Given the limited time elapsed since the COVID-19 crisis, it is not yet possible to fully assess which countries can be considered “successful” in their consolidation efforts. However, this section will map what selected countries have done thus far, and highlight if and how governments are adjusting to the dual demands of post-COVID fiscal policy: fiscal consolidation and increased spending on priority areas.
Sustainability of public finances in OECD countries
From fiscal consolidation to state redesign?
Improvements in the CAPB were observed across most OECD countries on average over 2021-2024 (see Figure 4 below). However, this aggregate picture conceals a more complex reality, as many countries alternated between consolidation and expansionary fiscal stances in the years following 2021. For many, what appears to be fiscal consolidation (i.e., an improvement in the CAPB) was driven solely by the unwinding or partial unwinding of crisis support. A broader, more systematic fiscal consolidation approach has therefore not yet been implemented.
Given the constraints in identifying emerging trends with fiscal consolidation, our case studies focus on countries which the qualitative and quantitative approaches to identifying fiscal consolidation episodes, outlined in Section 2, identified as conducting – to varying degrees – sustained fiscal consolidation post-COVID. Importantly, these countries all combined – again, to varying degrees – these consolidation efforts with efforts to address pressures on the expenditure and revenue side. Based on these combined criteria, five countries were selected for in-depth analysis: Australia, Canada, Germany, Switzerland, and the United Kingdom. Together, they illustrate a range of fiscal strategies, institutional frameworks, and macroeconomic contexts.
Note: This shows the change in the cyclically adjusted primary balance from one year to the next between 2021 and 2024, as well as the average of these yearly changes. 2024 figures are estimates. Positive figures denote improvements in the cyclically adjusted primary balance.
Source: IMF Fiscal Monitor (2024).
Our case studies focus specifically on the internal determinants of consolidation success, examining government policy choices and their implementation. The analysis assesses whether on-going fiscal consolidation episodes are consistent with the success factors previously identified in the literature, particularly concerning design features, fiscal institutions, expenditure composition shifts, and political commitment and communication strategies.
Moreover, the case studies focus on identifying whether post-COVID consolidation efforts are recognising and addressing the dual pressure of having to find spending cuts or revenue measures equal to both the deficit reduction target and current and emerging spending requirements.
As noted above, successful consolidations share three common features: a balanced composition of measures, sufficient duration to ensure credibility, and careful attention to distributional design. The case studies confirm these lessons but also illustrate how countries have adapted them to their own circumstances.
First, recent consolidations have been characterised by the setting of several objectives: efficiency gains, reduced spending in some areas, and continued spending increases in other areas. For example, the UK’s 2024 budget set up an “Office for Value for Money” to deliver an expected GBP 14 billion in efficiency savings, even as it increased current spending by GBP 22.9 billion and capital spending by GBP 21.6 billion annually by 2029-2030.
Second, on the composition of measures, four of the five case studies leaned heavily on the expenditure side. Australia, Germany and Switzerland centred their adjustment strategies on targeted spending restraint. For example, in Switzerland, funding was ended for some research programmes, there was a slow-down in the planned increase in defence spending, and reductions in transport spending were announced in budget 2024. Later, adopting the recommendations of a comprehensive spending review, it reduced spending on international co-operation spending, reduced social welfare transfers and found savings on federal personnel costs. This was projected to lead to savings of 0.4% (0.5%) of GDP in 2027 (2028). Germany focused on spending areas where there had been underspending in the past, and in budget 2024 expected a small savings contribution of EUR 3.5 billion per year for all federal departments – with the exception of defence – in both 2024 and 2025.
Meanwhile, the United Kingdom and, to a lesser extent, Canada, relied more visibly on revenue increases alongside expenditure restraint. For example, the UK autumn budget 2024 announced a 1.2 percentage point increase in employer National Insurance contributions; higher capital gains tax rates; increased air passenger duties; and extensions to the Energy Profits Levy from 35 to 38% until 2030. At the same time, it announced reduced external consultancy spending and introduced civil service staffing caps. In Canada, an increase in taxation on higher income earners, and on share buybacks and dividends was announced in budget 2023. At the same time, this budget announced a 3% reduction of departmental and agency-level discretionary spending by 2026-2027.
Generally, however, expenditure reductions were selective rather than across-the-board as discussed below in Section 4.4. Moreover, IFIs in some countries highlighted a gap between announced expenditure-side consolidation measures and implemented measures, highlighting the political and/or practical difficulty of following through on announced consolidation measures.
