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Belgian Federal Planning Bureau Economic Analyses and Forecasts Budgetary Sustainability of Ageing Belgian and European Answers Micheline.

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Presentation on theme: "Belgian Federal Planning Bureau Economic Analyses and Forecasts Budgetary Sustainability of Ageing Belgian and European Answers Micheline."— Presentation transcript:

1 Belgian Federal Planning Bureau Economic Analyses and Forecasts Budgetary Sustainability of Ageing Belgian and European Answers Micheline Lambrecht International Conference ‘Population Ageing. Towards an Improvement of the Quality of Life?’ Organised by the Belgian Platform on Population and Development Brussels, 1 March 2007

2 Economic analyses and forecasts 2 Federal Planning Bureau Themes of the Intervention The Actors (FPB – Eurostat – EU DG ECFIN – AWG - EPC) The Belgian Ageing Policy The European Ageing Policy The Impact of Ageing on Public Expenditure for the EU25 Member States Main Conclusions The speaker would like to express her thanks to Mr Carone from DG-ECFIN, Ms Fasquelle, Ms Vandevoorde and Ms Van Brussel from the FPB for their collaboration in the preparation of these slides.

3 Belgian Federal Planning Bureau Economic Analyses and Forecasts The Actors FPB – Eurostat – EU DG ECFIN – AWG - EPC

4 Economic analyses and forecasts 4 Federal Planning Bureau Short-term, Medium-term and Long-term forecasts (for up to 50 years - MALTESE model) of demography and age-related expenditure Secretary of the Belgian Ageing Committee constituted by the Act of 5 September 2001 Belgian representative in the Ageing Working Group of the EU Various analyses to test political measures, shock impacts and trends, at the request of the government, social partners or members of parliament The Actors: the Belgian Federal Planning Bureau (FPB) main tasks relating to ageing

5 Economic analyses and forecasts 5 Federal Planning Bureau The Actors: Eurostat The European institute of statistics, located in Luxemburg Makes regularly population forecasts in collaboration with the national institutes of statistics and associated institutes (for Belgium: Statistics Belgium and FPB) A new team was constituted at the beginning of 2004 It published, in April 2005, EUROPOP2004, population forecasts until 2050 for the 25 EU members It made for the AWG, adapted forecasts incorporating more life-expectancy convergences between the EU15 countries and actualized migration hypotheses

6 Economic analyses and forecasts 6 Federal Planning Bureau The Actors: the EU DG ECFIN and the EPC The EU Directorate-General for Economic and Financial Affairs (DG ECFIN) makes support studies for the Economic Policy Committee (EPC) which is responsible to and advices the European Ministers of Economy and Finances. DG ECFIN assumes the Secretariat and delivers studies in support of the several working groups constituted around the EPC, as the one working on Ageing Populations and Sustainability (AWG).

7 Economic analyses and forecasts 7 Federal Planning Bureau The Actors: the AWG The EPC’s ‘Working Group on Ageing Populations and Sustainability’ (AWG), constituted in December 1999, saw its mission redefined in February It comprises national representatives of the Member States, the Commission services (DG ECFIN), Eurostat, observers from other international organisations as the OECD (which avoids double work), ECB and if relevant, the IMF, the WB and other EU Committees, in particular the Social Protection Committee. It receives its mission from the EPC and regularly reports to it. The President of the AWG is Henri Bogaert, Commissioner for the Belgian FPB. The core business of the AWG is to: –contribute to assess the long-term sustainability of public finances, through the LT age-related budgetary projections, appropriate indicators and peer reviews of the new major pension reforms –analyse, on request of the EPC, various consequences of ageing on LT fiscal sustainability, macroeconomic aggregates

8 Belgian Federal Planning Bureau Economic Analyses and Forecasts The Belgian Ageing Policy

9 Economic analyses and forecasts 9 Federal Planning Bureau How to resume the federal Belgian ageing strategy ? Fiscal sustainability -Incentives to work more, also in the new work schemes, and longer -Global management of social security -Limited welfare adaptations of the existing pensions -Analysis and control of health expenditure -Reduction of public debt and constitution of an ageing fund Social sustainability within the framework of the three pillars pension system: -Consolidation of the first pillar, support of the lowest pensions -Development of a more generalized and guaranteed second pillar -Fiscal incentives inside the third pillar

