Mandatory spending in budgeting in selected OECD countries

2. Case studies

2.1. Case Study 1: France

2.1.1. Composition of budget spending

France maintains two budgets: the state budget (PLF) and the social security budget (PLFSS). Although neither budget explicitly refers to mandatory spending, the PLF includes crédits évaluatifs (“estimated allocations”), which refer to costs where the exact amount cannot be precisely determined, such as debt service, tax rebates, and state guarantees. Much of what the PLFSS reports can be considered mandatory spending, as it is related to social guarantees by the state. Table 5 presents net expenditure in 2024 for basic compulsory social schemes (ROBSS) and the old-age solidarity fund (FSV), both of which are reported through the PLFSS. Significant transfers occur between the state and social security, such as subsidies to pension schemes and compensation for contribution exemptions (Cour des Comptes, 2023[9]).

Table 5. Expenditure on compulsory social schemes and the old-age solidarity fund, 2024

	Total amount, billions	%
Age	293.7	46%
Sickness	251.9	39%
Family	55.7	9%
Autonomy	37.6	6%
FSV	19.3	3%
Occupation Accidents and Diseases (AT-MP)	15.4	2%
Total	642.0

Note: The total is lower than the sum of the disaggregated parts due to the removal of internal financial transfers.

Source: Cour des Comptes, France (2024[10]).

2.1.2. Governance and legal framework

The 2001 Organic Law for Central Government Finance Laws (LOLF) restructured the PLF, introducing the requirement for a budget allocated by missions. Several of these missions include spending that can be considered mandatory, such as the “State Financial Engagement Mission”, which is used to predominantly to record debt interest, and the mission on pensions. For social security, the 1996 Organic Law for the Financing of Social Security (LFSS) introduced the requirement that the PLFSS be approved separately from the PLF. These laws have been amended several times, including the 2005 Organic Law on Social Security Financing Laws (LOLFSS) and the 2022 Draft Law for the Approval of Social Security Accounts (PLACSS), both of which moved to better align and co-ordinate the PLF and PLFSS. However, some differences remain: most notably, while the PLF sets spending limits (with exceptions), as the PLFSS is predominantly made up of what can be considered mandatory spending, it treats revenue and expenditure as targets, allowing flexibility for actual conditions (Légifrance, 2022[11]).

Many social security bodies exist, responsible for running social security programmes. They operate with a degree of administrative independence, although they are supervised by the Social Security Directorate (Direction de la Sécurité sociale) and their accounts are reported in annexes of the PLFSS. The Social Security Code requires a principle of neutrality, meaning that the state must reimburse in full any expenditure by social security bodies.

2.1.3. Mandatory spending in the budget process

The preparation of the budget is based on the Central Dialogue Authority, a responsibility shared between the Minister of Finance, who prepares the PLF, and the Minister for Social Security, who prepares the PLFSS. Discussions on the PLF start after the Budget Directorate has calculated government fiscal flexibility having accounted for unavoidable expenditure, which includes payroll, civil service pensions, debt servicing, and automatic mechanisms like tax refunds (Vie publique, 2024[12]).

The PLFSS tracks deficits and proposes corrective measures if necessary. In 2025, it projected an EUR 18.5 billion deficit due to increased health expenditure, and so provided savings plans including an increase in the share of supplementary health insurance (la sécurité sociale, 2025[13]).

France also uses multi-year frameworks: the Law on the Programming of Public Finances (LPFP) sets expenditure trajectories aimed at achieving a balanced budget. The 2018–22 LPFP created a two-tier rule, controllable spending and total expenditure objectives, with the latter including spending that cannot be limited under a strict rule. The 2023-27 LPFP replaces this with a single aggregate. However, this aggregate does not include certain components of mandatory spending, such as debt payments, contributions to civil and military pensions. It aims to reduce debt to 108% of GDP by 2027, with annual savings targets of EUR 6 billion each for the state and social security (Légifrance, 2023[14]).

2.1.4. Methodologies and tools to review mandatory spending

France has run multiple spending review exercises (e.g. Public Action 2022, which included the goal of reducing public spending). The 2023-27 LPFP mandates annual spending reviews that are linked to the budgetary process. These reviews have already identified savings in areas that are relevant to mandatory spending, for instance the National Family Sector Social Action Fund (Government of France, 2023[15]). The PLFSS is assessed by Social Security Policy Evaluation Reports, which examine economic and demographic impacts, and are annexed to the PLACSS when it is submitted to the National Assembly. Long-term pressures are also monitored through the EU’s Aging Report and the Debt Sustainability Monitor. The Pensions Advisory Council advises on pension sustainability.

2.1.5. Accountability and oversight

The LOLF expanded parliament’s authority, requiring votes on the entire budget as opposed to new appropriations only. It also established that the government must maintain general accounting of its operations, including expenses and revenues of the fiscal year on an accrual basis, and off-balance commitments (Cour des Comptes, 2024[16]). The 2023 Finance Law requires that Government submits a report to parliament each year detailing the results of the evaluations of the budget proposals conducted, as well as any proposals for reforms and associated savings. These assessments must cover the expenditure and resources of entities receiving public funds, including social security bodies.

The Cour des Comptes audits state and social security accounts, certifies budgets, and evaluates implementation, regularly highlighting risks such as growing pension deficits. The High Council of Public Finance, attached to the Court, issues mandatory opinions on macroeconomic forecasts and budget alignment with LPFP targets before budget adoption.

