We must continue to reform the labor market and pensions. Belgium has a lot to gain there to finance its aging, says the OECD.
With the pandemic gradually receding, budgetary concerns will not go away. Auto the acceleration of expenditure linked to the aging of the population will continue. Hence the need to carry out structural reforms, mainly in the labor market and pensions, to absorb this additional cost. This is the message formulated by the OECD on the occasion of the publication of its fiscal outlook for 2060.
“As long as the pandemic is not completely under control, fiscal policy must continue to support the public health effort and help preserve the economic fabric of countries,” said the multilateral organization based in Paris. She believes that the pandemic has weighed down on average by 20 to 25% of GDP the debt of the States.
On the other hand, continues the OECD, “once the recovery is well established, the EU must end temporary programs and reassess long-term fiscal sustainability.” Why ? Because debt continues to rise as long-term growth eases.
Once the covid is behind us, growth should be around 3% on average in the OECD. Next, it would fall to 1.5% in 2060 due to a deceleration in the large emerging economies, China and India in the lead.
At the same time, aging will become more and more expensive, which will put pressure on the debt. “Without policy changes, maintain current public service standards and delivery (…) could increase fiscal pressure in the median OECD country by almost 8% of GDP between 2021 and 2060, and much more in some countries, “warns the OECD.
Stop early retirement
The answer to this challenge is the best structural reforms. Reforming the labor market would be particularly profitable “in the countries furthest from best practices” in this area. And the OECD cites as examples (or rather counter-examples) Belgium, France and Italy, due to insufficient employment rates. In those countries that stand to gain the most from labor market reforms, the potential reduction in fiscal pressure could reach 4-5% of GDP.
In terms of pensions, reforms should aim to close access to early retirement and increase the effective retirement age. The countries with the most to gain are Belgium, France and Spain, with again a potential reduction in fiscal pressure of 4 to 5% of GDP.
If we play on both sides, namely the labor market and pensions, we could reduce the budgetary pressure from 8 to 10% of GDP.