10 Economic analyses and forecasts 10 Federal Planning Bureau SOCIAL BENEFITS EXPENDITURE BY SCHEME AND REGIME SOCIODEMOGRAPHIC SCENARIO DEMOGRAPHIC SCENARIO SOCIODEMOGRAPHIC PROJECTION By age group and gender MACROECONOMIC SCENARIO MACROECONOMIC PROJECTION: Employment, GDP, wages, … DEMOGRAPHIC PROJECTION By age group and gender Number of beneficiaries Average amount HEALTH CARE EXPENDITURE SOCIAL SECURITY ACCOUNTS Revenues, expenditure, balance, debt SOCIAL POLICY SCENARIO BUDGETARY POLICY SCENARIO GENERAL GOVERNMENT ACCOUNTS Revenues, expenditure, balance, debt THE MALTESE SYSTEM OF MODELS

11 Belgian Federal Planning Bureau Economic Analyses and Forecasts The European Ageing Policy

12 Economic analyses and forecasts 12 Federal Planning Bureau The European Ageing strategy Focus on the employment rate (Lisbon, 2000) - objectives: 70% men and women, 60% women, 50% older workers - decrease of early retirement - long life learning « Three-pronged strategy for pensions » (Stockholm, 2001): -Higher employment rate -Lower public debts -Pensions reforms Focus on the pensions reforms (Laeken, 2001) - adequation - fiscal sustainability - modernization Progressively, more analysis of health expenditure

13 Belgian Federal Planning Bureau Economic Analyses and Forecasts The Impact of Ageing on Public Expenditure for the EU25 Member States A common work of MS in AWG, Eurostat, DG ECFIN, EPC (all full reports with their summaries and annexes)

14 Economic analyses and forecasts 14 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

15 Economic analyses and forecasts 15 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

16 Economic analyses and forecasts 16 Federal Planning Bureau The Demographic Evolutions: Belgium / European Union Main Demographic Parameters (1) Eurostat AWG baseline (EUROPOP2004, adapted) Fertility (TFR): Belgium EU EU Life expectancy - Men Belgium EU EU

17 Economic analyses and forecasts 17 Federal Planning Bureau The Demographic Evolutions: Belgium / European Union Main Demographic Parameters (2) Eurostat AWG baseline (EUROPOP2004, adapted) Life expectancy - Women Belgium EU EU Net migration (thousands) Belgium EU EU

18 Economic analyses and forecasts 18 Federal Planning Bureau The Demographic Evolutions: Belgium / European Union Total Population and Age Structure millions - Eurostat AWG baseline T otal Belgium10,410,81,81,66,86,31,83,0 EU15382,7388,362,452,7255,1221,365,2114,2 EU1074,165,512,48,651,737,810,119,1 EU25456,8453,874,860,4306,8259,175,3133,3

19 Economic analyses and forecasts 19 Federal Planning Bureau The Demographic Evolutions: Belgium / European Union Old Age Dependency Ratios (65+/15-64)x100 Eurostat AWG baseline Belgium EU EU EU

20 Economic analyses and forecasts 20 Federal Planning Bureau A Summary of the EU25 Demographic Evolution A Summary of the EU25 Demographic Evolution (2006 EPC/Commission Report on Ageing and Giuseppe Carone from DG ECFIN) Males Females Males Females Total population: 457 mill. in 2004, 471 mill. in 2030, 454 mill. in 2050Total population: 457 mill. in 2004, 471 mill. in 2030, 454 mill. in 2050 Most numerous age cohorts: age 36 in 2004, age in 2050Most numerous age cohorts: age 36 in 2004, age in 2050 Population aged 65+ doubles until 2050 (from 75 to 133 millions in 2050)Population aged 65+ doubles until 2050 (from 75 to 133 millions in 2050) Old age dependency ratio (65+/15-64): doubles from 25 to 51Old age dependency ratio (65+/15-64): doubles from 25 to 51.

