It is not the purpose of this essay to discuss how extensive state spending should be. There is a wide range of views that are compatible with the tradition of Catholic social teaching.
Philip Booth
Professor of Finance, Public Policy and Ethics, St Mary’s University, Twickenham. and Director of Policy and Research, Catholic Bishops’ Conference of England and Wales.
Throughout the ages, governments and monarchies financed spending by borrowing from various sources when they were unable or unwilling to tax their citizens sufficiently to match their spending aspirations. In more recent times, government borrowing has taken on a specific form. Governments issue debt securities, or bonds, on which they pay interest and which are traded in markets. These bonds are, in
effect, an ‘IOU’ by which the government receives money now and promises to repay with interest. It is quite likely that most readers of this chapter will have part of their pension invested in such debt securities issued by the UK or other governments. In addition, it is worth noting that most governments today are democracies. So, we can note that government borrowing will tend to arise when the voting population as a whole is unwilling to pay taxes that are sufficient to match its aspirations for government spending as also expressed through the ballot box.
The level of government borrowing and debt in richer countries has grown enormously in recent years. In the UK, for example, government debt is about equal to one year’s national income; in the US, it is somewhat more. In Greece, it is around 200 per cent of national income and, in Italy, around 150 per cent of national income. There are now very few countries that have relatively low levels of government debt. But examples include Australia (36 per cent of national income) and Estonia (18 per cent).
In discussing whether government debt is a problem, it is necessary to consider the purposes of taxation. In Catholic social teaching, the purposes of taxation are easier to pin down than the appropriate extent of taxation. The state has particular functions for which it requires resources. These include defending the country against attack, keeping the peace internally, and the maintenance of an effective, efficient and equitable justice system. The state must also ensure that all citizens have sufficient resources to live in dignity.
In the early social encyclicals, Rerum Novarum (Pope Leo XIII) and Quadragesimo Anno (Pope Pius XI), there were warnings against the imposition of taxes on families despite their low level at that time. Those encyclicals had in mind a relatively limited role for the state and a much more extensive role for other organisations in the provision of welfare. These other organisations included the family and the Church and her related institutions. In later social encyclicals, elements of the welfare state have been welcomed, though often with cautions as in, for example, Centesimus Annus (Pope John Paul II) and Caritas in Veritate (Pope Benedict XVI) and in many comments by Pope Francis. In addition, the Church’s social teaching has consistently made the case for aid to poorer countries to be financed through taxation in richer countries.
It is not the purpose of this essay to discuss how extensive state spending should be. There is a wide range of views that are compatible with the tradition of Catholic social teaching. The view of a particular individual would depend on their perspective on the extent to which the state and other institutions (such as the family, the Church, social insurance organisations, unions, and so on) should be responsible for the finance and provision of many of those services which tend to be provided by the modern state.
The argument of this essay relates to a different question. It will be suggested that, whatever an individual’s view on the extent of taxation and government spending, the state should, in normal circumstances, raise in taxes the resources necessary to finance its intended spending. Government should certainly not systematically accumulate government debt except in emergencies.
One of the functions of government is to ensure that the principles of distributive justice are followed so that the goods of this world are distributed peacefully and fairly according to appropriate criteria. Government needs to ensure that judicial, social, civil society and economic mechanisms are working in such a way that distributive justice is realised. In addition, the state will, to a greater or lesser extent, tax some groups to provide resources to the less well-off.
Except in particular circumstances, government borrowing, and the accumulation of debt, involves one generation spending to the benefit of itself and at the expense of future generations: this should be a matter of concern for Christians. There might be situations, such as wartime and natural disasters (which would include pandemics), in which it might be expected that governments spend more than is brought in through tax revenue, and this might not offend distributive justice. For example, when a country is under attack, it might be necessary for a government to do everything needed to protect the common good (or even survival) of the community. During the pandemic, some governments borrowed large amounts of money to provide grants to businesses and employees, to invest in vaccines and testing, and so on. Such action, it can be argued, benefits future generations by allowing the pandemic to be contained. It also allowed the cost of rare events to be spread across the generations and this can be justified. Some would also suggest that government borrowing for investment in infrastructure, which might also benefit future generations, would fulfil reasonable principles of distributive justice.
