O'Connor mounting pressure on state finances by public-sector trade unions claiming the same wages and benefits as workers in private industry and thereby exposing the state to the ‘cost disease’ of the service sector

Budget balancing, if achieved by spending cuts rather than tax increases, and even more so if accompanied by tax cuts, comes at the expense of discretionary as distinguished from mandatory spending. As public budgets approach a balance, a growing share of government expenditure goes to cover comparatively rigid, legally fixed expenditures, such as wages for public sector workers, public pensions and, of course, debt service. As the latter is sacrosanct in a consolidation state, it is public investment, both in the physical infrastructure and in education, families, active labour market policy and the like – what has been called ‘soft’ or ‘social’ investment – that must give. Over a longer term, this will produce pressures also on ‘entitlements’ like social security, making them more politically vulnerable and less mandatory in effect. Complaints about old commitments suffocating spending for the future and strangling ‘fiscal democracy’ by denying governments political discretion may also result in less generous benefits for subsequent generations, while the benefits of existing claimants are frozen under so-called ‘grandfather clauses’. This is likely further to delegitimize social policies.