Third, the case studies highlight the importance of targeted reforms and efficiency measures. Several governments framed their fiscal strategies around improving public sector efficiency, including reduced operating expenditure. For example, in Canada, this included reducing spending on public sector worker travel. In the United Kingdom, a “functional efficiency” programme was introduced in budget 2023 which included public property sales, a “One Login” digital programme, and a new fraud authority for the public sector.
Fourth, the pacing of adjustment emerges as a critical factor. Unlike earlier fiscal consolidation episodes characterised by relatively abrupt retrenchment, case studies show that the post-COVID consolidations were deliberately gradual (Table 1). This suggests that governments have acknowledged the lesson that pacing matters: a consolidation that is too rapid risks undermining growth and political support, while one that is phased over time can better align with economic conditions and may be more acceptable politically.
Fifth, the case studies confirm the relevance of distributional considerations. Both Canada and the United Kingdom explicitly used progressive taxation to spread the burden more fairly. Australia’s reprioritisation also reflected efforts to distinguish between high- and low-value spending. Across all cases, political sustainability was enhanced where governments signalled that consolidation would not fall disproportionately on vulnerable groups or essential services.
Source: Authors, based on case studies.
4.3.1. Fiscal rules
Fiscal rules provide governments with frameworks to guide decisions on when and how to start fiscal consolidation by setting limits on debt, deficits, or expenditures (OECD, 2025[50]). Survey evidence from 2022 shows that almost all OECD countries operate with some form of fiscal rule or objective, but many came under strain during the pandemic. When public spending surged, most countries made use of escape clauses or suspended their frameworks, and in the aftermath nearly half revised their pre-pandemic rules, while the others maintained them but signalled possible reform in the near term (Moretti, Keller and Majercak, 2023[51]).1
The case studies show how these dynamics have played out in the post-pandemic environment, with notable differences between countries depending on their types of framework:
First, legally binding fiscal rules have come under significant strain. Where rules are constitutionally enshrined – as in Germany and Switzerland – they exerted a pressure that governments found difficult to accommodate – a possible consequence of the “dual pressure challenge”. For instance, the Swiss federal parliament voted to extend the amortisation period for extraordinary spending from six to twelve years. In Germany, similarly, the parliament agreed to a more gradual repayment of the “excess” debt accumulated during the COVID-19 crisis, over a 31-year period from 2028 onwards. Further, German authorities addressed debt brake constraints on their ability to invest in priority areas, like defence and infrastructure, by creating special extrabudgetary funds.
In contrast, in Australia, Canada, and the United Kingdom, governments did not face hard constraints and relied on fiscal objectives and narratives of prudence. Australia's Charter of Budget Honesty provides a framework without numerical constraints, allowing adaptation based on economic conditions while maintaining credibility through transparent reporting. Canada's non-binding fiscal anchor has allowed authorities to adjust both targets and timelines as circumstances evolved. The United Kingdom had a number of fiscal mandates and targets in the post-COVID period, changing with changes in administrations and circumstances. However, this flexibility may come at the cost of weaker commitment mechanisms.
Taken together, 2022 survey evidence and case studies highlight a paradox: while fiscal rules remain central to consolidation strategies and have been modified to include more flexibility, many countries continue to struggle with compliance without restoring to escape or emergency clauses.
4.3.2. Medium-term budgeting
Medium-term budgeting has played varied but often important roles in recent consolidations, particularly in highlighting emerging fiscal gaps and supporting forward-looking adjustments:
Switzerland provides the most compelling example: the four-year “integrated task and financial plan” served as an early warning – this directly informed consolidation efforts by revealing that increases in spending on pensions and defence would breach structural balance rules within the medium-term budget horizon.
Germany's medium-term financial plan has served a similar diagnostic function, helping authorities map the expenditure trade-offs required to maintain debt brake compliance over multiple years and communicate the adjustment path to line ministries.
In Australia, the forward estimates framework anchored the government’s two-stage consolidation strategy. It showed how limits on real spending growth would restore fiscal balances over the medium term, while protecting priority programmes such as the National Disability Insurance Scheme, defence and infrastructure. The framework served less as a binding constraint than as a transparent baseline and communications tool, making the sequencing of consolidation explicit.
The Australian, German and Swiss experiences illustrate how medium-term budgeting frameworks can serve as valuable diagnostic and signalling tools by identifying looming fiscal gaps. However, overall, medium-term frameworks appear to have played a more limited role compared to other PFM tools such as fiscal rules or spending reviews in recent fiscal consolidation episodes across the studied OECD countries.
