Robert Dacey, Chief Accountant Government Accountability Office USA - IFAC Sovereign Debt Seminar

1. Long-Term Fiscal
Sustainability – U.S.
Case
Bob Dacey
Chief Accountant
US Government Accountability
Office

2. Agenda
 Background
 Summary and illustrations of fiscal
sustainability reporting in the U.S.
2

3. Sustainability Reporting
Timeline
 1999 – Unaudited sustainability information
on social insurance programs initially reported
in financial statements (SFFAS 17)
 Based on annual Trustee’s Reports
 2004–guidance developed for auditing a
proposed Statement of Social Insurance
 AICPA Statement of Position 04-1
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4. Sustainability Reporting
Timeline
 2006 – Statement of Social Insurance becomes
audited financial statement (SFFAS 25 and 26)
 present value of future revenues and scheduled
benefits for social insurance programs (principally
Social Security and Medicare),
 Unqualified opinions at the agency level in 2006
 Unqualified opinions at consolidated level beginning
in 2007
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5. Sustainability Reporting
Timeline
 2010 – Reporting on comprehensive long-term
fiscal projections reporting begins, unaudited for
three years (SFFAS 36)
 essential to meet reporting objective
 helps the reader to determine whether future
budgetary resources will likely be sufficient to
sustain public services and to meet obligations as
they come due
 includes all federal programs, including social
insurance
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6. Sustainability Reporting
Timeline
 2009 and 2010 - Consolidated and
Medicare SOSI receive disclaimers of
opinion, primarily due to significant
uncertainties concerning the achievement
of projected reductions in Medicare cost
growth
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7. SFFAS 36 - Comprehensive
Long-term Fiscal Projections
 Basic Information (RSI for 2010-2012, audited beginning in
2013)
 basic financial statement, Long-Term Fiscal Projections for the
U.S. Government
 present value of projected receipts and non-interest
spending
 assuming current policy without change
 in dollars and as a % of GDP
 changes in the present value of projected receipts and non-
interest spending from the prior year
 fiscal gap - the change in non-interest spending and/or receipts
that would be necessary to maintain public debt at or below a
target percentage of gross domestic product (GDP).
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8. SFFAS 36 - Comprehensive
Long-term Fiscal Projections
 Basic Information (continued)
 fiscal gap - the change in non-interest spending
and/or receipts that would be necessary to maintain
public debt at or below a target percentage of gross
domestic product (GDP).
 the significant assumptions underlying the projections
 factors influencing trends
 significant changes in the projections from period to
period
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9. SFFAS 36 - Comprehensive
Long-term Fiscal Projections
 Disclosures should include an explanation of limitations on
long-term fiscal projections, including:
 Forward-looking projections require assumptions and
estimates relating to future events, conditions, and trends;
actual results may differ materially from those that are
projected.
 Projections are not forecasts or predictions;
 Forward-looking projections may also encompass
hypothetical future trends or events that are not
necessarily deemed probable (for example, the assumed
ability to continue issuing new public debt indefinitely).
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10. SFFAS 36 - Comprehensive
Long-term Fiscal Projections
 Required Supplemental Information
 the projected trends in:
 the relationship between receipts and
spending
 deficits or surpluses
 Treasury debt held by the public as a share of
GDP
 possible results using alternative scenarios
 the likely impact of delaying corrective action
when a fiscal gap exists (“cost of delay”)
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11. Table 1: Long Range Projections of Federal Receipts and Spending
75-Year Present Values1
Dollars in Trillions % GDP2
Receipts: 2011 2010 Change 2011 2010 Change
Social Security Payroll Taxes 39.1 37.8 1.3 4.4 4.4 0.0
Medicare Payroll Taxes 13.0 12.4 0.6 1.5 1.4 0.0
Individual Income Taxes 93.5 90.6 2.9 10.5 10.5 0.0
Other Receipts 34.7 34.4 0.3 3.9 4.0 -0.1
Total Receipts 180.2 175.2 5.0 20.3 20.2 0.0
Non-interest Spending:
Defense Discretionary 28.7 31.0 -2.3 3.2 3.6 -0.4
Nondefense Discretionary 15.4 30.7 -15.4 1.7 3.6 -1.8
Social Security 51.8 49.1 2.6 5.8 5.7 0.1
Medicare Part A3 17.6 17.3 0.4 2.0 2.0 0.0
Medicare Parts B&D4 21.1 20.4 0.7 2.4 2.4 0.0
Medicaid 24.0 24.2 -0.3 2.7 2.8 -0.1
Other Mandatory 28.1 18.8 9.3 3.2 2.2 1.0
Total Non-interest Spending 186.7 191.6 -4.9 21.0 22.1 -1.2
Non-interest Spending less Receipts 6.4 16.3 -9.9 0.7 1.9 -1.2
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12. Components of Change in Long-Term
Projections (PV - $ trillions)
Non-Interest Spending Less Receipts: FY 2010 $16.3
Components of Change:
Change due to Enacted Legislation (11.0)
Change in Economic Assumptions 2.4
Change in Reporting Period 1.0
Change in Technical Assumptions (2.3)
Total Change (9.9)
Non-Interest Spending Less Receipts: FY 2011 $ 6.4
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13. Chart 1: History and Current Policy Projections for Receipts and
Percent of GDP
30 Non-interest Spending 1980-2086
28
26
24
Non-interest Spending
22
Primary
Deficit
20 Receipts
18
16
14
12
10
1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080
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14. Chart 2: Historical and Current Policy Projections for the
Percent of GDP
Composition of Non-interest Spending
25
Total
Receipts
20
+ Other Non-interest
15 + Medicaid
+ Medicare
10
5
+ Social Security
Defense/Security
0
1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080
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15. Chart 3: History and Current Policy Projections for
Percent of GDP Debt Held By the Public, 1940-2086
350
300
250
200
150
100
50
Actual
0
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080
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16. Chart 4: History and Current Policy Projections for Total
Percent of GDP Spending, Net Interest, Non-interest Spending, and Total
40
Receipts, 1980-2086
35
Total
30
25 Net Interest Non-interest
Spending
20
Total Receipts
15
10
5
0
1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080
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17. Costs of Delaying Fiscal
Consolidation on Fiscal Gap
Period of Delay Change in Average Primary
Surplus
No Delay: Reform in 2012 1.8 percent of GDP between
2012 and 2086
Ten Years: Reform in 2022 2.2 percent of GDP between
2022 and 2086
Twenty Years: Reform in 2032 2.8 percent of GDP between
2032 and 2086
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18. Chart 5: The projected primary deficit becomes far deeper if health
10 care costs grow more rapidly than projected under current policy.
5
Current policy with the
Primary Deficit (-) and Surplus (+) as a percent of GDP
effect of health reform on
long-term Medicare and
0
Medicaid costs
-5
-10 Assume Medicare and Medicaid
costs rise 1 percentage point faster
-15
Assume Medicare and Medicaid
-20 costs rise 2 percentage point faster
-25
2000 2010 2020 2030 2040 2050 2060 2070 2080
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19. Chart 6: Projected debt held by the public under varying
600 assumptions for long term interest rate
500 Assume long term interest rate rises by
Primary Deficit (-) and Surplus (+) as a percent of GDP
400
Assume long term interest rate
300
200
Current policy
100
Assume long term interest rate
0
2000 2010 2020 2030 2040 2050 2060 2070 2080
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20. Questions?
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