What should be of more concern is the accumulation of large amounts of government debt in normal times, arising from governments desiring to spend more than they tax. This cannot easily be justified by any Catholic principle of distributive justice. Taxation in a democracy involves the consent of the electorate. Those future citizens who bear the burden of government debt cannot consent. Although the Church has commented on the debts of poorer countries, especially in relation to debt forgiveness, it has said very little, if anything, about government debt in richer countries. This is despite the record of traditionally Catholic countries, such as Portugal, Italy and Spain, in addition to countries such as the US, the UK, Greece and Japan incurring large amounts of debt – often when their economy was buoyant.
The issue of what might be called ‘inter-generational justice’ or ‘inter-generational distributive justice’ has been raised in other contexts, however.
In Populorum Progressio (1967), Pope Paul VI noted: “We are the heirs of earlier generations, and we reap benefits from the efforts of our contemporaries; we are under obligation to all men. Therefore we cannot disregard the welfare of those who will come after us…” (Populorum Progressio 17).
Perhaps the first occasion on which inter-generational justice was systematically considered in Catholic social teaching was in Laudato Si’ (2015), Pope Francis’ encyclical on the environment. A whole section of this encyclical was entitled “Justice between the generations”. Pope Francis wrote: “What kind of world do we want to leave to those who come after us, to children who are now growing up? This question not only concerns the environment in isolation; the issue cannot be approached piecemeal” (Laudato Si’ 160). He went on to warn against a culture of instant gratification and a culture in which parents consumed too much, making it more difficult for their children to acquire a home or build the resources for starting a family.
These principles that apply to environmental destruction surely also apply to government debt. We should not, without good cause, either destroy the environment at the expense of future generations or have our governments spend at the expense of future generations. A society which is comfortable with accumulating government debt because it is willing for its government to spend more than it raises in taxation is imposing an unjust burden on future generations. If debt becomes too onerous, governments might renege on repaying debt. This too would be an injustice to those who, in good faith, have lent money to the government, and it would be a failure of commutative justice insofar as certain individuals and groups would not receive their due. Such groups might include future pensioners, whose occupational pension funds have invested in government bonds, or residents of other nations.
There are many situations in which indebted governments create inflation to try to lower the burden of their debt. This has happened in countries such as Venezuela, Argentina, post-First World War Germany and, arguably, in the UK in the post-Second World War period. Not only can very high inflation lead to social chaos, but it arbitrarily redistributes income away from people whose incomes are fixed (for example, the elderly) towards others who might benefit from inflation (such as speculative investors).
One of the few people to have raised the question of government debt in the context of Catholic social teaching is Dr John Bruton, the former Taoiseach (Prime Minister) of Ireland.79 As we have done above, he drew an analogy between climate change and government debt. He also included, in his definition of government debt, future pension liabilities. His reasoning was that Western governments have created systems of pension provision that involve generations of working age promising themselves pensions and healthcare benefits which will be met by future generations of taxpayers. In earlier generations, of course, promises were made to the then working generations who are now retired or who will retire soon. The promises made to current workers will lead to a need for future working generations to pay taxes to finance those pensions. The pensions for the future older generation are not financed by the savings of the generation which granted itself the entitlements but by the taxes of future working generations.
Such systems can be sustainable if the age structure of the population remains reasonably stable. However, the decline in the birth rate, and so a reduction in the number of taxpayers as the number of pensioners increases, has left an obligation that might be impossible for future generations of taxpayers to service. In many ways, such obligations are similar to the obligations of government debt.
There are alternatives to this form of so-called ‘pay-as-you-go’ pension provision. These involve individuals, social insurance funds or, possibly, the state putting aside and investing money during the working lives of the people to whom pension promises have been made to fund their pensions in later life. Countries such as Australia tend to take that approach to a much greater degree.
If we quantify this form of what is sometimes called ‘implicit government debt’, which includes, but is not limited to, these pay-as-you-go future pension costs, it can be around four times the explicit government debt.
A measure of the extent to which our government has accumulated obligations, such as those implied by pension promises, is given by the UK’s Office for Budget Responsibility’s Fiscal Risks and Sustainability Report.80 It projects that, over the next 50 years, government debt will explode to between 300 and 400 per cent of national income, based on current policies. Even if taxes rise considerably, this will only help keep government debt at a standstill: the tax increases would not finance any increase in services or welfare payments at all. This is a very significant burden to impose on future generations.