This echoes the findings of the 2023 OECD Survey on Budget Frameworks: while nearly all OECD countries use some form of MTEF or top-down expenditure ceiling, compliance is often weak, and there is limited use of medium-term budgets to actively show prioritisation and trade-offs (Moretti, Keller and Majercak, 2023[51]). However, some key features of effective medium-term budgeting can be identified to distinguish countries with sounder medium-term budgeting systems (Box 1).
This implementation gap undermines the distinctive contribution that medium-term frameworks should make to fiscal consolidation. The credibility and understandability of any consolidation strategy ultimately depends on medium-term frameworks that demonstrate how deficit targets will actually be achieved. Unlike fiscal rules, which fix the what in terms of debt or deficit targets, medium-term frameworks set out the how of consolidation: the sequence of measures, their timing, and the trade-offs involved. When these frameworks lack concrete detail or are not systematically followed, adjustment paths remain opaque and consolidation strategies lose credibility.
The 2023 OECD Survey on Budget Frameworks identifies key features that distinguish countries with credible medium-term budgeting systems:
Transparency and communication of trade-offs:
Publish detailed baselines: Australia and France publish baselines at the same budget detail level, with reconciliations between years that clearly show the cost of maintaining current policies versus new initiatives, thus making trade-offs explicit.
Explain deviations and choices: Canada's budget documentation details variations from previous baselines, separating economic/fiscal changes from policy decisions, helping citizens and parliament understand what changed and why.
Disclose methodologies: Publishing how baselines are calculated (as the U.S. does) allows scrutiny and builds credibility for the trade-offs presented.
Credible expenditure ceilings:
Clarity on political decisions: The Netherlands anchors ceilings in coalition agreements; the United Kingdom combines ceiling-setting with spending reviews. Both approaches force early confrontation with trade-offs and build political ownership.
Binding multi-year ceilings with limited flexibility: Some countries have binding ceilings for at least two years – with reserves for genuine uncertainties (Sweden, Denmark). This allows for the credible separation of spending decisions from forecast variations and forces transparent discussions when new priorities emerge.
Sectoral detail: Ceilings at ministerial level enable accountability and frame budget negotiations around concrete trade-offs between competing priorities.
Integrated processes:
Link baselines to ceiling decisions: Sweden uses baseline updates to inform mid-year ceiling adjustments, ensuring trade-offs reflect actual cost pressures.
Clear revision rules: Denmark requires ministerial compliance with legal clarity on when exceptions apply, forcing explicit political choices about deviating from plans.
Monitor and communicate compliance: Publishing analyses of ceiling deviations (only 13 of 26 OECD countries do this) shows whether governments honoured their commitments and why adjustments were needed.
Source: Authors based on (Moretti, Keller and Majercak, 2023[51])
4.3.3. Spending reviews
Spending reviews have long been a central element of the fiscal consolidation toolkit. They provide governments with a structured framework to identify areas where expenditure can be reduced, reprioritised, or made more efficient. According to OECD Best Practices (Box 2), effective reviews share a number of common features. They begin with clear objectives and scope, often set out in formal terms of reference, including indicative savings or reallocation targets. Their governance arrangements combine political leadership with strong technical support, usually in the form of steering groups and working groups that bring together the ministry of finance, line ministries, and sometimes external experts. Reviews are intended to be closely integrated with the annual budget process, ensuring that findings feed directly into ceilings and allocations. Guidance published by international organisations like the OECD (Tryggvadottir, 2022[52]) and the IMF (Doherty, 2022[53]) further stress that reviews should not only identify savings but also support reallocation to priority areas.
The case studies show both continuity and departure from this model. On the one hand, several of these best practices have been considered in recent fiscal consolidation. In some cases, like Germany, the government has explicitly sought to strengthen their frameworks in the wake of the COVID-19 crisis – clarifying objectives, embedding reviews in the budget process, and increasing transparency (OECD, 2024[54]).
Yet even these improvements may fall short of the current challenge. With consolidation now requiring not just marginal savings but substantial reprioritisation, spending reviews will need to evolve into – or be complemented by – more ambitious exercises that examine the portfolio of government activities and support fundamental trade-offs between competing priorities. The Swiss, UK, and Canadian experiences, although different in impact, point to this direction of travel:
In Switzerland, the “review of tasks and subsidies” went beyond the short-term exercises envisaged in traditional practice, reassessing federal government functions against criteria of efficiency, attribution, and allocation. It was designed as a comprehensive portfolio review, requiring extensive consultation and analytical work, reflecting the structural fiscal challenges the country faced.
