The COVID - 19 pandemic may have blown public debt to levels already prompting some governments to consider consolidation, but that s nothing compared to fiscal difficulties brewing in the coming decades, the OECD said.
According to its long-term scenario, a deceleration in large emerging economies, demographic change and slowing product gains will drag trend economic growth among the OECD s 38 members and the Group of 20 nations to 1.5 per cent in 2060 from around 3 per cent currently. At the same time, states will face rising costs, particularly from pensions and health care. Our sorry, but this video has failed to load.
Tap here to see other videos from our team. World faces much larger fiscal problems than the debt hangover from COVID, warns OECD To stabilize public services and benefits while maintaining debt in that environment, governments would have to raise revenues by nearly 8 per cent of gross domestic product, the OECD said. In some countries, such as France and Japan, the size of the challenge would amount to more than 10 per cent of output, and the economists didn t even account for new expenditures such as climate change adaptation.
Secular trends such as population aging and rising relative price of services will continue adding pressure on government budgets, the OECD said in the policy paper prepared by Yvan Guillemette and David Turner. Fiscal pressure from these long-run trends dwarf those associated with servicing COVID-legacy public debt. The OECD said that nations do not necessarily raise taxes to meet these challenges, making them tax tolerant. Instead, it called for reforms to raise employment rates and boost retirement ages. A combination of measures in those two areas — including ensuring effective retirement age rise by two thirds of future gains in life expectancy — could halve the projected increase in fiscal pressure by 2060 in the median country, according to the organization.