This article explores the importance of focusing on net worth and the balance sheet in managing public assets and liabilities. The welfare state, introduced by Otto von Bismarck in the 1880s German Empire, has evolved into an integral component of all developed economies, affecting government spending and liabilities such as pensions and health care. However, the financial health of a government is vital to its citizens and the economy as a whole.

Despite this importance, many governments do not produce comprehensive financial statements and those that do often omit crucial information about asset value.

This lack of financial transparency makes it difficult for governments to effectively manage public services and fiscal policy. It is suggested that governments would benefit from complementing their existing fiscal rules with a rule based on net worth, which would provide a fuller picture of their financial position. Instead of focusing solely on debt, a government’s total balance sheet, encompassing both assets and liabilities, should be considered. This approach can potentially enhance the management of public assets and promote transparency.

It is revealed that most governments in the Group of Seven (G7) countries, according to the International Monetary Fund (IMF), have a negative net worth, a condition which has worsened since the global financial crisis. The IMF research indicates that proper accounting and a shift away from debt-based fiscal rules could reveal opportunities for economic improvements.

On the asset side, efficiency gains could be achieved by better managing underused assets. On the liability side, a continuous borrowing program and investment in a global portfolio could generate revenues. A focus on net worth could unlock these opportunities.

In conclusion, the public finances of G7 countries are deteriorating, but implementation of a full balance sheet and accrual-based accounting could provide a clearer picture of the financial position and allow for better management. It is suggested that less-developed and emerging economies should adopt this strategy early to avoid the mistakes of more developed economies.