2.2. Case Study 2: Germany

2.2.1. Composition of budget spending

Germany does not explicitly define mandatory spending in law or budget practice, yet large shares of the federal budget function as mandatory due to long-term legal commitments and constitutional provisions. Three lenses are useful:

• Time horizon, where certain expenditures are predetermined through multi-year obligations and thus can be considered mandatory (i.e. federal social expenditure and interest expenditure).

• Nature of commitment, which concerns expenditure based on social legislation or legal obligations (i.e. personnel expenses, repayment obligations).

• The Constitution (Basic Law), which specifies that for purposes of continuity, the federal government can make all necessary expenditures in cases where the budget for the following year has not yet been adopted.

The Federal Court of Audit has noted that only a small fraction of federal spending is non-earmarked at budget preparation, with rigidity driven mainly by social security obligations set in law. Social items account for roughly half of federal expenditure. (Federal Audit Office, 2023[17]).

2.2.2. Governance and legal framework

The Basic Law lays down fundamental requirements of the budget process, the Budgetary Principles Act and Federal Budget Code provide the procedures for presenting and authorising the budget, and the Budget Act sets the annual budget. It is accompanied by a four-year financial plan and a report on the current state of public finances.

Social insurance and transfers are governed by the Social Code, which defines financing and entitlements across pensions, health, long-term care, unemployment, youth welfare, and more. Delivery of social services is conducted via implementing agencies, such as the Federal Employment Agency, responsible for employment-related provisions of the Social Code. These agencies set their own strategies independently, and as their funding comes primarily from contributions paid by employees and employers, they have a degree of financial autonomy. However, they remain under ministerial supervision and are subject to government audit.

Federal subsidies top up systems where needed (including for jobseeker benefits, the Health Fund, and public pension insurance). These figures appear in the federal budget but are not subject to annual parliamentary discretion. The legal basis for these subsidies is found in the Basic Law. Beyond social transfers, rigidity arises from multi-year authorisations to incur obligations (although the Federal Ministry of Finance in Germany sets limits on the extent to which budgetary funds can be used to this end), guarantees (although these are only included in core expenditure figures if they are activated), interest payments, and repayment obligations.

2.2.3. Mandatory spending in the budget process

Entitlements in the Social Code are legal obligations: once eligibility is met, benefits must be paid. Federal transfers to help implementing agencies meet these obligations can be considered mandatory spending. As evident from the above discussion, large parts of the federal budget are predetermined and frozen by earmarked funds. However, a budgetary supplementary act alongside the annual budget law can amend rules within the Social Code, and therefore federal payment obligations. The core federal budget records only federal responsibilities, with expenditures executed by autonomous insurers not included.

The constitutional debt rule limits federal structural net borrowing to 0.35% of GDP under normal economic conditions. The rule in effect provides a limit on the growth of interest expenses as mandatory spending. A 2025 reform revised this rule to allow the states of Germany to borrow to the same extent, as well as partially exempting defence expenditures from the debt rule (Federal Audit Office, 2023[17]).

The breakdown of revenue and expenditure found in the budget plan includes rigid expenditure areas such as personnel expenditure, which is included as a separate line item. It also includes a section on commitment appropriations (Federal Government, 2024[18]).

2.2.4. Methodologies and tools to review mandatory spending

While Germany does not have a dedicated review process for mandatory spending, several publications explore relevant themes. For example, the its Federal Ministry of Finance’s Fiscal Sustainability Reports assess long-term pressures from ageing on pensions, health, long-term care, and unemployment, and the Federal Court of Audit has highlighted the high share of legally committed spending and the absence of long-term sustainability strategies for the social security system (Federal Audit Office, 2024[19]). The Federal Ministry for Labour and Social Affairs provides an annual statistical report known as the “Social Budget” (Sozialbudget), which provides a comprehensive statistical picture of social revenues and expenditures managed largely outside the federal budget.

2.2.5. Accountability and oversight

The Bundestag’s Budget Committee scrutinises the draft budget prepared by the Federal Ministry of Finance in Germany and monitors execution throughout the year, often working in co-operation with the Federal Court of Audit. Issues related to legally committed expenditure are regularly discussed. For example, debates on the 2025 draft addressed pension subsidy projections, reductions in federal subsidies to insurance schemes, and potential changes to the responsibilities of the Federal Employment Agency (German Bundestag, 2024[20]).

The Stability Council monitors budgetary discipline of both federal and state governments, meaning that even legally committed expenditures are subject to consistent review and evaluation. The federal government and regional governments are required to provide it with standardised indicators on their budgetary positions, alongside evidence of compliance with borrowing limits and fiscal projections (Stability Council, 2022[21]).

2.3. Case Study 3: Ireland

2.3.1. Composition of budget spending

In Ireland, government expenditure is defined as the sum of funds issued from the Central Fund to government departments, spending funded by revenues directly paid to departments (“Appropriations-in-Aid”) and spending from two specified funds, the Social Insurance Fund (SIF) and the National Training Fund (NTF). Disbursements from the Central Fund are approved annually by Dáil Éireann and include public service pay and pensions, capital, and non-pay current outlays (Department of Public Expenditure and Reform, 2024[22]). Some voted expenditure items reflect ongoing obligations, such as EU co-funded programmes governed by multi-annual EU regulations, and National Lottery receipts hypothecated by law to specified policy areas.

The SIF funds social welfare payments (including pensions and unemployment benefits) and is funded primarily from social insurance, while the NTS funds training and upskilling and is funded by the NTF levy. In both cases, these funds are derived from employer and employee contributions. While mandatory spending is not explicitly defined within Ireland, as both these funds are legally part of government expenditure but are not voted annually, they can in effect be considered equivalent to mandatory spending.

