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Budgetary consequences of ageing
Estimates of the
Study Committee on Ageing
The latest report by the Study
Committee dates from June 2010(1).
It calculates the overall budgetary cost of ageing, a concept defined as the
variation in total social expenditure over a given period. In the Study
Committee’s reference scenario (projecting annual productivity growth of 1.5
% and a structural unemployment rate of 8 % in the long term), total social
expenditure increases by 6.3 % of GDP between 2009 and 2060. 4.7 percentage
points of that increase can be attributed to the growth of expenditure on
pensions (rising from 9.7 % to 14.4 % of GDP), and 3.6 percentage points to
the rise in health care costs. Under the assumptions applied, unemployment
expenditure would decline by 1.1 % of GDP (from 2.3 % to 1.2 % of GDP). The
cost of family allowances is also assumed to fall, namely by 0.4 percentage
point of GDP between 2009 and 2060 (from 1.7 % to 1.3 % of GDP).
Total social expenditure would come to
31.8 % of GDP in 2060 compared to 25.5 % in 2009, or 0.1 percentage point
more than the estimate in the previous report concerning the same period.
However, it should be noted that, in the previous report, the budgetary cost
of ageing came to 8.2 % of GDP over the period 2008-2060. That percentage
included a very large rise in social spending as a ratio of GDP in 2009. A
major factor here was the economic and financial crisis which, in 2009, led
to a substantial fall in GDP compared to 2008.
In the medium term, from 2009 to 2015,
the budgetary cost of ageing is set to rise by 1.1 % of GDP, of which 0.6
percentage point is attributable to pensions and 0.8 percentage point to
health care costs. Unemployment costs will decline from 2.3 % of GDP to 2.1
% of GDP.
TABLE
26
Budgetary consequences of ageing |
|
Components of the budgetary cost of ageing (%
of GDP) |
2009 |
2015 |
2030 |
2060 |
2009-2015 |
2015-2060 |
2009-2060 |
|
Pensions |
9,7 |
10,3 |
13,2 |
14,4 |
0,6 |
4,1 |
4,7 |
|
Employees |
5,4 |
5,8 |
7,5 |
8,2 |
0,4 |
2,5 |
2,9 |
|
Self-employed |
0,8 |
0,8 |
1,0 |
0,9 |
0,0 |
0,1 |
0,1 |
|
Public sector |
3,5 |
3,7 |
4,7 |
5,2 |
0,2 |
1,5 |
1,7 |
|
Health care |
8,1 |
8,9 |
9,8 |
11,7 |
0,8 |
2,9 |
3,6 |
|
Acute |
- |
7,4 |
8,0 |
8,7 |
- |
1,3 |
- |
|
Long-term |
- |
1,5 |
1,8 |
3,1 |
- |
1,6 |
- |
|
Incapacity |
1,5 |
1,6 |
1,5 |
1,4 |
0,1 |
-0,2 |
-0,1 |
|
Unemployment |
2,3 |
2,1 |
1,4 |
1,2 |
-0,2 |
-0,9 |
-1,1 |
|
Early retirement |
0,4 |
0,4 |
0,3 |
0,3 |
0,0 |
-0,1 |
-0,1 |
|
Family allowances |
1,7 |
1,6 |
1,5 |
1,3 |
-0,1 |
-0,3 |
-0,4 |
|
Other social security expenditure |
1,8 |
1,7 |
1,6 |
1,5 |
-0,1 |
-0,2 |
-0,3 |
|
Total |
25,5 |
26,6 |
29,2 |
31,8 |
1,1 |
5,2 |
6,3 |
|
p.m. Remuneration of teaching staff
|
4,3 |
4,1 |
4,1 |
4,0 |
-0,2 |
-0,1 |
-0,3 |
Chart 5
Expected trend in social benefits (in % of GDP)
Source: Study Committee on Ageing (2010)
As already stated, the reference scenario used by the Study Committee is based
on average annual productivity growth of 1.5 %. Since there is still
considerable uncertainty in the wake of the crisis, the Study Committee decided
to calculate 2 alternative scenarios, as it did last year, namely a scenario
with stronger productivity growth (1.75 % per annum) and a scenario with weaker
productivity growth (1.25 % per annum).
