Public investment is fiscally responsible

Fiscal policies should strengthen the economy's capacity to meet public obligations over time, according to a leading group of economists. The Global Council on New Economics, cochaired by Spain's first vice-president Carlos Cuerpo, argues that fiscal responsibility must be measured by the long-term inclusive growth it creates rather than just through deficits and debt targets.

The council points out that cutting spending during a downturn can have detrimental effects, as it reduces economic activity and tax revenues, leading to a further rise in debt relative to GDP. In 2013, the IMF acknowledged that its own reassessment of European fiscal adjustments during the recent crisis underestimated the damage consolidation caused to output.

The council contends that public investment is a crucial lever for private investment and growth, rather than a cost to be minimized. When fiscal targets take priority, public investment is often the first thing to be cut, as a project is easier to postpone than a salary. This bias is reinforced by standard accounting practices, where borrowing to build a publicly owned asset like a hospital is recorded as a liability but the asset itself is excluded.

Short-term forecasts also compound this issue, capturing the cost of an investment but almost none of its return. The council emphasizes that well-directed public investment can raise productive capacity and crowd in private investment, even when an economy is running below capacity. The recent experience of Mexico illustrates this tension, as its fiscal adjustment caused public investment to fall from 3.1 percent of GDP in 2024 to 2.2 percent in 2025, despite the Plan México program depending on sustained investment in infrastructure, water, energy, and skills.