The SIF operates on a pay-as-you-go basis and as the population ages, there is greater risk of structural deficits in the SIF from 2035 and after, based on actuarial assessments. In 2025, the government budgeted for the SIF to fund approximately EUR 13.7 billion in social insurance payments, up from EUR 11.5 billion in 2020, indicating that the cost of the SIF is increasing over time.

Non-voted expenditure refers to permanent legal obligations on the Central Fund and includes servicing of national debt and contributions to the EU budget. It does not require annual approval by the Dáil Éireann. Table 6 summarises the voted and non-voted expenditure in Ireland.

Table 6. Government expenditure in Ireland, 2024

In EUR million

	Voted Expenditure	Non-Voted Expenditure (SIF and NTF)
Social Protection	13 708	13 258
Health	23 366	0
Education (inclusive of Further and Higher Education and training)	13 369	978
Other departmental spending and direct departmental receipts	39 041	0
EU Budget contribution	0	3 369
Interest on national debt	0	2 992
Oireachtas Commission	0	165
Debt management expenses	0	146
Other non-voted expenditure	0	353
Total	89 484	21 261

Note: Other Departmental spending from the Central Fund and direct Departmental receipts includes both current and capital expenditure.

Source: Department of Finance, Ireland (2024[23])

2.3.2. Governance and legal framework

The Constitution requires that all public accounts be accounted for in the Central Fund unless otherwise provided by law. It also requires the government to present estimates of expenditure to the Dáil Éireann for approval. The 1924 Ministers and Secretaries Act (and subsequent amendments) assigned departmental responsibilities and empowers the Minister for Public Expenditure, NDP Delivery and Reform to set financial and administrative conditions for expenditure.

Several acts underpin non-voted and fund expenditure. These include the annual Finance Acts, which authorise borrowing on behalf of the state, the 2005 Social Welfare Consolidation Act, establishing the SIF, and the 2000 NTF Act 2000, establishing the NTF. The SIF is administered by the Minister for Social Protection, while the NTF is administered by the Minister for Further and Higher Education, Research, Innovation and Science.

The Department of Social Protection is responsible for the administration of social insurance programmes and controls the SIF as part of its remit. Several administrative bodies work under this Department, including the Pensions Authority and Social Welfare Tribunal. Similarly, the Department of Education and Skills is responsible for overall management of the NTF, but day-to-day operation is managed by SOLAS. In all cases, annual financial statements are submitted to the House of the Oireachtas.

2.3.3. Mandatory spending in the budget process

Ireland prepares its budget within the EU economic framework. As such, it first submits a report on the Stability Programme Update, before outlining medium-term economic and fiscal forecasts, and compliance with EU deficit and debt limits. It later produces an annual Summer Economic Statement providing details on the government’s economic strategy, before producing a mid-year expenditure report examining expenditure trends in advance of the budget. The draft budgetary plan is then submitted by mid-October and must include 4–5-year plans outlining a net expenditure path. In 2025, the government published a Medium Term Fiscal Structural Plan, which was also submitted to the European Union. The plan included detail on the government’s fiscal strategy and medium-term expenditure strategy, as well as economic outlooks and information on the government’s investment priorities and structural reforms (Government of Ireland, 2025[24]).

A net expenditure rule limits the annual growth rate of net expenditure after excluding interest, one-off items, EU-funded and co-funded spending, and cyclical unemployment outlays, and adjusts for the net impact of tax measures and technical factors. Domestic expenditure ceilings set three-year aggregate and departmental caps.

Since 2020, Ireland has used non-core (temporary) funding to address specific challenges. This was initially envisioned for Brexit-related costs but has since been extended to respond to COVID-19 and the cost-of-living crisis (IFAC, 2023[25]).

2.3.4. Methodologies and tools to review mandatory spending

Line departments have autonomy to review and prioritise reviews within their analytical work programmes, to ensure consistency with their own policy priorities. Recently, this has included a shift from single-issue analysis to a wider variety of analytical outputs, reflecting the cross-cutting nature of many of the areas driving growth in public expenditure. IGEES often contributes to this analysis, with over 300 economists and analysts working across departments.

The Public Spending Code sets appraisal, evaluation, and value-for-money standards. There have been studies examining the sustainability of expenditure, including IFAC’s Long-term Sustainability Report, which examines the impact of ageing on public expenditure, and the Department of Finance’s annual report on public debt in Ireland.

The range of research on the sustainability of public service pensions led to the introduction of the Single Pension Scheme for public servants in 2013 to support long term sustainability. Changes included increasing the retirement age and calculating pensions based on career average earnings rather than final earnings.

In 2025, the Department of Public Expenditure and Reform published a Medium-Term Expenditure Framework. The framework was based on three core pillars: fiscal sustainability, spending adequacy and spending efficiency, and was developed using a whole-of-budget approach, placing an emphasis on the totality of expenditure. It provides insights to guide budgetary decisions, including discussions of trade-offs in the Health and Social Protection sectors (Department of Public Expenditure and Reform, 2025[26]).

2.3.5. Accountability and oversight

The annual financial reports (which include non-voted expenditure) are prepared by the Department of Finance and audited by the Comptroller and Auditor General. Annual appropriation accounts are also prepared for voted expenditure (Department of Public Expenditure and Reform, 2024[27]).

Relevant parliamentary committees examine the proposed budget on an ex-ante basis and meet with ministers. Once the Comptroller and Auditor General has audited the financial reports for the year, the Public Accounts Committee examines the reports and meets the relevant Accounting Officer. This includes oversight of the SIF and NTF, which are approved by the accounting officers in the Department of Social Protection and the Department of Further and Higher Education, Research, Innovation and Science respectively.