21 Economic analyses and forecasts 21 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

22 Economic analyses and forecasts 22 Federal Planning Bureau Labour participation Labour participation Participation rates are projected using the cohort methodology developed by the OECD : –taking into consideration life profiles by gender, derived from the observation of the cohorts observed from 1998 to 2003 –This method also defines probability to enter or leave the labour market (starting from the observations) Also, women participation rates are bound to increase in the future: –they reach steadily a higher education level, which encourages to to remain in a well-paid job –they have less children Healthy ageing, perspectives of living longer and national pension reforms encourage the older workers to remain longer at work The impact of the recent pension reforms on the exit age is taken into consideration

23 Economic analyses and forecasts 23 Federal Planning Bureau Impact of Recent Pension Reforms on the Labour Exit Age ( )

24 Economic analyses and forecasts 24 Federal Planning Bureau Participation Rates in 2003 and Increase until 2050 Total (15-64) Belgium EU

25 Economic analyses and forecasts 25 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

26 Economic analyses and forecasts 26 Federal Planning Bureau Unemployment and Employment Hypotheses The unemployment definition used by the EC is the one used in the Labour Force Surveys. The unemployment rates will converge to their minimal structural rates in 2008 (the average for the EU15 is 7%), and will then remain constant (Belgium will reach 6.5 in 2013; additional delays are anticipated for countries where this minimum is superior to the EU15 average). The baseline scenario keeps the other employment parameters constant : -total hours worked - various distributions: public – private, wage-earners – self-employed, full-time – part-time.

27 Economic analyses and forecasts 27 Federal Planning Bureau AWG Employment and Unemployment Projections (Belgium)

28 Economic analyses and forecasts 28 Federal Planning Bureau Projected employment rates and Lisbon targets for the EU25 The Consequences of Ageing Populations on Employment and Growth The Consequences of Ageing Populations on Employment and Growth Source: 2006 EPC/Commission report on ageing.

29 Economic analyses and forecasts 29 Federal Planning Bureau Austria, Cyprus 2006 Portugal 2007 Finland 2009 Ireland 2010 Germany 2011 Latvia 2013 Estonia 2014 Lithuania 2018 Spain 2023 Slovenia TARGET NOT REACHED IN 2050 (7MSs) Belgium France Hungary Italy Luxembourg Malta Poland Projected time frame for meeting the Lisbon employment target TARGET ALREADY REACHED IN 2004 Denmark Netherlands Sweden UK 2035 EU EU15, Czech Republic 2020 EU25, Slovakia The Consequences of Ageing Populations on Employment and Growth (source: The Consequences of Ageing Populations on Employment and Growth (source: Giuseppe Carone from DGECFIN) EU EU EU25

30 Economic analyses and forecasts 30 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

31 Economic analyses and forecasts 31 Federal Planning Bureau Labour Productivity and Potential Growth A production function is used to combine the evolutions of the population, the labour productivity and the capital intensity. There will be a slow down of the labour productivity to 1.7 % as from 2030 for the EU15 countries (that is the Total Productivity Factor 1.1 multiplied by 0,65, where 0.65 is the share of the labour factor) and to 1.9% for the EU10 countries.

32 Economic analyses and forecasts 32 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

33 Economic analyses and forecasts 33 Federal Planning Bureau The GDP Growth and its Determinants GDP growth Labour productivity Employment Belgium EU EU EU

34 Economic analyses and forecasts 34 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

35 Economic analyses and forecasts 35 Federal Planning Bureau The Real Interest Rate Projections are made with constant prices of The long-run real interest rate has been fixed at 4%. Unlike Belgium, the DG ECFIN did not make any projection of the public debt or the interests to be paid, in order not to interfere with the exercises of the Stability Pact.

