Ministry of Finance considers in preparation for the next budget. In the Netherlands, the House of Representatives holds ‘Accountability Day,’ in which annual reports are submitted to the House, alongside a report by the Court of Audit with its review of these reports. In the United States, the Analytical Perspectives Report is released after the release of the initial budget but before it has been approved in Congress.

1.4.4. Analytical assessments of mandatory spending outside the budget

Analytical reports on mandatory spending are also prepared outside of the budget process. For example, in Germany, the Federal Ministry of Labour and Social Affairs prepares the annual Social Budget, which provides a detailed analysis of the services and expenditures within the country’s social security system. Despite its name, the Social Budget is not part of the federal budget, but it remains an important tool for understanding the scope and cost of social programmes.

While Ireland’s Finance Accounts Report is a budget document and contains detailed analyses of payments into and out of the Central Fund, financial analyses of the SIF and NTF are not budget reports. These reports are prepared by the Department of Social Protection and Department of Further and Higher Education, Research, Innovation and Science respectively. In Japan, the Ministry of Finance produces a report which provides an overview of Japan’s public finances and notable trends over time (including those driven by mandatory spending such as social security). It also examines sustainability questions, including the ratio of benefits to burdens of the social security system.

In the United Kingdom, the OBR produces reports both within the budget process, such as the Economic and Fiscal Outlook, and outside of it. Since 2022 its Fiscal Risks and Sustainability Report included analyses of the short-term and long-term risks that could impact the United Kingdom’s fiscal health, including from demographic changes, health spending, and productivity changes, and provides estimates as to the extent to which they put public finances on an unsustainable path. Such sustainability reports are common practice across the eight OECD Member countries in this report (Box 4).

Box 4. Fiscal sustainability reports

Fiscal sustainability reports are important tools in assessing the fiscal challenges posed such things as ageing populations. These reports highlight the projected impacts of such changes on public finances. While all countries discussed within this report prepare fiscal sustainability reports, either as a legal requirement or as a good practice, this box highlights practices in Germany, Ireland and Japan.

Germany: Report on the Sustainability of Public Finances

In Germany, the Federal Ministry of Finance publishes a Fiscal Sustainability Report once per legislative term, looking at long-term trends of government expenditure in areas most affected by demographic changes. It examines both demographic (e.g. impact of changes to the rate of immigration) and economic parameters (e.g. impact of changes to employment and economic growth) and explores possible future scenarios. It also discusses policy options that are relevant to fiscal sustainability challenges.

Ireland: Long-term Sustainability Report

Ireland has extensive reporting on the long-term impacts of social security expenditure, including actuarial studies on pensions that in 2013 led to the introduction of a single pension scheme for public sector employees to ensure the long-term sustainability of the pensions. In 2020, the IFAC published its first long-term sustainability report. The report included perspectives on public expenditure and its main drivers, as well as breakdowns of likely changes in age-related costs and interest expenses. It offered scenarios, which highlighted that the faster the government acts to address long-term financial issues, the more manageable fiscal challenges are likely to be.

Japan: Journal of Population Problems

The National Institute of Population and Social Security Research is a research institute operating under the Ministry of Health, Labour and Welfare, providing insights into social security issues in Japan, particularly in the context of an ageing population. It publishes the Journal of Population Problems, which covers issues related to social security and population. This includes regularly updated statistical data on birth rates, death rates and migration patterns and predictions for future demographic patterns, as well as empirical research and policy evaluations of social security systems. The positioning of this institute within the government allows this research to be prepared in close contact with policymakers, and is relevant to the financial sustainability of public programmes.

1.5. Accountability and oversight

1.5.1. Mandatory spending and parliament

While parliaments regularly assess discretionary spending, their review of mandatory spending can vary. In Germany, mandatory spending is part of the German federal budget, but are not explicitly labelled as such. As a result, the Budget Committee of the German Bundestag typically discusses these expenditures only when the federal government proposes subsidies beyond the statutory contributions.

In other countries parliaments play a direct role in scrutinising and approving mandatory spending within the budget process. Since 2006 in France, parliament has voted on each budget programme, including the entire social budget and mandatory components of the general budget, such as pensions, defence expenditure, and interest obligations. This allows the parliament full view of budget developments. In Ireland, contribution-based social security programmes, including pensions, are considered alongside tax-funded programmes in the budget, meaning parliament makes no specific distinction between contributory and non-contributory programmes. A similar situation is found in Japan, where the formulation process for special accounts mirrors that of the general budget, as both require approval from the Diet. In the United Kingdom, the Treasury submits figures for both discretionary and mandatory spending for each ministry in the Supply Estimates, through which parliamentary authority enables the Treasury to release funds. In all four countries, the inclusion of mandatory spending in parliamentary processes means that, despite the mandatory nature of the spending, a high degree of legislative oversight remains in place.

Governments are obliged to keep parliament up to date on the development of mandatory spending. In the Netherlands, this takes the form of budget memorandums that are sent to parliament at various points during the budget process to keep parliament informed on developments to the budget ceiling. If the government exceeds the ceiling, it is to explain why this has occurred in a detailed letter to parliament. While the United Kingdom’s National Insurance Fund for social security expenditure is generally separate from the budget process, it is still subject to parliamentary scrutiny. In the United States, each budget resolution that the government submits to Congress must be accompanied by a report detailing changes to both mandatory and discretionary spending. Furthermore, while the budget documentation sent to Congress does not include expenditure and revenue from social security trust funds, it does include them separately to comply with the Pay-As-You-Go legislation.

Parliaments also have a significant role to play in monitoring budget execution, including for mandatory spending. In Germany, the Budget Committee and the Audit Committee have responsibilities for reviewing and monitoring budget execution. In Ireland, the Budget Oversight Committee reviews the annual Public Service Performance Report, which reviews the delivery of public services against pre-set targets. In the United Kingdom, the Public Accounts Committee scrutinises public spending after the budget process, based on audits from the National Audit Office, and examines government departments on the efficiency of their spending.

1.5.2. Mandatory spending and independent fiscal institutions

Independent fiscal institutions play an important role in the oversight of mandatory spending, in most cases by assessing compliance with fiscal rules and assessing fiscal sustainability. In Ireland, the Irish Fiscal Advisory Council assesses fiscal forecasts and the government’s compliance with fiscal rules. In Japan, a comparable organisation is the Council on Economic and Fiscal Policy evaluates the likelihood of achieving fiscal targets. In the United Kingdom, the OBR performs a similar role, assessing whether government is meeting its fiscal targets.

1.5.3. Mandatory spending and courts of audit

Courts of audit also play a critical role in the budget process, helping ensure accountability in public spending. For example, the German Court of Audit is mandated to audit the federal budget and submit an annual report to parliament. The report covers both the core budget and special funds, offering analysis and recommendations on the management and efficiency of government programmes.

Courts of audit operate independently of the executive branch of government and may examine mandatory spending. In Japan, the Court of Audit is independent of government and parliament, and conducts audits of government expenditure and revenue before the budget is submitted to the Diet. In the Netherlands, audits have included both letters to parliament highlighting increases in social expenditure, as well as analyses of the financial management of ministries with high proportions of social expenditure. In the United States, the Government Accountability Office has produced in-depth reviews on social security spending, analysing the likely public finance trajectory and proposing remedies.