IFAC is an independent fiscal institution with the legislative mandate to assess fiscal forecasts and monitor compliance with fiscal rules. Its historical review of public spending in Ireland emphasises the importance of non-voted expenditure.

2.4. Case Study 4: Japan

2.4.1. Composition of budget spending

In Japan, public spending is allocated between the General Account and multiple Special Accounts. In 2024, social security, local allocation tax grants, and national debt service comprised about three-quarters of General Account outlays, while 13 Special Accounts financed specific purposes such as national pensions, local taxes and transfers, and the Fiscal Investment and Loan Program (FILP) (Ministry of Finance Japan, 2024[28]).

There is considerable overlap between the General Account and Special Accounts and an overall view of spending requires consolidation between the accounts. Table 7 illustrates the overlap.

Table 7. Government expenditure (General and Special Accounts) in Japan

Japanese Yen (billion)	2023 Actual	2024 Estimate	2025 Budget
Total Expenditure in the General Account (A)	127.6	136.9	115.2
Total Expenditure in the Special Accounts (B)	412.5	431.5	429.5
Total (C = A + B)	540.1	568.4	544.7
of which, the amount overlapped (D)	137.4	152.5	153.5
Difference (E = C – D)	402.7	416.0	391.1
of which, the amount deducted (F*)	153.9	134.2	136.2
Net Total (= E – F)	248.8	281.8	254.9

Note: “(F)” means the amount of redemption by the refunding in the National debt consolidation fund special account.

Source: Ministry of Finance, Japan (2025[29])

Expenditures that may be considered mandatory in nature constitute a significant element of both Japan’s General Account Budget and central government spending, social security, debt servicing and redistributive local government allocations, with lower but still significant amounts on public works projects and education. Provisions for social security are also in place in special accounts, most notably the Government Pension Special Account.

2.4.2. Governance and legal framework

Constitutional rules require Diet authorisation for all spending and ex-post audit by the Board of Audit, with a limited exception for continuing expenditure on multi-year projects. The Public Finance Act (PFA) and Public Debt Management Law define budget procedures and set restrictions on government borrowing. While the PFA prohibits deficit financing, the Diet can authorise deficit-financing bonds by special law. While this was intended as an emergency response to oil crises in the 1970s, it has been used almost annually since (European Parliament, 2016[30]).

Each Special Account is grounded in its own statute. For example, the National Pension Special Account operates under the National Pension Act. Their budgets are submitted alongside the General Account and require separate Diet approval. Alongside these, the budgets of government affiliated agencies, and the FILP must also be separately approved by the Diet.

Health and long-term care are organised as universal insurance, with the government funding around 40% of total healthcare costs through direct subsidies to health insurance funds. As such, the Ministry of Health, Labour and Welfare provides strict guidance to health insurance funds and supervises them. Local and national governments co-finance long-term care insurance, ensuring affordable elderly care. Health and other labour intensive sectors are influenced by the National Personnel Authority, which makes statutory recommendations to the Diet and Cabinet on public-service remuneration (Kantō-Shin’etsu Regional Bureau of Health and Welfare, 2013[31])

2.4.3. Mandatory spending in the budget process

The Ministry of Finance in Japan is responsible for preparing the draft budget and setting the key fiscal parameters for ministries and agencies. Between June and August, each ministry submits its budget request to the Ministry of Finance, forming the basis of the draft budget. The Cabinet then submits the Draft Budget to the Diet in January. Each summer the Cabinet also issues the Basic Policy on Economic and Fiscal Management and Reform, which guides the subsequent budget and broader reforms (Cabinet Office, 2024[32])

The budget process does not begin until the Cabinet approves the Guidelines for General Expenditure Budget Requests. These guidelines include rules stating that mandatory spending should be reviewed thoroughly, and that expenditures should be cut as much as possible.

Special Account budgets are drafted by relevant line ministries and consolidated by the Japanese Ministry of Finance into the overall national budget package, while the FILP effectively functions as a second budget for public investments and is managed separately. Supplementary budgets can be enacted during the year (Ministry of Finance Japan, 2024[33]).

2.4.4. Methodologies and tools to review mandatory spending

Japan applies a spending review process known as Plan-Do-Check-Act. This process is embedded in the budget cycle, and evaluates how budget funds are spent and what results have been achieved (Ministry of Finance Japan, 2024[28]).

Several other review processes are in place. This includes budget execution surveys, where the Ministry of Finance in Japan examines the actual execution of budgets by each ministry, and administrative expenditure reviews, where each ministry conducts policy evaluations of its programmes once every five years. In the case of the latter, the OECD has found that while these programmes connect to the annual budget process, they do not feed into multi-annual programmes. While these reviews can consider Special Accounts, they do not systematically consider mandatory spending.

The government also conducts comprehensive analyses of public debt servicing costs, primarily through the Ministry of Finance. These analyses are published in the annual Debt Management Report, which provides detailed analysis of debt management policies, strategies for debt management and associated costs. Furthermore, demographic research by the Cabinet Office and the National Institute of Population and Social Security Research underpins long-term projections for medical and long-term care costs (National Institute of Population and Social Security Research, 2025[34]).

These review systems have led to several reforms. For example, significant changes were introduced to Japan’s pension system in 2004, including incorporating an automatic balancing mechanism to adjust benefits based on demographic and economic conditions.

