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Table of Contents Introduction The Austerity Problem in the Contemporary Times Austerity Policies and Economic Growth Accounting for Austerity: More Than Balancing Books Conclusion Reference List Introduction The 2008 global financial crisis compelled governments to rethink their spending patterns by introducing major cuts in budgets coupled with coming up with strategies to reduce deficits. In other words, austerity policies focus mainly on cutting public spending. However, Schui (2014, p. 18) faults this definition by insisting that the rationale of austerity is to “restore balance in government finances and regain economic dynamism and competitiveness”. Therefore, austerity policies have evolved with time to maintain a balance between cutting government expenditure and providing quality services to the public. For instance, the introduction of New Public Management (NPM) sought to shift the austerity policy’s focus from routine expenditure cuts to ways of improving efficiency and value for the money that governments spend on the public. After the 2008 financial crisis, governments reverted to public expenditure cutbacks as the central definition of austerity. However, this move is myopic because the long-term impacts of such cutbacks do not contribute to the intended objectives. This paper holds that the introduction of austerity policies should lead public service organisations to reconsider their accountability, reduce reliance on rules and procedures, and introduce performance management based on targets, monitoring, and incentives. The Austerity Problem in the Contemporary Times In the wake of the 2008 financial meltdown, the majority of countries across the world adopted the exceptional stimulus measures to spur growth as a way of managing the crisis. However, Blyth (2013) laments that by the end of 2010, most countries had replaced such measures with austerity programs. Allegedly, during the 2010 G20 Toronto meeting, international governments agreed that reducing budgetary deficits through austerity measures would moderate the growing public debt and expenditure (Wolf 2014). The way forward would see “a mix of public spending cuts, reducing/freezing labour costs, and the privatisation of public assets and reducing the welfare state and public services in general” (Whitfield 2012, p.76). The contemporary problem with austerity lies with the failure of these objectives to spur economic growth as intended. Whitfield (2012, p. 80) notes that austerity has failed “to achieve its rhetorical and theoretical aims, such as government debt reduction, increased GDP and rising levels of full-time employment”. Apparently, austerity seems to achieve the opposite of its objectives with soaring unemployment rates, shrinking workers’ benefits and wages, business failures, and foreclosures among others. For instance, the privatisation of health care provision has led to poor service delivery and increased costs as opposed to the intended outcomes (Grimshaw 2013). A study by Kurunmaki and Miller (2008) shows that regulating and accounting for health care provision by NHS using payments by results (PbR) does not improve service delivery. The conclusion formed here is that introducing austerity measures in healthcare provision will have adverse effects on the quality of the services delivered. Another study by Oxfam (2013) shows that close to 25 million people may be living in poverty by 2015 in case the current austerity measures are not revisited. Therefore, austerity measures have evidently failed to spur economic growth and reduce poverty. With this knowledge, the overarching question is on how public organisations can integrate accounting into austerity measures to improve accountability and efficiency. Austerity Policies and Economic Growth The primary role of public service organisations is to offer quality services by utilizing the available resources even in the face of austerity. Even with budget constraints, such organisations should employ innovative strategies through the application of best accounting principles to ensure improved performance to meet the set targets and offer incentives. Accounting under austerity should help citizens to hold governments to accountability by availing information on public expenditure and tailoring ways of achieving economic growth under constrained budgetary allocations. Public services organisations are known for resource wastage and inefficiency. Accounting tools that have been used successfully in the private sector should be incorporated into public services organisations to improve efficiency and accountability. For instance, the adoption of accruals accounting allows prudent financial management in public service organisations thus reducing resource wastage in the sector. According to Bracci et al. (2015, p. 887), “Accruals accounting provides a complete and reliable picture of the financial and economic position and performance of a government, by capturing in full the assets and liabilities as well as revenue and expenses of an entity, over the period covered by the accounts and at the moment they are closed”. There have been arguments that austerity is a short-term solution to financial crises and thus the long-term implications like loss of motivation amongst employees are counterproductive. A 2015 study in the Netherlands showed that austerity measures led to strong financial stability albeit in the short term (Van der Kolk, ter Bogt


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