The United Kingdom has recognised the importance of spending reviews for post-COVID budgeting and announced that it will now hold a spending review every two years, setting departmental budgets for a minimum of three years. These more frequent spending reviews will attempt to focus on “rewiring the state”, with ambitions to use new technologies to transform how the government operates, to create a cost-conscious culture, and establish a “leaner” civil service.
Canada’s “strategic policy review” was similarly framed as a broad examination of spending effectiveness, though governance and implementation challenges limited its impact. More recently, a “comprehensive expenditure review” was announced by Canadian authorities in budget 2025, with a plan to save CAD 13 billion annually through mainly operational changes.
These examples suggest that in some contexts, spending reviews are being stretched into instruments of state redesign rather than limited budgetary adjustments.
1. Formulate clear objectives and specify the scope of spending reviews
the objectives of a spending review must be clear
clearly specify the scope of a review
2. Identify distinct political and public service roles in the review process
political leadership
public servants carry out spending reviews
3. Set up clear governance arrangements throughout the review process
clear roles and responsibilities
4. Ensure integration with the budget process
alignment with the budget process
alignment with medium term frameworks
alignment with evaluations and performance budgeting
5. Implement recommendations in an accountable and transparent manner
spending reviews conclude with clear recommendations
monitor implementation of spending review decisions
6. Ensure full transparency of spending review reports and the review framework
conclusions of spending reviews are available publicly
the governance arrangements and guidance materials are available publicly
7. Update the spending review framework periodically
Source: (Tryggvadottir, 2022[52])
4.3.4. Independent Fiscal Institutions
Independent fiscal institutions (IFIs) can support successful consolidations in multiple ways: by increasing transparency and accountability, independently communicating the fiscal context, improving the accuracy of macroeconomic forecasts, monitoring adherence to fiscal rules, providing costings of policy measures, and assessing long-term sustainability.
Case study findings suggest that fiscal watchdogs have been active during recent consolidations. For instance:
Australia’s Parliamentary Budget Office regularly highlighted structural pressures that were not being addressed by government consolidation measures.
In Canada, the PBO drew attention to the gap between announced reallocations and actual delivery.
In the United Kingdom, the Office for Budget Responsibility went further: after the 2025 Spending Review, it judged that consolidation efforts had achieved only “limited and temporary success,” leaving the United Kingdom less prepared for future shocks.
Taken together, the case studies and international evidence highlight a consistent message: IFIs have become essential referees in fiscal consolidations. Their value lies not only in providing independent forecasts but also in critically assessing the credibility of consolidation strategies, monitoring follow-through, and raising long-term sustainability issues. However, their effectiveness depends on mandate and capacity.
The case studies show that recent consolidations are not characterised by across-the-board cuts but by deliberate changes in the composition of expenditure. The case studies confirm that recent consolidations have moved firmly in this direction. Rather than across-the-board cuts, governments pursued deliberate changes in the composition of expenditure.
Australia’s “budget repair” strategy targeted AUD 22 billion in savings between 2022-2023 to 2025-2026 through an approach which focused on the composition of spending and reallocating spending within and across policy areas, rather than across-the-board cuts. For example, in the 2023-2024 budget, reprioritisations within the Defence ministry, from lower to high priority areas, were announced, along with aged care spending reprioritisation. This included the policy of temporarily reducing the residential aged care provision ratio from 78.0 places to 60.1 places per 1 000 people aged over 70 years, reflecting changing user preferences. However, at the same time as these expenditure shifts were occurring, new cost-of-living related supports were announced, limiting the impact of this “budget repair” strategy.
Germany did not announce across-the-board cuts in government spending, but focused action on areas with particularly dynamic spending, with savings being realised where there had been underspending in the past. The savings would be used to fund expenditure in priority areas, such as those of social cohesion, infrastructure and defence. Moreover, they required ministries to contribute EUR 3.5 billion in savings in both 2024 and 2025, while explicitly ringfencing spending in the defence ministry. This illustrates reprioritisation within a tight fiscal rule framework. However, at the same time, Germany expanded the use of extrabudgetary funds to be able to fund priority areas like infrastructure and defence. This overshadowed the announced savings and reprioritisations.
