- The Role of the Public Sector in Financial Stability IFAC Annual Council Seminar November 17, 2009 David M. Walker President and CEO The Peter G. Peterson Foundation and Former Comptroller General of the United States

Source: PGPF analysis of Office of Management and Budget data. Composition of Federal Spending Defense Social SecurityMedicare & Medicaid 2 InterestAll Other Spending

Source: PGPF analysis of Office of Management and Budget data. Federal Spending for Mandatory and Discretionary Programs Net Interest DiscretionaryMandatory 3

Major Fiscal Exposures ($ trillions) Explicit liabilities$6.9$12.2 Publicly held debt Military & civilian pensions & retiree health Other Commitments & contingencies E.g., PBGC, undelivered orders Implicit exposures Future Social Security benefits Future Medicare Part A benefits Future Medicare Part B benefits Future Medicare Part D benefits Total$20.4$56.4 Source: PGPF analysis of 2000 and 2008 Financial Report of the United States Government. Note: Estimates for Social Security and Medicare are at present value as of January 1 of each year and all other data are as of September Social Security and Medicare Trustees’ reports show implicit exposures totaling $45.8 trillion 4

5 $56.4 Trillion = BURDEN per CAPITA

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Potential Fiscal Outcomes Under Alternative Simulation Revenues and Composition of Spending as a Share of GDP Revenue Source: GAO Fall 2009 analysis. Percent of GDP 7

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Common Denominators The parallels between our current financial crisis and the federal government’s finances: – Disconnect between those who benefit and those who pay the price – Inadequate transparency regarding the nature and magnitude of risks – Too much leverage, not enough focus on cash flow, and over-reliance on credit ratings – Failure of normal oversight and risk management mechanisms

The Way Forward Implement statutory budget controls that address discretionary and mandatory spending as well as tax preferences Achieve Social Security reform that makes the program solvent, sustainable, secure and more savings oriented Reduce the rate of increase in health care costs and more effectively target related taxpayer subsidies and tax preferences Pursue comprehensive health care reform that addresses coverage, cost, quality and personal responsibility Pursue comprehensive tax reform that makes the system more streamlined, understandable, equitable and competitive while also generating adequate revenues Review, re-prioritize and re-engineer the base of the federal government to focus on the future and generate real results Ensure that we have processes that will enable us to achieve the above objectives within a reasonable period of time 10