In the scenario with weaker productivity growth (averaging 1.25 % per annum from
2015), social expenditure increases and the economic basis contracts, the result
being that between 2009 and 2060 the budgetary cost of ageing is 1.2 percentage
points higher than in the reference scenario, equivalent to an overall budgetary
cost of 7.5 % of GDP. The rise in expenditure as a percentage of GDP is seen
mainly at the level of employees’ pensions, given that they are calculated over
a full career and therefore only gradually feel the influence of weaker
productivity growth. The opposite is true in the scenario which assumes stronger
productivity growth in the long term, namely 1.75 %, where the budgetary cost of
ageing would be 1.1 percentage points lower (corresponding to a budgetary cost
of 5.2 % of GDP), once again owing to the impact of employees’ pensions.
In the reference scenario, the effective age of departure from the labour market
increases by two years over the period considered, from 59.7 years in 2008 to
61.7 years in 2060. The Study Committee proposes a sensitivity analysis based on
a bigger increase, namely one additional year compared to the reference
scenario, i.e. an increase of 3 years in the effective age of retirement of the
population of working age between 2008 and 2060. In that scenario, the budgetary
cost of ageing is 1.4 percentage points lower than in the reference scenario as
a result of a rise in the employment rate (particularly for persons aged from 55
to 64 years) and a fall in the unemployment rate. In this alternative scenario,
it is particularly the pension costs that are lower than in the reference
scenario: instead of rising by 4.7 % of GDP, pension costs would increase by
only 3.9 % of GDP.
Chart 6
Sensitivity of the scenarios analysed by the Study Committee on
Ageing
Source: Study Committee on Ageing (2010)
International comparison of the sustainability of public finances
A comparison with other countries offers a perspective on the issue of
population ageing in Belgium. According to a European Commission analysis,
ageing-related expenditure in Belgium will rise by 6.6 % between 2010 and 2060.
That puts Belgium in a second group of countries which includes Finland, the
Czech Republic, Lithuania, the United Kingdom and Germany, where the cost of
ageing is more moderate though still high (between 4 and 7 percentage points of
GDP).
TABLE
27
Increase in ageing-related costs in the European Union |
|
|
Pensions |
Health care |
Long-term care |
Unemployment |