2.4.5. Accountability and oversight

The Cabinet submits the draft budget to the Diet by late January. The House of Representatives Budget Committee examines and votes first, followed by the House of Councillors, aiming for enactment by 1 April. All appropriations are annual except multi-year continuing expenditure authorised by the Diet. (Ministry of Finance Japan, 2025[35]).

The Constitution requires that each year, the Cabinet submits to the Diet the final accounts of the state's expenditure and revenue, preceded by an external audit by the Board of Audit. The Diet reviews whether the budget was properly executed and approves the final accounts audited by the Board of Audit. The Board of Audit has the legal authority to audit accounts prescribed by law (i.e. expenditure deriving its authority from legislation rather than budget approval) (E-gov, 2022[36]).

Strategic oversight is provided by the Council on Economic and Fiscal Policy. It is chaired by the Prime Minister and comprises ten Council members, which includes cabinet ministers and the Governor of the Bank of Japan. The relevant legislation requires that private-sector experts must account for at least 40% of the Council’s members.

2.5. Case Study 5: Korea

2.5.1. Composition of budget spending

Under the Enforcement Decree of the National Finance Act, the scope of mandatory spending includes local transfers (such as Local Allocation Tax and Local Education Finance Grants) expenditures mandated by treaties and international law, and interest on government debt. The 2024-2028 National Fiscal Management Plan (the Korean medium-term expenditure framework) categorises mandatory spending into welfare-related mandatory spending, local transfer funds, interest payments, and other mandatory spending.

The welfare-related mandatory spending includes pensions, specifically for the National Pension System, the basic pension and occupational pensions, such as those in the defence and education sectors. In all, the cost of pensions on the state have increased sharply since 2015 in line with the ageing population in Korea and changes to policy settings on the coverage of pensions. The increased cost and the multiple categories of pensions in Korea highlights the importance the government is placing on identifying fiscally sustainable expenditure trajectories for pensions and other forms of mandatory spending.

Beyond legally mandatory items, Korea also recognises rigid expenditures that are hard to adjust for legal, institutional, or political reasons (e.g. non-mandatory social security). The largest items of rigid expenditure relate to income security for the poor and elderly support. Payroll has trended up, but its growth has eased since 2018, stabilising near 4% (Statistics Korea, 2025[37]).

2.5.2. Governance and legal framework

Korea is one of two countries in this report (alongside the United States) with a legislated definition of mandatory spending. This definition is found in Article 7 of the National Finance Act and classifies mandatory spending as legal expenditure and interest expense, the obligation of which arises according to Acts, and the scale of which is decided according to statutes, with the specific scope determined by President Decree (elaw, 2016[38]).

In the budget request process by line ministries, the budget formulation by the Ministry of Economy and Finance, and the budget deliberation by the National Assembly, there are no specific procedures or governance mechanisms dedicated to mandatory spending.

2.5.3. Mandatory spending in the budget process

In Korea, there is no separate budgeting procedure for mandatory spending. Budget allocations are determined by the laws that specify expenditure obligations and amounts to be budgeted are determined by regulation (Table 8). Therefore, changes in mandatory spending occur through amendments to the relevant laws and regulations, and the budget is then reviewed to account for the changes. In contrast, discretionary spending is determined during the budget formulation process, with reviews focusing on the validity of the project and the appropriateness of the expenditure amount. Mandatory spending is referred to in budget guidance, which includes reviewing medium- to long-term mandatory spending requirements (Ministry of Economy and Finance, 2025[39]).

Table 8. Mandatory vs discretionary spending

	Mandatory spending	Discretionary spending
Legal definition	National Finance Act, Art 7, Para 2, Item 4-2	National Finance Act, Art 7, Par 2, Item 4-3
Cause of expenditure	Laws specifying expenditure obligations	Laws providing project implementation
Expenditure size	Determined by regulations	Determined through parliamentary deliberation
Method of budget amendment	Amendment or revision of financial laws	Adjustment of scale during the budget deliberation process
Budget bill review	Accuracy of the allocation size	Validity of the policy (project) and its scale

Source: Korea Development Institute (2024[40])

2.5.4. Methodologies and tools to review mandatory spending

The government must specify growth rates and detailed calculations of mandatory spending in the National Financial Management Plan. However, as the role of the plan is limited to presenting trends in mandatory spending and mid-term plans for discretionary spending, there are limitations to its effectiveness as a binding mid-term plan.

Additionally, the Korean government operates a Self-Assessment of Fiscal Project, in which projects deemed inadequate are required to have at least 10% of their budget cut when submitting budget bill. However, projects that involve mandatory spending are excluded from this mandatory budget cut, and are usually exempted from expenditure reconstruction of other evaluation systems.

2.5.5. Accountability and oversight

The National Assembly Budget Office supports the Korean parliament in their deliberation on the national budget. This involves a variety of tasks, including budget analysis, cost estimation, and programme evaluation. It also publishes an annual economic outlook, which examines trends and likely developments in expenditure, production, income, and sustained growth. The 2025 report, which provides an outlook between 2024 and 2028, highlights that government expenditure is expected to increase, in large part due to the growth in mandatory spending. It also highlights that the government’s fiscal consolidation efforts have predominantly focused on discretionary spending, and that mandatory spending’s basis in law can make it difficult to adjust.

2.6. Case Study 6: The Netherlands

2.6.1. Composition of budget spending

The Dutch budget explicitly identifies which outlays are legally obligatory and which are not. Regardless of legal status, all spending must fit under the government’s (nominal) expenditure ceiling.

While there is no single legal definition of mandatory spending, the budget distinguishes between legally required social programmes funded by contributions, or ‘premiums’, and expenditure allocated via other sources. Table 9 shows the portions of the budget that include premium expenditure.