36 Economic analyses and forecasts 36 Federal Planning Bureau General Methodology of the 2005 AWG - Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

37 Economic analyses and forecasts 37 Federal Planning Bureau Unemployment Benefits The central scenario combines different elements: the ratio between the unemployed and employed persons, as calculated the GDP per head a constant ratio between the average unemployment benefit per head and the GDP per person employed, equal to 14.4, as observed during the period

38 Economic analyses and forecasts 38 Federal Planning Bureau Unemployment Benefits in % of GDP Unemployment Benefits in % of GDP Belgium EU EU EU

39 Economic analyses and forecasts 39 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

40 Economic analyses and forecasts 40 Federal Planning Bureau Health Care Expenditure The baseline scenario combines different elements: the evolution of the population the importance of health care expenditure relating to each age the link between health care expenditure and growth (GDP per head), with an elasticity of 1.1 at the beginning of the period and a move towards 1 at the end of the period a higher health care expenditure at the end of life (death- related costs)

41 Economic analyses and forecasts 41 Federal Planning Bureau Age-Related Health Care Expenditure Profiles in the EU15 and the EU10 Age-Related Health Care Expenditure Profiles in the EU15 and the EU10 Source: 2006 EPC/Commission report on ageing

42 Economic analyses and forecasts 42 Federal Planning Bureau Health Care Expenditure in % of GDP Health Care Expenditure in % of GDP Belgium EU EU EU

43 Economic analyses and forecasts 43 Federal Planning Bureau Health Care Expenditures Results of different scenarios

44 Economic analyses and forecasts 44 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

45 Economic analyses and forecasts 45 Federal Planning Bureau Long-Term Care Expenditure The central scenario combines different elements: the evolution of the population the dependency, assuming that the healthy life expectancy gains are half the gains of the total life expectancy the link between health expenditure and growth (GDP per head) is fixed at an elasticity of 1

46 Economic analyses and forecasts 46 Federal Planning Bureau The Long-Term Care Age Profiles The Long-Term Care Age Profiles Source: 2006 EPC/Commission report on ageing

47 Economic analyses and forecasts 47 Federal Planning Bureau The Projection of the Dependent Population in the EU constant disability scenario in thousands Formal care in institutionsFormal care at home Informal or no care % change % change

48 Economic analyses and forecasts 48 Federal Planning Bureau Long Term Care Expenditure in % of GDP Long Term Care Expenditure in % of GDP Belgium EU ,50.6 EU EU

49 Economic analyses and forecasts 49 Federal Planning Bureau Change in Long-Term Care Expenditure Results in Different scenarios (in percent of GDP; EU25) Pure ageing GDP per capita Constant disability Cost - GDP per capita Increased formal care AWG reference scenario

50 Economic analyses and forecasts 50 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

51 Economic analyses and forecasts 51 Federal Planning Bureau The Education Expenditure The AWG scenario combines different elements as observed in 2002: the evolution of the population the growing school participation rates, considered as complementary to the activity rates constant pupil-teacher ratios determining the staff, and - costs per head of personal being first held constant - as a consequence, the staff expenditure working and capital costs, and transfers (allowances and grants), in constant proportion of the staff expenditure the evolution of GDP per head, used to index-link to welfare all expenditure

52 Economic analyses and forecasts 52 Federal Planning Bureau The Education Expenditure (in % of GDP) The Education Expenditure (in % of GDP) Belgium EU EU EU

53 Economic analyses and forecasts 53 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits ) Health care Long-term care Education Total of the age-related spending Pensions National models

54 Economic analyses and forecasts 54 Federal Planning Bureau Public Pension Expenditures in % of GDP - Belgium (AWG Hypotheses – National Model) Public Pension Expenditures in % of GDP - Belgium (AWG Hypotheses – National Model) Old-age pensions (direct and survivors) - wage-earners self-employed public sector elderly guaranteed income Early retirement Disability (private sector) Total

55 Economic analyses and forecasts 55 Federal Planning Bureau Projected Changes in Public Pension Expenditure (% of GDP)

56 Economic analyses and forecasts 56 Federal Planning Bureau Sensitivity Tests around the Pension Expenditures (source: Sensitivity Tests around the Pension Expenditures (source: Giuseppe Carone from DG ECFIN) (~= 1year) (+1pp)(+5pp)(+0.25pp)