An even bigger fear than that of imposing an unjust burden on future generations is that highly indebted governments will simply not be able to perform their legitimate functions outlined in Catholic social teaching. The recent history of Argentina, which was one of the world’s richest countries at the beginning of the 1930s, is a good example. Following decades of governments printing money to finance spending that was not financed via taxation, inflation reached well over 1,000 per cent in the 1970s. The government then took to borrowing overseas to finance spending and, in the following 20 years, there were defaults, reductions in government spending on social programmes, a near tripling of extreme poverty in 18 months from May 2001, riots and a general election in which 20 per cent of the population spoilt their ballot papers. Almost every legitimate function of government identified by Catholic social teaching was seriously impaired. This is not an isolated example and the trajectory of many countries that are relatively rich today might take them in a similar direction.
In the euro zone crisis which started in 2009, we saw examples of governments of countries such as Greece and Italy effectively losing democratic accountability to their peoples as policy programmes were imposed by creditors. Going back further, there are examples of countries losing their independence altogether. It is often argued that a driving force of the union of England and Scotland in 1707 was not the desire of the people but the indebtedness of the latter country as a result of the failure of the Darien scheme and the near financial ruin of the Scottish political and commercial establishment.
A number of Catholic Church documents comment on the importance of governments making correct moral judgements. The Compendium of the Social Doctrine of the Church (565-574) explains the moral challenges facing governments and their electorates. These questions have also been raised in a number of papal encyclicals including, most recently, Fratelli Tutti (2020).
Those in government must practice the virtue of justice. This can be very hard in situations where there is significant government debt which can make it impossible for governments to reconcile both the legitimate demands of creditors and of those who rely on social programmes and the other functions of government. Decisions will also often have to be taken to increase the tax burden beyond reasonable levels and this may be borne by people who are struggling financially.
The exercise of prudence, whereby those governing make sober and difficult judgements, also becomes more difficult when there are competing interests trying to avoid bearing the costs of government debt via reductions in social benefits, public sector wages, government service provision and so on.
When governments become indebted, there will be a temptation to pursue solutions that are attractive in the short term but that may ultimately be destructive. This might include the creation of inflation or, indeed, citizens may support authoritarian or nationalistic regimes which will try to lay the blame at the door of foreign creditors. This is relevant to the virtue of temperance. Indeed, the build-up of government debt in the first place could be regarded as being a result of interest groups within the electorate either not practising the virtue of temperance or not practising the virtue of justice as such interest groups seek undue benefits from government or try to avoid paying taxes that they should pay.
Finally, it should be said that the virtue of courage becomes more necessary in highly indebted countries. Countries eventually have to move from a situation in which the government is spending more than its people are willing to pay in taxes to one in which taxes are higher than spending so that debt can be serviced. Making such a shift requires courage.
To make the point theologically, it could be said that over-indebtedness by governments creates an occasion of sin in which virtuous behaviour becomes difficult and vicious behaviour appears tempting. Indeed, high levels of indebtedness make it more difficult for the government to cultivate the promotion of virtue among society by exercising its proper functions as defined in Catholic social teaching.
Government debt has a social and theological dimension that is rarely discussed. Politically, it should not be a “left-versus-right” issue. Whatever one’s view on the role of the state, and views differ on this amongst Catholics, there should be a wide measure of agreement on the importance of one generation not imposing unjust burdens on their successors.
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79. Dr John Bruton, ‘Catholic Social Teaching and Contemporary Political Life’ (Lecture at St Mary’s University, Twickenham) (26/4/2019).
80. Office for Budget Responsibility, Fiscal Risks and Sustainability (July 2023) pp. 15-17.
A Catholic understanding of taxation requires a Catholic understanding of the role of the state.
The Church, from her origins, was a movement of the poor and the powerless. The fact that her founder, Jesus Christ, was born in poor circumstances necessarily made concern for the poor one of its founding commitments.
The Second Vatican Council of the early 1960s, which renewed the working of the Catholic Church, calls upon people to work together for the 'common good'.
The Catechism of the Catholic Church tells us that individuals and companies have a responsibility for the common good, and thus it is morally obligatory to pay taxes that are due.