Table 9. 2024 Budget Expenditure in the Netherlands for premium-relevant expenditure

EUR billions and percentage of total (including non-premium) expenditure

EUR billions and percentage of total	Expenditure including premiums	Expenditure excluding premiums	Premiums
Public Health, Welfare and Sports	108.2 (21.5%)	35.3 (7.0%)	73.0 (14.5%)
Social Affairs and Employment	107.8 (21.4%)	58.0 (11.5%)	49.8 (9.9%)
Defence	21.3 (4.2%)	14.8 (2.9%)	6.5 (1.3%)
Total (incl. non-premium expenditure)	503.2 (100%)	373.9 (74.3%)	129.3 (25.7%)

Source: Ministry of Finance, The Netherlands (2024[41]) and (2024[42])

Premium expenditure refers to expenditure that is financed by premiums rather than other traditional sources of government revenue such as taxation, but it does not necessarily mean mandatory. For example, debt service is legally obligatory but not premium-financed, and an ongoing proportion of expenditure is required to supply ongoing Defence missions (Ministry of Finance, The Netherlands, 2024[43]).

2.6.2. Governance and legal framework

The legislative basis for mandatory spending depends on the expenditure item in question. The most notable of these is the Social Insurance Financing Act, serving as an overarching law for a number of insurance schemes. While most social insurance funds are funded by premiums, the relevant Minister may annually determine any further amounts to be paid as a government contribution.

While most social insurance funds are funded by premiums, the Minister may annually determine any further amounts to be paid as a government contribution. Furthermore, each year, the Employee Insurance Agency and the Social Insurance Bank (the two government agencies responsible for implementing the social insurance schemes covered in the Act) must send to the Minister a budget for each fund (Government Law Bank, 2005[44]).

2.6.3. Mandatory spending in the budget process

Around March, the Minister of Finance sends a framework letter to other ministers, asking about any anticipated setbacks or windfalls. This includes asking whether spending in social security and health will increase or decrease. In June, each ministry prepares a draft budget, which is finalised by August and submitted to the Ministry of Finance. For ministries where premium expenditure is relevant, the 2024 budget highlights the percentage of expenditure that is legally obligatory, and the budgetary consequences of both budget and premium-funded expenditure. As part of the budget process, the Minister of Finance establishes National Budget Regulations, which govern the national budgets and annual reports. These regulations require departments to include premium flows in their departmental reports (Rijksfinancien, 2025[45]).

The Netherlands’ budget process operates on the basis of an expenditure ceiling. This is set when a government comes into office, based on an economic forecast that is prepared by the Central Planning Bureau, and remains in place for the four-year term of government. Historically, the ceiling was divided into four sub ceilings, but in 2024 this was abolished in favour of a single total expenditure ceiling. At several points in the year, the government publishes ‘ceiling tests,’ where it assesses the expenditure levels against this ceiling and explains any discrepancies.

The budget rules specify that the expenditure ceiling can be adjusted for changes in unemployment expenditure that are not the result of policy choices, as well as for wage and price developments, but cannot be adjusted for policy changes. Furthermore, outside of cyclical expenditure, the ceilings cannot be adjusted if premium-financed expenditure is greater than expected. There have been some exceptions to this for budget responses to COVID-19 (Ministry of Finance, The Netherlands, 2024[46]).

2.6.4. Methodologies and tools to review mandatory spending

The Netherlands runs systematic interdepartmental spending reviews that often include premium spending. In addition, every five years the entire budget is reviewed using a standardised method. The Dutch Ministry of Finance prefers the reviews to consider potential expenditure reductions of up to 20%. Once completed, reviews are quality-checked by an independent board before Cabinet submission. If a budget line is not reviewed for seven to eight years, the line minister responsible must justify the delay to parliament.

Reviews of mandatory spending also occur via the Directorate-General for the National Budget, responsible for organising the budget and accountability process of the national government. Its suborganisation, the Inspectorate of National Finances, is responsible for monitoring whether or not the expenditure ceilings have been exceeded.

All Ministries are required to review their expenditure in an annual report. The Ministries for Social Security and Public Health, Welfare and Sports divide this into budget and premium expenditure, before highlighting any variances.

2.6.5. Accountability and oversight

While parliament approves the government’s budgets, its ability to determine premium-based spending comes from specific legislation (such as the Social Insurance Financing Act) rather than budget legislation. Prior to the merging of the expenditure sub-ceilings, the government was required to keep parliament informed on developments to the Health Care and Social Security Ceilings. The information was sent to parliament in budgetary memoranda, annual reports, and supplementary budgets. Despite this change, budget documentation in 2024 continued to consider the budgetary development of these ceilings. Parliament can also consider mandatory spending matters in its questions to government.

The Central Planning Bureau reviews the plans of the government, either at the request of Parliament or of its own accord. In its review of the 2025-2028 coalition agreement, its review included a prediction that healthcare expenditure would rise, in large part due to the lowering of a mandatory deductible (Central Planning Bureau, 2024[47]).

The Court of Audit frequently examines topics related to premium-financed expenditure, which has included letters to the House of Representatives outlining ministry draft budgets, and investigations into ministry annual reports. The Court of Audit frequently examines topics related to premium-financed expenditure, which has included letters to the House of Representatives outlining ministry draft budgets, and investigations into ministry annual reports (Algemene Rekenkamer, 2024[48]).

