Public net worth – the measure of financial strength and success

PUBLIC Net Worth: Accounting – Government – Democracy (Palgrave Macmillan, London 2023) aims to do more than inform or educate. It is a book with a mission: to get governments to overhaul their approach to public finance and accounting.

The five authors draw on a wealth of professional experience in public finance across various jurisdictions to make the case that government accounting and budgeting should focus on “public net worth” – the sum of public sector assets and liabilities – rather than mere cashflow, public debt or deficits. This, they claim, holds the key to better decision-making, more effective government and stronger democracies.

Importance of the government balance sheet and “net worth”

The book makes a significant contribution by shining the spotlight on an important but often overlooked area of public finance: the government balance sheet. Preoccupation with the size of public debt means that other liabilities such as public pension obligations are often overlooked. As such liabilities could be larger than public debt in some countries, they are necessary for a complete picture of a government’s financial position. Also critical are government assets, both financial and non-financial. Disregarding assets may lead to a fundamental misreading of a country’s fiscal strength, as in the case of Singapore which has a relatively high public debt to GDP ratio but has assets considerably in excess of liabilities.