The public finance burden of ageing societies

November 3, 2015

A new study by the IMF puts the future burden on public finances from ageing societies in stark perspective:

 

Age-Related Spending, Developed & Less-Developed Countries, 2015, 2050 vs 2100 (% of GDP)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Shrinking Populations, Rising Fiscal Challenges, October 27, 2015

 

 

Crucially, there will be a significant increase in health and pension related spending during the next 85 years, with the largest proportional increases being seen in less-developed countries.

 

Total health and pension related spending will increase from approximately 5% of GDP in less-developed countries in 2015 to approximately 15% in 2100, amuch more significant increase than in developed countries where health and pension costs as a % of GDP will grow from 16% to 24%.

 

It is against this backdrop that recent policy changes such as China's abandonment of its one child policy can be seen, as well as attempts by developed country governments to bring public spending under control.

 

In China's case, it abolished the one-child policy to expand the future labour force and build a larger population base from which to levy taxes. In the UK, where austerity measures are biting hard into government spending, government expenditure must be brought under control to cope with future burdens. 

 

What's also required is a radical range of policies to increase labour forces, such as increasing child care services to allow greater labour force participation, raising retirement ages and cutting taxes on part-time employment.

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