57 Economic analyses and forecasts 57 Federal Planning Bureau General Methodology of the 2005 AWG Exercise HypothesesProjections Population AWG scenarios Eurostat (adaptation from EUROPOP2004) Labour force Cohort method Unemploye ment Convergence to the NAIRU Employment Labour Productivity Production function Real interest rate GDP Unemployment benefits Health care Long-term care Education Total of the age-related spending Pensions National models

58 Economic analyses and forecasts 58 Federal Planning Bureau The Budgetary Cost of ageing - Belgium (in % of GDP and change / ) The Budgetary Cost of ageing - Belgium (in % of GDP and change / ) Budgetary cost of ageing Pensions Health care Long term care Education Unemployment Total

59 Economic analyses and forecasts 59 Federal Planning Bureau The Bugetary Cost of Ageing ( Increase from 2004 to 2050 – in % of GDP) The Bugetary Cost of Ageing ( Increase from 2004 to 2050 – in % of GDP) Pensions HealthLong termEducationUnemploy- Total carecare ment Belgium EU EU EU

60 Belgian Federal Planning Bureau Economic Analyses and Forecasts Main Conclusions

61 Economic analyses and forecasts 61 Federal Planning Bureau Main Conclusions As already observed in the MDCountries the increase of life-expectancy is a REVOLUTION In countries such as in the EU, society should realize that the increase of life expectancy is a profound structural revolution: –with opportunities, such as a longer healthy life –with burdens, such as an increasing dependency in the oldest ages So, the course of life should be profoundly adjusted: –mixing education – work – leisure, in a greater way –with new concepts such as life-long learning (even for the oldest elderly) longer but lighter professional careers (to combine work, family, self-development, social activities)

62 Economic analyses and forecasts 62 Federal Planning Bureau Main Conclusions How to face the ageing challenge In most EU countries there is a ‘window of opportunity’ to prepare the ageing peak the papyboom generations will reach retirement age mostly in the period 2015 – 2030 employment is still growing until ~ 2017 but, time is needed to direct minds towards new lifestyles Besides necessary structural reforms, the conditions to finance the expenditure systems are: guaranteeing a positive and solid growth developing a good tissue of economic activities, supporting research and education pursuing sober public finance policies, avoiding all misuses meaning social interventions for the most needy

63 Economic analyses and forecasts 63 Federal Planning Bureau Main Conclusions Role of the European Union Even though the European Union does not yet consider enough the necessity of new ways of life, it encourages member countries to adjust their economic and budgetary policies by using different instruments: –the Lisbon Strategy: aiming to enhance employment and GDP growth –the Budgetary surveillance: based on the long-term budgetary projections, assessment of the sustainability of public finances within the framework of the Stability and Growth Pact –the Open Method of Co-ordination : by peer review of policies, such as the new pension reforms, research of the best practices

64 Economic analyses and forecasts 64 Federal Planning BureauBibliography Some references: Bureau fédéral du Plan, “Perspectives financières de la sécurité sociale Le vieillissement et la viabilité du système légal de pensions», Planning Paper 91, Bureau fédéral du Plan, Conseil supérieur des Finances - Comité d’Etude sur le Vieillissement - Rapport annuel – Mai European Commission – Directorate-General for Economic and Financial Affairs, “The 2005 EPC projections of age-related expenditure ( ) for the EU25 Member States: underlying assumptions and projection methodologies », European Economy, Special Report, N°4, en.htm European Commission – Directorate-General for Economic and Financial Affairs, The impact of ageing on public expenditure : projections for the EU-25 Member States on pensions, health care, long-term care, education and employment transfers, European Economy, Special report n°1, en.htm Fasquelle N., Lopez-Novella M., Weemaes S., “Conséquences budgétaires et sociales du vieillissement: des perspectives de long terme”, 16ème Congrès des Economistes belges de langue française, Mons, février 2005 Micheline Lambrecht, “Vieillissement et financement des dépenses”, Espace de Libertés, n°321, mai 2004, pp en.htm en.htm


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