Fiscal Rules

Why redesign fiscal rules?

Changing the goal: move beyond GDP

Current fiscal rules focus on short-term financial stability rather than long-term ecological and social wellbeing. Most of them tie government spending limits to GDP growth: the larger the economy, the greater the scope for public spending. This makes governments reliant on endlessly growing GDP to have more capacity for investment.

Thinking in systems: tackle systemic vulnerabilities

Today's fiscal rules focus on how much governments spend, not how well they spend it. They often miss the bigger picture of what actually drives debt and economic vulnerability.

Being distributive and regenerative by design: enable long-term investment

Short-term debt targets discourage the long-term investments needed for economic resilience, such as education, renewable energy, climate-proof infrastructure, and affordable housing. Early investment in these areas is more cost-effective and can reduce future public spending.

Governments in lower-income countries face particular challenges. They have less control over their fiscal rules, and pay higher interest rates on borrowing. This severely limits their ability to invest in public goods and services.

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Emerging alternatives: redesigning fiscal rules

The examples below show different possibilities to redesign fiscal rules. Browse and use them as inspiration to find the approach that works best for your context.

Principled guidance

Governments can replace narrow debt and deficit targets with a broader target range that is set by an independent advisory body. The range is determined based on fiscal principles that reflect a wide range of issues including economic, societal and ecological risks.

Learn more: New Economic Foundation’s detailed proposal for implementing this approach

Wealth accounting

Governments can assess their nation's wealth more holistically by considering different forms of wealth that go beyond financial assets alone — for example, physical, natural or human wealth, as well as social capital. By doing so, investments in ecological regeneration (such as reforestation and green cities) and social infrastructure (including affordable housing, health care, and education) are recognised as assets that strengthen national wealth. Fiscal rules can be designed to maintain or enhance this holistic wealth over time.

Learn more: governments need to track changes in public wealth to best support a more holistic approach. Some promising wealth accounting approaches can be found at:

The Green Economy Coalition’s policy tracker tracks progress on wealth accounting, natural capital accounts and nature-based fiscal reform for up to 41 countries.
The UN’s System of Environmental Economic Accounts (SEEA) and the World Bank’s Wealth Accounting and the Valuation of Ecosystem Services (WAVES) have both gained global traction but are rarely incorporated into fiscal rules.

Debt Sustainability Analysis

Debt Sustainability Analyses (DSAs) evaluate a country's capacity to sustain current debt levels. In addition to financial metrics, DSAs can also consider ecological and societal risks such as the costs of climate change, biodiversity loss, and human inequality.

Learn more:

The Fiscal Matters Coalition has proposed alternative fiscal rules for the EU that integrate ecological and social risks into DSAs.
In the UK, the Office for Budget Responsibility (OBR)’s Fiscal risks and sustainability reports include long-term climate change risks and health trends.
The Centre for Sustainable Finance has developed a proposal to integrate nature-related risks (in additional to climate risks) into DSAs for institutions such as the International Monetary Fund (IMF).

Green fiscal rules

Green fiscal rules prioritise spending based on whether such spending will contribute to ecological sustainability and long-term resilience, as well as social fairness goals. This can be achieved through mechanisms such as:

Excluding spending associated with green policies from governments’ debt limits;
Guaranteeing a minimum level of green expenditure;
Lowering interest rates for green investment; and
Establishing green investment funds.

All of these require greater monetary and fiscal coordination between governments and central banks to support a common objective.

Learn more: Read the New Economics Foundation’s proposal on greater monetary-fiscal coordination to invest in the future while keeping down inflation.

Giving back fiscal control

Many countries in the Majority World face a debt crisis rooted in colonial legacies, unjust global financial systems, and climate injustice. They often have little control over their fiscal rules. Campaigners have been calling for cancellation of the unjust debt burden, as well as reform of the global financial systems, to allow governments in the Majority World to invest in their own economies.

Learn more:

Debt Justice provides evidence and organises actions around the world.
Progressive International offers proposals to transform the global economic architecture in the service of peace, justice and shared prosperity. These include actions around debt and international finance systems.

Share your ideas and tools

Do you have any other ideas on how governments can redesign fiscal rules? We would welcome your feedback and suggestions.

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