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Can AI balance a budget?

  • Article
  • Governments across the world need technological improvements to balance the books…
  • …in order to lift productivity and cut the cost of providing services
  • Although there are savings to be had, ageing populations will make it hard without more fundamental changes

Fixing the unfixable

On the back of a year packed full of elections, governments across the world are faced with many pressing issues that the electorates want to see tackled. However, this is easier said than done, with high debt levels, interest bills and demands on the public sector rising from ageing populations.

There is hope, however, from the technological breakthroughs in recent years – notably in terms of AI. With governments going after efficiency savings, could AI transform how much it costs the state to provide public services?

Our conclusion is a bit of yes and a bit of no. There is a huge opportunity here to embrace these new technologies to streamline the provision of government work. This could be processing data, administrative work and information gathering – the sort of work that accounts for roughly 40% of the time of many public-sector workers. In some areas, we could see more transformative changes – with the way doctors and teachers work potentially seeing big uplifts in productivity from using these new technologies. Growth may pick up due to private-sector productivity gains, even if the upside here is likely to be closer to 0.5% per year compared to the ambitious 1-1.5% range touted by some.

But these benefits look set to be relatively small against the scale of spending in areas that technology can’t help with – such as debt service, pensions and social security – meaning that at a push we could see government spending bills drop by 2-3% compared to a baseline from these improvements. Equally challenging is the fact that ageing populations look set to push up the real-terms spending needs of healthcare and social care by 1% per year over the coming decade, and total spending by 6% over 10 years – while revenues may struggle to grow by half of that over the same time with fewer working-age people.

As a result, these potential savings are only a sticking plaster – and we would need to see more substantial changes in the provision of public services or payments to cut government spending. These include higher retirement ages, reduced pension payments or social security support and a rethink of the funding of healthcare in some parts of the world. Without such changes, efficiency gains can achieve only so much, even with the adoption of AI.

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