2.7. Case Study 7: The United Kingdom

2.7.1. Composition of budget spending

United Kingdom public spending is organised into Annually Managed Expenditure (AME) and Departmental Expenditure Limits (DEL). AME covers spending that is legally required or demand-driven and therefore harder to control annually, including welfare benefits, state pensions and debt interest, and can therefore be considered equivalent to mandatory spending. DEL covers planned, controllable departmental spending (current and capital). HM Treasury’s Public Expenditure Statistical Analyses presents both voted and non-voted outlays on this basis, although the Whole of Government Accounts do not show DEL and AME as separate categories of spending (HM Treasury, 1998[49]). Some elements of public spending have been moved between DEL and AME over time, such as certain funding mechanisms for the National Health Service.

The United Kingdom also distinguishes between voted and non-voted expenditure, where non-voted expenditure refers to public spending not subject to an annual parliamentary vote, such as certain elements of the National Insurance Fund and debt interest costs. However, AME and DEL are more commonly used in budget administration and management.

2.7.2. Governance and legal framework

Parliament votes on the annual Supply Estimates and Appropriation Acts each year to authorise government spending. Following parliamentary approval of the Supply Estimates, Appropriation Acts are passed. These Acts legally authorise the withdrawal of funds from the government’s consolidated fund (the government’s general bank account within the Bank of England) and set the legal limit on public spending.

Appropriation Acts only cover DEL. Non-voted items generally rest on primary legislation such as the National Insurance Act, which sets the rules for collecting and managing national insurance contributions and ensures funds are ringfenced, and the Social Security Contributions and Benefits Act, which covers state pensions, maternity allowances, and Jobseeker’s Allowance. In addition, the National Loans Fund Accounts Act 1975, provides that the government must service its debt before any other spending. However, the annual Supply Estimates document discusses AME, with estimates on how components of AME, including benefits, pension and energy, are likely to develop over time (House of Commons Library, 2025[50]).

2.7.3. Mandatory spending in the budget process

Departments submit spending plans to HM Treasury, distinguishing between AME and DEL. The Budget Statement by the Chancellor of the Exchequer sets out overall government spending plans, including changes to AME and DEL, and is accompanied by the Budget Report (“Red Book”) which includes AME and DEL projections. Spending plans are guided by consolidated budgeting guidance, which discusses the distinction between DEL and AME, and highlights the need to monitor AME closely and inform Treasury if they expect AME spending to rise above forecast (HM Treasury, 2025[51]).

The government sets fixed multi-annual limits on DEL, established through spending reviews. Guidance provided by the Treasury emphasises that departments cannot exceed DEL without Treasury approval. HM Treasury monitors AME and manages it with additional tools. This includes a cap on welfare spending introduced in 2014, requiring the government to explain to parliament if welfare spending exceeded predefined limits. These limits are now integrated into the broader DEL/AME fiscal targets framework. HM Treasury also enforces two multi-annual fiscal rules: one which states that day-to-day costs are met by revenues by 2029/30, and the other that net financial debt should fall as a share of GDP. The Charter for Budget Responsibility allows for suspension of these rules in the event of a significant negative shock. In 2024, the United Kingdom introduced a broader definition of debt for its fiscal target, known as Public Sector Net Financial Liabilities, which considers a broad range of financial liabilities, including public sector funded pensions and accounts payable (ONS, 2024[52]).

HM Treasury provides guidance on public sector pay in the budget process, which serves as an upper limit in salary discussions. Investment plans are set through Spending Reviews, with guidance on how to appraise policies, programmes and projects provided in the “Green Book”.

2.7.4. Methodologies and tools to review mandatory spending

HM Treasury conducts spending reviews, monitors AME and DEL, and advises the government on fiscal strategy. Spending reviews are conducted on a two-year basis, with the Treasury most recently completing a 2025 spending review for the 2026-2028 period. This review states that AME is only published as part of an OBR forecast and is therefore not included. HM Treasury manages public finances and allocates spending to departments within legal and fiscal constraints. Treasury control is enforced through mechanisms such as the Managing Public Money framework (HM Treasury, 2025[53]).

Other bodies also examine the sustainability of government spending. This includes the Government Economic Service, the professional body for economists in the United Kingdom civil service, which operates across multiple departments, including HM Treasury, the Department for Work and Pensions, and the Office of Budget Responsibility. It provides economic analysis, cost-benefit evaluations, and policy impact assessments that inform government spending decisions.

2.7.5. Accountability and oversight

Parliamentary oversight involves a range of Committees. The Public Accounts Committee scrutinises public spending on an ex-post basis, based on audits from the National Audit Office and, in broad terms, examines government departments on the efficiency of their spending. The Treasury Select Committee reviews fiscal policy, tax policy, and economic forecasts. Committees and auditors also review the National Insurance Fund, ensuring it is administered according to the legal framework (HM Revenue & Customs, 2024[54]). The Whole of Government Accounts, which provides a consolidated view of the government’s financial position, including mandatory spending components such as pension liabilities, is also subject to parliamentary review.

The National Audit Office conducts independent audits of government spending, including the Whole of Government Accounts, and publishes reports on value for money in public services. Each Ministry also produces annual reports and accounts for parliamentary select committees to examine.

The Office for Budget Responsibility provides independent economic and fiscal forecasts for the Budget and assesses whether the government is meeting fiscal targets. It also prepares the Fiscal Risks and Sustainability report, which assesses medium- and long-term risks to public finances and contains projections of government debt.

2.8. Case Study 8: The United States

2.8.1. Composition of budget spending

The United States categorises federal budget expenditure into three main categories:

• Mandatory spending, mandated by existing laws,

• Discretionary spending, which must be approved through the appropriations process, and

• Net interest, reflecting the net cost of servicing federal debt.