Total |
|
|
|
Change |
|
Change |
|
Change |
|
Change |
|
Change |
|
In % of GDP |
2010 |
2010 to 2060 |
2010 |
2010 to 2060 |
2010 |
2010 to 2060 |
2010 |
2010 to 2060 |
2010 |
2010 to 2060 |
|
Belgium |
10,3 |
4,5 |
7,7 |
1,1 |
1,5 |
1,3 |
7,3 |
-0,3 |
26,8 |
6,6 |
|
Bulgaria |
9,1 |
2,2 |
4,8 |
0,6 |
0,2 |
0,2 |
3,0 |
0,2 |
17,1 |
3,2 |
|
Czech Republic |
7,1 |
4,0 |
6,4 |
2,0 |
0,2 |
0,4 |
3,3 |
0,0 |
17,0 |
6,3 |
|
Denmark |
9,4 |
-0,2 |
6,0 |
0,9 |
1,8 |
1,5 |
8,0 |
0,1 |
25,2 |
2,2 |
|
Germany |
10,2 |
2,5 |
7,6 |
1,6 |
1,0 |
1,4 |
4,6 |
-0,4 |
23,3 |
5,1 |
|
Estonia |
6,4 |
-1,6 |
5,1 |
1,1 |
0,1 |
0,1 |
3,2 |
0,3 |
14,8 |
-0,1 |
|
Ireland |
5,5 |
5,9 |
5,9 |
1,7 |
0,9 |
1,3 |
5,3 |
-0,2 |
17,5 |
8,7 |
|
Greece |
11,6 |
12,5 |
5,1 |
1,3 |
1,5 |
2,1 |
3,8 |
0,1 |
21,9 |
16,0 |
|
Spain |
8,9 |
6,2 |
5,6 |
1,6 |
0,7 |
0,7 |
4,8 |
-0,2 |
20,0 |
8,3 |
|
France |
13,5 |
0,6 |
8,2 |
1,1 |
1,5 |
0,7 |
5,8 |
-0,2 |
29,0 |
2,2 |
|
Italy |
14,0 |
-0,4 |
5,9 |
1,0 |
1,7 |
1,2 |
4,3 |
-0,2 |
26,0 |
1,6 |
|
Cyprus |
6,9 |
10,8 |
2,8 |
0,6 |
0,0 |
0,0 |
5,8 |
-0,6 |
15,5 |
10,7 |
|
Latvia |
5,1 |
0,0 |
3,5 |
0,5 |
0,4 |
0,5 |
3,3 |
0,3 |
12,3 |
1,3 |
|
Lithuania |
6,5 |
4,9 |
4,6 |
1,0 |
0,5 |
0,6 |
3,5 |
-0,4 |
15,1 |
6,0 |
|
Luxembourg |
8,6 |
15,3 |
5,9 |
1,1 |
1,4 |
2,0 |
4,0 |
-0,3 |
19,9 |
18,2 |
|
Hungary |
10,5 |
0,6 |
5,8 |
1,3 |
0,3 |
0,4 |
4,5 |
-0,3 |
21,0 |
2,0 |
|
Malta |
8,3 |
5,1 |
4,9 |
3,1 |
1,0 |
1,6 |
5,0 |
-0,7 |
19,2 |
9,2 |
|
Netherlands |
6,5 |
4,0 |
4,9 |
0,9 |
3,5 |
4,6 |
5,6 |
-0,2 |
20,5 |
9,4 |
|
Austria |
12,7 |
1,0 |
6,6 |
1,4 |
1,3 |
1,2 |
5,2 |
-0,2 |
25,7 |
3,3 |
|
Poland |
10,8 |
-2,1 |
4,1 |
0,8 |
0,4 |
0,7 |
3,8 |
-0,6 |
19,1 |
-1,1 |
|
Portugal |
11,9 |
1,5 |
7,3 |
1,8 |
0,1 |
0,1 |
5,6 |
-0,4 |
24,9 |
2,9 |
|
Romania |
8,4 |
7,4 |
3,6 |
1,3 |
0,0 |
0,0 |
2,7 |
-0,2 |
14,7 |
8,5 |
|
Slovenia |
10,1 |
8,5 |
6,8 |
1,7 |
1,2 |
1,7 |
5,1 |
0,7 |
23,1 |
12,7 |
|
Slovakia |
6,6 |
3,6 |
5,2 |
2,1 |
0,2 |
0,4 |
2,9 |
-0,6 |
14,9 |
5,5 |
|
Finland |
10,7 |
2,6 |
5,6 |
0,8 |
1,9 |
2,5 |
6,4 |
0,0 |
24,7 |
5,9 |
|
Sweden |
9,6 |
-0,2 |
7,3 |
0,7 |
3,5 |
2,2 |
6,6 |
0,0 |
27,1 |
2,7 |
|
United Kingdom |
6,7 |
2,5 |
7,6 |
1,8 |
0,8 |
0,5 |
4,0 |
0,0 |
19,2 |
4,8 |
|
European Union (EU) |
10,2 |
2,3 |
6,8 |
1,4 |
1,3 |
1,1 |
4,9 |
-0,2 |
23,2 |
4,6 |
|
Euro area |
11,2 |
2,7 |
6,8 |
1,3 |
1,4 |
1,3 |
5,0 |
-0,2 |
24,5 |
5,1 |
(1) High Council
of Finance, Study Committee on Ageing, Annual Report, June 2010.
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