Public spending in advanced countries has risen to a record 45 per cent of national annual output and many countries face a huge task to raise government efficiency, the OECD warned yesterday.

“Average government spending in the OECD area is larger than ever before: it exceeds 45 per cent of GDP (Gross Domestic Product), up from slightly more than 40 per cent in pre-crisis 2007,” the OECD said.

It warned that “unsustainable fiscal positions” in many countries meant that public spending had to be cut and in some cases state revenues had to rise.

OECD countries faced the task of improving their fiscal positions by nearly four per cent of potential GDP merely to stabilise their debt-to-GDP ratio by 2026, the OECD estimated.

Potential GDP refers to the amount of activity an economy can generate without provoking inflation. It is a measure of efficiency throughout the whole economy. Another 3.0 percentage points would have be found in the next 15 years just to cope with the ageing of populations in these countries, the OECD said.

However, the state of public finances and the size of government were not necessarily related, since some countries with strong financial positions did not have the smallest government administrations. Rather, they had learned from previous crises and improved their tax, revenue and budget arrangements.

These pressures “will also offer the opportunity to rethink and reform the public sector to improve its performance,” the OECD said.

The secretary general of the Organisation for Economic Cooperation and Development, Angel Gurria, said: “With citizens in many countries questioning the effectiveness of governments and given the pressing fiscal constraints, governments have no choice but to reform.”

He said: “It is not about more or less government, but about better and more effective governance.”