Canada focused on changes in the composition of expenditure through attempts to “refocus government spending” to priority areas. Savings were targeted at operational and discretionary expenditures by departments and agencies, with budget 2023 announcing a roughly 3% reduction of discretionary spending by departments and agencies by 2026-2027, reducing government spending by CAD 7 billion over four years, and CAD 2.4 billion in ongoing reductions. This would be reallocated to priority areas like social protection and defence. However, implementation challenges reduced the impact of these measures, and these measures ran concurrently with continued cost-of-living supports.
Switzerland represents the most far-reaching case: in 2024 all federal expenditure was systematically assessed against criteria of efficiency, attribution, and allocation, leading to CHF 3.9 billion (roughly 0.6% of GDP) to CHF 4.9 billion (roughly 0.7% of GDP) in potential structural savings and reallocation per year between 2027 and 2030.
These examples show that consolidation is no longer simply about spending less, but about spending differently. Shifting expenditure towards higher-priority and growth-friendly uses makes fiscal adjustment more credible and politically sustainable. In Switzerland, this approach went furthest, treating consolidation as an opportunity to reconsider government functions and responsibilities. More generally, the emphasis on composition over aggregates suggests that expenditure shift has become a central success factor for navigating the dual pressures of consolidation and new policy demands – accordingly, governments have begun to shift expenditures from lower to higher priority areas.
Regarding commitment through legislative measures, fiscal rules have been one of the favoured ways by which governments stated their fiscal intentions. However, as noted above, implementation of fiscal rules is challenging and these have not always been reinstated fully, or with similar force, after COVID-19.
The countries studied have almost systematically avoided across-the-board cuts that characterised earlier fiscal consolidation episodes, instead designing consolidation as a process of “budget repair” or “strategic reallocation”.
Moreover, some Governments emphasised the communication of the timing of these targeted consolidation strategies – highlighting that they would only begin when economic conditions allowed. Such semantic shifts reflect a broader political economy reality: to sustain commitment, governments increasingly communicate consolidation as a process of reprioritisation rather than retrenchment, to be conducted when economic conditions allow.
While some governments have included AI and digitalisation in their fiscal strategies – notably the United Kingdom – actual fiscal gains remain limited. Four factors may explain this gap:
First, digital projects require long development periods before generating savings, often extending beyond the 3-5 year horizons typical of consolidation planning.
Second, AI projects are different to other types of digital projects – for example, due to their complexity and potential to completely change job functions –, something which institutions in the public and private sector may not have fully understood, potentially leading to higher rates of AI project failure.
Third, digitalisation needs parallel reforms in human resources, organisational structures, and service delivery that are difficult to co-ordinate within time-pressed consolidation programs.
Fourth, while evidence shows AI boosts individual productivity and helps early adopters grow faster, the link to measurable fiscal savings remains weak.
This makes it hard to quantify savings with the certainty required for consolidation planning. In short, AI functions better as a long-term tool for building effective government than as a near-term consolidation instrument.
Yet specific examples show substantial potential (OECD, 2025[55]). The Alan Turing Institute calculated that automating 143 million government transactions could save 1 200 person-years of work annually. Brazil reduced fiscal classification processing from 1 000 hours to 8 hours with 97% accuracy using AI. Korea's dBrain+ system uses real-time analytics across 46 institutions to improve fiscal efficiency. These cases demonstrate savings through lower labour costs, faster processing, and better compliance and forecasting.
However, systematic measurement and evaluation of financial and non-financial impacts of AI projects are rare (OECD, 2025[55]). AI systems embedded in complex administrative structures make it difficult to isolate specific effects. Different contexts, fragmented data, old IT systems, and skill gaps complicate measurement further and leave needed AI inputs and enablers scattered. Accordingly, many projects are stuck in the pilot phase, unable to move on to large-scale deployment due to the lack of evidence to justify scaling up.
To make AI relevant for fiscal consolidation, governments need evaluation frameworks using indicators like cost savings, error reduction, and service quality, paired with purpose-fit evaluation methods commensurate with the level of perceived potential impact – taking into account trade-offs such as evidence value on one hand, and administrative burden and cost on the other (OECD, forthcoming[56]). Such frameworks should balance the utility of standardised indicators with the value of ad-hoc measures connected with the nuances of each particular use case. Moreover, better data governance and modernised IT infrastructure are essential prerequisites. Without these, even well-designed AI will struggle to show fiscal benefits.
← 1. Globally, two-thirds of countries have revised their fiscal rules since the pandemic, often to accommodate shifting economic circumstances and increased spending needs in the post-pandemic environment (Alonso-Albarran et al., 2025[57]).