PARIS - New OECD data reveal that public social spending in OECD countries was around 21% of GDP on average in 2022. With the outbreak of the COVID-19 pandemic, the public social spending-to-GDP ratio increased from 20% of GDP in 2019 to 23% in 2020 across the OECD on average.
At just over 30% of GDP, public spending on areas such as pensions, health care and unemployment benefits is highest in France and Italy, while Austria, Belgium, Canada, Denmark, Finland, Germany, and Spain also devote more than a quarter of their GDP to public social support. In contrast, public social spending in countries such as Costa Rica, Ireland, Korea, Mexico and Türkiye accounts for less than 15% of GDP. After accounting for private social expenditure (mainly pensions and health care) and the impact of the tax system, the United States is the second highest spender, at just below 30% of GDP. At almost 8% and 6% of GDP on average across the OECD respectively, pensions and health are the main areas of public social spending.
The rise and fall of public social spending with the COVID-19 pandemic
The public social spending-to-GDP ratios are estimated to have increased by almost 3 percentage points,on average across OECD countries,during the COVID-19 pandemic
The public social spending-to-GDP ratio has increased significantly since the beginning of the pandemic (Figure1).On average, across the OECD,the public social spending-to-GDP ratio increased by almost 3 percentage points (ppt) from about 20% in 2019 to 23% in 2020.
About 2.5 ppts of the 3 ppt change was caused by an increase in public social spending, while 0.5 ppt was related to a decrease in GDP(The “twin-statistics brief” discusses “Private social expenditure and the influence of the tax system”).After the initial rise with the outbreak of the pandemic,spending-to-GDP ratios declined almost as rapidly as they increased:public social spending fell from 23%,on average across the OECD,in 2020 to an estimate of 21% in 2022.
This evolution contrasts starkly with the aftermath of the 2008/09global financial crisis(GFC). The public social spending-to-GDP ratio increased from 17.7% of GDP in 2007 to 20.6%in 2009 across the OECD on average, but in subsequent years, the ratio only decreased to 20% in 2011 and remained at this level until the outbreak of the COVID-19 pandemic. These different patterns are largely related to a much stronger economic recovery following the COVID-19 pandemic compared to the global financial crisis(OECD, 2022[1]), and a slowdown in the pace of real public social spending growth after COVID peaked in 2020/21 (Figure1), as inflation picked up strongly in 2022(
Key findings
•With the outbreak of the COVID-19 pandemic, the public social spending-to-GDP ratio increased from 20% of GDP in 2019 to 23% in 2020across the OECD on average. This surge in the spending-to-GDP ratio was largely (over 80%) due to an increase in spending rather than a decline in GDP.
•Individual country experiences differ markedly. Canada,Spain and the United States recorded the highest increases in the public social spending-to-GDP ratio from 2019 to 2020(more than 6 percentage points (ppt)), while Denmark, Hungary and Sweden had the lowest increases(less than 1 ppt).
•The increase in the public social spending-to-GDP ratio in 2020 is largely related to an increase in spending on health, unemployment and active labour market programmes as well as income-tested cash support programmes in response to the outbreak of the COVID-19 pandemic.
•Looking back, the Global Financial Crisis led to a peak in the public social spending-to-GDP ratio at 20.6% in 2009, and it took 10 years of continuous economic growth for it to fall to 19.8% of GDP across the OECD on average. By contrast, since the peak in 2020 the average public spending-to-GDP ratio fell rapidly to 22% of GDP in 2021 and was estimated to have been about 21% of GDP in 2022.
•At almost 8% and 6% of GDP on average across the OECD respectively, pensions and health are the main areas of public social spending.
Private social expenditure and the influence of tax systems
Public social expenditure amounted to about 21% of GDP on average across the OECD in 2022(Public social expenditure is discussed in the “twin-statistics brief”: The rise and fall of public social spending with the COVID-19 pandemic”). However, most countries also have private social programmes that deliver social support. The distinction between public and private social expenditure is based on who controls the relevant financial flows; public institutions (different levels of government and social security funds)or private bodies(non-government organisations(NGOs), including charities, employers and private health and pension funds (OECD, 2019[2]).All social benefits not provided by public institutions as defined above are ‘private’.The extent to which private bodies deliver social support varies across countries but on average across the OECD, it amounted to 3.1% GDP in 2019.
Key findings
•Private social spending –mainly health insurance and pensions--is worth about 3.1% of GDP, on average in the OECD; it comes in addition to public social spending which amounts to about 21%on average(OECD, 2023[1]).
•At around 12-13% of GDP, private social spending was highest in the Netherlands and the United States in 2019.
•Mandatory private social spending accounted for about 6% of GDP in Iceland(pension, survivors and incapacity benefits), the Netherlands (health insurance),and the United States (health insurance–“Obamacare”). It is largest in Switzerland at over 10% -health and (survivor) pensions-but this amount includes some voluntary pension spending that cannot be separately identified.
•Private pensions are the main item of voluntary private social expenditure which amounts to 5 to 6%of GDP in Canada, the Netherlands, the United Kingdom and the United States.
•The effect of tax systems on social expenditure is considerable:
o. In 2019, the amount of benefit income clawed back through direct and indirect taxation was highest at 7.6% of GDP in Denmark and exceeded 5% of GDP inAustria, Finland, France, Greece, Italy,the Netherlands, Norway and Sweden.
o. Those tax breaks with a social purpose (TBSPs)which are similar to cash benefits were close to 1% of GDP in France, Germany, Hungary, Korea, the Netherlands and Türkiye; and amounted to 1.3% in Portugal. TBSPs that can be seen as replacing cash benefits to households often involve tax credits towards dependent children.
o. TBSPs to stimulate provision of "current" private social benefits (often health-related) were largest in the United States at just under 2% of GDP.These TBSPs include tax relief for non-commercial non-government organisations that provide social support and tax advantages for employers and/or individuals towards private health insurance contributions.
•Accounting for private social expenditure and the impact of the tax system gives a total for social expenditure in a country. France is the biggest social spender at over 30% of GDP(it is also the country with most public social spending).The United States spends second most, at just below 30% of GDP, despite having one of the lowest levels of public social expenditure.
