Academic journal article Australian Journal of Social Issues

Population Ageing and the Public Purse: Australia in Comparative Perspective

Academic journal article Australian Journal of Social Issues

Population Ageing and the Public Purse: Australia in Comparative Perspective

Article excerpt

Introduction

There is a new spectre haunting Europe, the countries of the Organisation for Economic Co-operation and Development (OECD) and, if the World Bank is to be believed, the world as a whole -- that of an ageing population. For national economic policymakers in many countries, and for the major international agencies which provide their economic policy advice, population ageing has many of the characteristics of a moral panic. The World Bank (1994) talks of `the old age crisis' and the OECD Secretariat (1996) of `a critical policy challenge'. National treasuries, irrespective of country-specific demographics, use the supposedly ineluctable consequences of a `greying' population as a mantra to be invoked against all proposals for enhanced public spending. New commitments are out of the question when existing commitments to the old (and those who will become old) promise national ruin in a matter of decades. More nuanced appraisals sometimes emerge in the fine print of otherwise polemical reports, and professional researchers within the bureaucracy sometimes take a more balanced view (e.g. Clare & Tulpule 1994), but, for the most part, the story that prevails is one of impending doom.

Views of this kind are superficially plausible. The world's population is ageing, that of the OECD countries in particular. It is estimated that between 2000 and 2030 the OECD's elderly population (aged 65 and over) will increase by 61.8%, from 13.9% to 22.5% (Bos et al. 1994). At the same time, it is clear that this increased percentage of the old has direct budgetary implications. Many of the countries in the world, and all but one of those within the pre- 1990 boundaries of the OECD,(1) have age pension systems with extensive coverage. All other things being equal, therefore, a more elderly population means proportionately greater income maintenance expenditure as a percentage of GDP.

Nor are these the only implications. A majority of commentators, including the World Bank, argue that ageing has a direct influence on health spending `since health problems and costly medical technologies are concentrated among the old' (World Bank 1994: 3). The OECD concedes the possibility of an alternative scenario that `the major increase in health costs in later life is actually determined by the lifetime remaining before death occurs' (Roseveare et al. 1996: 8); but the former is the argument most commonly encountered in the population ageing literature. Ageing also has other costs. Where governments provide services for the elderly, such as nursing homes and home help, these too must be factored into the financial equation resulting from an ageing population.

Finally, there is the question of how the costs of population ageing will be paid for. International economic agencies and national economic policy-makers are deeply aware of the temptations facing democratic politicians confronted by demands for additional spending from relatively cohesive interest constituencies (for the clearest exposition of this dilemma see Brittan 1977). For modern economists, as for their more orthodox forebears, spending without corresponding taxation is the primrose path of dalliance, leading to eternal damnation. If politicians give way to their natural inclination to defer the inevitable fiscal consequences of increased public spending on the elderly by increased borrowing, the cost to the public treasury will ultimately be far greater. This suggests that, in addition to increased spending on pensions, health care and aged services, population ageing is likely to result in a never-ending spiral of increasing debt interest payments.

Argued in general terms, these arguments seem persuasive. They appear to gain additional substance from comparative public policy research, which has demonstrated linkages between the age structure of the population and spending on welfare and public expenditure more generally (see Pampel & Williamson 1989; Huber, Ragin & Stephens 1993; Castles 1998). …

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