## Disappearing Deficits

_IMF Blog, March 28, 2012_

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**Canonical URL:** [Disappearing Deficits](https://www.imf.org/en/blogs/articles/2012/03/28/disappearing-deficits)

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## Bibliographic details
- Authors: Tim Irwin
- Published: March 28, 2012

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### Overview
- Author: Tim Irwin
- Date: March 28, 2012
- Context: At the IMF, governments are sometimes found to employ accounting devices that make the reported deficit smaller without actually reducing spending or raising taxes.

### How the devices work
- Governments may take over companies’ pension schemes; the government’s obligation to make future pension payments has a real cost but "doesn’t count as a liability in the accounting" in some cases.
- When the government receives a pension scheme’s assets from a company, it can treat the receipt of those assets as revenue that reduces its deficit.
- Public-private partnerships (PPPs): a private company builds and maintains an asset (for example, a road or a hospital). In return, the government agrees to pay the company for its costs over "20 or 30 years."
- Effect: The government’s deficit is lower initially, but this often comes "at the expense of bigger future deficits."

### Consequences and diagnosis
- The pain of spending cuts and tax increases is postponed and potentially magnified rather than avoided.
- Accounting devices make the deficit a less accurate fiscal indicator, complicating efforts by citizens, journalists, think tanks, investors, rating agencies, and governments to understand public finances.
- Different indicators can reveal problems suppressed in one measure; an example given is the United States where a mainly cash-based measure and the "net operating surplus" diverge because pension obligations show up in the net operating surplus but not in the budget surplus.

### Improving transparency — recommended actions
- Prepare audited financial statements (income statement, cash-flow statement, and balance sheet) according to international accounting standards.
- Give statisticians the resources and independence to be both expert and impartial, and the authority to revise standards in light of emerging problems.
- Monitor a variety of different indicators of the state of public finances so that problems hidden in one indicator appear in others.
- Accept that addressing accounting devices "cannot be solved with the stroke of a pen"; obtaining an accurate picture requires hard work, careful checks, and willingness to look at several different measures of the deficit.

*Source: Disappearing Deficits — Tim Irwin, March 28, 2012.*

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## Content in this bundle

- **Staff Discussion Note**
  - [Staff Discussion Note (Markdown version)](/external/pubs/ft/sdn/2012/sdn1202.pdf.md){rel="alternate" type="text/markdown"}
  - [Staff Discussion Note (PDF)](/external/pubs/ft/sdn/2012/sdn1202.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/wp-content/uploads/2012/03/gov-deficit.jpg](https://www.imf.org/wp-content/uploads/2012/03/gov-deficit.jpg)

_Source: https://www.imf.org/en/blogs/articles/2012/03/28/disappearing-deficits_