Highest proportion of government expenditure goes to social protection and health

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The FINANCIAL — In 2017, total government expenditure in the European Union (EU) amounted to 45.8% of gross domestic product (GDP). This share has steadily decreased since 2012, when it stood at 48.9% of GDP.

Among the main functions of general government expenditure in the EU, ‘social protection’ is by far the most important, equivalent to 18.8% of GDP in 2017. The next most important areas are ‘health’ (7.0%), ‘general public services’ (5.8%) such as external affairs and public debt transactions, ‘education’ (4.6%) and ‘economic affairs’ (4.0%). The functions ‘public order and safety’ (1.7%), ‘defence’ (1.3%), ‘recreation, culture and religion’ (1.1%), ‘environmental protection’ (0.8%) and ‘housing and community amenities’ (0.6%) have more limited weights.

Share of social protection expenditure related to old age highest in Greece and Finland and lowest in Ireland

Social protection represented the most important area of general government expenditure in 2017 in all EU Member States. The ratio of government social protection expenditure to GDP varied across EU Member States from less than 10% in Ireland (9.5%) to nearly a quarter in Finland (24.9%). Six Member States – Finland, France, Denmark, Italy, Austria and Sweden – devoted at least 20% of GDP to social protection, while Ireland, Lithuania, Malta, Latvia, Romania, Czechia and Bulgaria each spent less than 13% of GDP on social protection.

Total government expenditure continued to decrease

Social protection expenditure can be further broken down into a number of detailed groups. The group ‘old age’, which includes pensions, accounted for 10.1% of GDP in the EU in 2017. It made up the largest part of social protection expenditure in all Member States, with the highest shares being registered in Greece and Finland (both 13.8%), followed by France and Italy (both 13.4%) as well as Austria (12.5%). In contrast, Ireland (3.4%), Lithuania (5.7%) and Cyprus (6.0%) recorded the lowest shares.

Government expenditure on health highest in Denmark, on education highest in Sweden
With shares of at least 8% of GDP in 2017, Denmark (8.4%), Austria (8.2%) and France (8.0%) recorded the highest ratios to GDP devoted to health among EU Member States. The highest ratios to GDP of government expenditure on general public services were observed in Greece (8.3%) and Italy (8.2%). For education, the highest shares were registered in Sweden (6.8%), Denmark (6.5%) and Belgium (6.3%).

The highest shares of government expenditure on economic affairs in 2017 were recorded in Hungary (7.1% of GDP) and Belgium (6.3%). For public order & safety, shares were highest in Bulgaria (2.5%) and Hungary (2.4%).
In 2017, at least 2% of GDP was spent on defence in Greece (2.5%) as well as Estonia and Cyprus (both 2.0%). The highest shares of government expenditure on recreation, culture & religion were recorded in Hungary (3.5%) and Estonia (2.1%), on environmental protection in the Netherlands (1.4%) and Greece (1.3%), and on housing & community amenities in Bulgaria and Cyprus (both 1.6%).

Evolution of general government total expenditure

During the first three years of the economic and financial crisis (2007-2009), government expenditure as a percentage of GDP grew in the EU. It increased from 44.6% of GDP in 2007 to 50.0% in 2009, which was partially due to a lower GDP. Apart from an increase between the years 2011 and 2012 (from 48.5% of GDP to 48.9%), it has steadily decreased ever since, standing at 45.8% of GDP in 2017. This gradual decrease was partly the result of the fiscal consolidation measures, renewed economic growth and counter-cyclical reactions of government expenditure. In recent years, one-off expenditure to support financial institutions has been decreasing.

Not all the functions of government expenditure evolved the same between 2007 and 2017. Some of the functions have a natural tendency to be counter-cyclical, even without a change in policy. For example, government expenditure on unemployment benefits (part of social protection) is more prone to have a natural counter-cyclical evolution than other functions, such as government expenditure on education. During an economic crisis, more people become unemployed, whereas the number of pupils and students is more affected by demographic changes. Between 2007 and 2009, expenditure on unemployment in the EU increased from 1.4% of GDP to 1.8%, decreasing ever since to stand at 1.2% in 2017. Social protection expenditure as a whole increased from 17.0% of GDP (2007) to 19.4% (2009), standing at 18.8% of GDP in 2017. In the same period, government expenditure on education in the EU rose from 4.9% of GDP (2007) to 5.2% (2009), and then gradually decreased to 4.6% (2017).

Social protection and health expenditure increased in comparison to other general government expenditure

‘Social protection’ and ‘health’ are the only two functions whose shares in total government expenditure increased during the period from 2007 to 2017. In the EU, social protection expenditure increased its share in total expenditure from 38.2% to 41.1%, while expenditure on health increased from 14.5% to 15.3% of total expenditure. At the same time, the share of all other functions decreased. Government expenditure on education, for example, fell from 10.9% of total expenditure in 2007 to 10.2% in 2017. This pattern appears unaffected by economic cycles.


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