Big, beautiful budgets: not just an American problem

Finance & economics | Fiscal foie gras

Across the rich world, governments are splashing the cash. What could go wrong?

Jun 29th 2025

LAST YEAR America ran a budget deficit of 7% of GDP. It may soon be even bigger. President Donald Trump’s One Big Beautiful Bill Act, now working its way through Congress, permanently extends tax cuts introduced in 2017, offers more to hospitality workers and old folk, and boosts payments to poor children. The proposed legislation amounts to trillions of dollars of extra borrowing over the next decade.

Mr Trump’s showmanship attracts attention—but America is not alone. Governments across the rich world are increasingly profligate (see chart 1). This year France will run a deficit worth 6% of GDP; Britain’s will be only a little smaller. The German government will borrow the equivalent of 3% of GDP. Canada’s budget balance is also moving into the red. Jean-Baptiste Colbert, a bureaucrat under Louis XIV, remarked that the essence of tax policy involved “plucking as many feathers from the goose with the least hissing”. Today’s governments do not pluck the goose. Like producers of foie gras, they stuff it.



Governments have long run deficits. France, the land of foie gras, has not seen a surplus since 1974. And a government can simultaneously borrow money and become less indebted, if the economy grows faster than debt accumulates.

What is happening today, however, is unprecedented. Deficit levels would not be unusual if the economy were in recession. In fact, rich-world GDP is growing decently. The unemployment rate is near an all-time low. Corporations’ profit growth is healthy. Meanwhile, borrowing costs have jumped. The average rich-world government, weighted by GDP, now borrows for ten years at a 3.7% annual interest rate, up from 1% during the covid-19 pandemic.

In these circumstances, many textbooks would advise, at the very least, cutting your deficit. Today’s governments prefer to double down. Many are promising to raise defence spending. Although that may be unavoidable, the same is not true of other decisions. In Japan political parties are offering fiscal sweeteners, ranging from cash handouts to consumption-tax cuts, ahead of an election to the upper house of parliament. The British government recently undid cash-saving measures it had imposed only a few months before, restoring payments to old people to help with energy bills. South Korea is cutting inheritance tax. Australia is cutting income tax.

Even once-prudent countries are getting in on the act. The German government is planning to borrow €800bn ($940bn) to invest in defence and infrastructure. “By German standards, this truly is ‘whatever it takes’ fiscal policy,” say analysts at Deutsche Bank. Switzerland, which before the pandemic ran a large budget surplus, now has a small one. Next year the country will introduce a 13th month of state-pension payments. The silver-haireds enjoying a late lunch on the banks of the Rhine do not appear to be on the breadline. These days, though, everyone gets a handout.

Why are governments so spendthrift? During the pandemic politicians developed a habit of bailing out businesses and households. High inflation then spurred demands for payments to alleviate a “cost-of-living crisis”. Today many incumbents hope to ward off populists by throwing around money. When a politician suggests a cut, 24-hour news and social media ensure that everyone hears a sob story. Fiscal responsibility is more toxic than ever before.

Until recently, it was painless for governments to run loose fiscal policy. In 2021-23 nominal GDP was growing reasonably fast, inflation was high and interest rates were low. Under these conditions, the average rich-world government could run sizeable primary deficits (ie, before interest payments) and still cut their debt load. Some countries, such as Japan, could reduce their debt-to-GDP ratio even if they ran a primary deficit of 12% of GDP. As such, two-thirds of rich-world governments are less indebted today than five years ago. Japan’s debt-to-GDP ratio has fallen by 24 percentage points. Greece’s has fallen by 68 points.

Today growth and inflation are down, and interest rates are up. We calculate that, for the average rich country to cut its debt, it must now balance its primary budget. For some, the fiscal arithmetic has radically altered. Italy’s debt-reducing primary balance has swung from a deficit of 3.1% of GDP in 2023 to a surplus of 1.3% of GDP. The Italians are shrinking their budget deficit, but not by enough. With many other governments making even less progress, and a trade war promising a growth slowdown, rich-world public debt is likely to start rising (see chart 2).

This is bad timing. Demographers have known for decades that the mid-2020s would be the point at which baby boomers would begin to retire in droves, prompting demand for health care and pensions to surge. In 2015, Britain’s Office for Budget Responsibility, a watchdog, suggested that even under benign conditions, now was the point at which the government would struggle to avoid accumulating debt.

A demographic crunch and free-spending fiscal policies are therefore about to interact in unpleasant ways. No one can predict if or when investors will lose patience, forcing interest rates much higher. Yet there must be a limit to the debt binge. As any lover of foie gras knows, overfeeding even the greediest goose can cause its liver to explode. ■