As shown in Table 10, mandatory spending makes up the majority of expenditure within the budget, at 61% in 2023.

Table 10. 2023 Budget by expenditure type and category

Expenditure type	Expenditure category	Amount (billions)	% of Total expenditure
Social security	Mandatory	1 300	21%
Non-defence	Discretionary	917	15%
Medicare	Mandatory	839	14%
Defence	Discretionary	805	13%
Net interest	Net interest	659	11%
Medicaid	Mandatory	616	10%
Other	Mandatory	502	8%
Income-security programmes	Mandatory	448	7%

Note: Net Interest is defined as federal interest payments on public debt offset by interest income received by the government.

Source: Congressional Budget Office, The United States (2023[55]).

2.8.2. Governance and legal framework

Mandatory spending derives its legal authority from permanent law, not from annual Appropriations Acts. A key example of such law is the Social Security Act, which has undergone numerous amendments since its 1935 origin, including establishment of disability benefits, Medicare and Medicaid. Some cases exist (i.e. Medicaid) where programmes are considered mandatory but are nevertheless established in appropriations acts (Office of Management and Budget, 2024[56]).

Most mandatory spending is funded via trust funds, which are funds legally earmarked for specific purposes. The federal government manages these funds’ assets and, via legislative changes, may raise or lower trust fund collections and payments. Trust funds are funded by a combination of public payments and transfers from federal funds, with the exact combination depending on the fund in question.

While the United States Constitution states that money can only be drawn from the Treasury in consequence of appropriations made by law, there are no such specific provisions for mandatory spending. However, both discretionary and mandatory spending are included in the multi-annual expenditure baseline. Most mandatory spending is administered by the Social Security Administration, the United States Department of Health and Human Services, the Department of Labor and the Department of Energy.

2.8.3. Mandatory spending and the budget process

The Office of Management and Budget (OMB) guides agencies’ submissions and assembles the President’s Budget, which primarily proposes discretionary levels but can also include mandatory policy changes and re-estimates. This budget is developed under the guidance of OMB Circular A-11, which instructs federal departments and agencies on how to prepare and submit budget requests, and includes guidance on mandatory spending ranging from explanations on its legal limitations to advice on how to estimate its level (White House, 2024[57]).

Congress then adopts a Budget Resolution, which sets targets for congressional committees but does not enact law. Following this, Congress considers the annual appropriations bills. In the case of mandatory spending, the law that authorises a programme and the law that determines the programme’s spending are combined, and thus changing mandatory programmes requires amending the relevant authorising law (Center on Budget and Policy Priorities, 2024[58]).

A further component of the budget process is reconciliation legislation, which allows Congress to expedite the approval process of certain types of high-priority fiscal legislation. It has been exclusively used for mandatory spending or revenue matters, although it cannot be used to modify the Social Security programme.

There are certain legislative limits on the extent to which mandatory spending can be modified. The pay-as-you-go requirement, introduced in 1985 and further established in 2010, requires that if new legislation changes revenue and/or mandatory spending in a way that results in a net deficit, an automatic across-the-board cut known as sequestration is required. Some accounts are exempt, while others follow special rules in which they can only be sequestered up to a maximum amount. Sequestration of mandatory spending is currently set to last until 2032 for most mandatory programmes and 2033 for Medicare (Office of Management and Budget, 2024[56]).

2.8.4. Methodologies and tools to review mandatory spending

The Financial Report of the United States Government is prepared by the Department of the Treasury in co-ordination with the OMB, and is audited by the Government Accountability Office. The report provides figures on gross costs and revenues, explanations of increases in expenditure at agency level, and discussions of key economic trends likely to impact expenditure levels. The Report also includes a Statement of Social Insurance, which highlights the present value of government expenditure for several components of mandatory spending, including social security and some elements of Medicare (Department of the Treasury, 2024[59]).

The OMB also prepares an “Analytical Perspectives” report with each budget, which examines the economic assumptions of the President’s Budget, provides a long-term budget outlook, and provides analyses of the budget and federal investment. It also contains a technical section which examines trust funds, explaining their purpose, financial status and funding sources (Office of Management and Budget, 2024[56]).

Separate reports are also prepared on various trust funds. For example, the Board of Trustees for the Social Security Trust Funds and the Medicare Board of Trustees prepare annual reports on the financial state of their respective funds, which are then submitted to Congress. These reports include estimates on the short-term and long-term financial sustainability of the trust funds (OASDI Trustees, 2023[60]).

2.8.5. Accountability and oversight

While Appropriations Committees only have jurisdiction over discretionary spending, the reports they receive during the budget process contain details on both discretionary and mandatory spending, so that they can understand the overall budget impact. In contrast, Legislative Committees have jurisdiction over both discretionary and mandatory spending, and can make changes by modifying the programme’s parameters. (Congressional Research Service, 2023[61]).

For both discretionary and mandatory spending, Congress must ensure that any new legislation introduced conforms to parameters set out in the budget resolution, as established under the 1974 Congressional Budget and Impoundment Control Act, thus limiting the extent to which new expenditure, including new mandatory spending, can be introduced (Congressional Research Service, 2023[61]).

The Congressional Budget Office is responsible for estimating the cost of proposed legislation and analysing the federal budget outlook. The Government Accountability Office is responsible for auditing the Financial Report of the United States Government. Both institutions prepare reports on a range of topics relating to mandatory spending, including projections of social security funds and analysis of the fiscal impact of changes to policy settings.