Financial Crises and Fiscal Consolidation: The Challenges for Sustainable Social Expenditures in the Context of Demographic Change Follow-up to the 16 th Session of the Ministerial Conference Council of Europe and OSI LGI October 2010 Laurie Joshua, Social Policy and Public Financial Management Consultant

The Social Policy Dimensions of the Crises in Advanced and Emerging

The Social Policy Responses to the Crises and the Exacerbating Affects of Ageing

Specific Themes of this Presentation Specific Themes of this Presentation Macro and Micro transmission channels of the crises in advanced and emerging economies in Europe Macro and Micro transmission channels of the crises in advanced and emerging economies in Europe Constraining and enabling factors that shaped responses to the crises in advanced and emerging European economies Constraining and enabling factors that shaped responses to the crises in advanced and emerging European economies Types of social policy measures adopted in response to the crises in emerging and advanced European economies Types of social policy measures adopted in response to the crises in emerging and advanced European economies The challenges for fiscal sustainability, and the exacerbating effects of ageing related expenditures on fiscal sustainability The challenges for fiscal sustainability, and the exacerbating effects of ageing related expenditures on fiscal sustainability Impacts and implications for achieving fiscal sustainability and managing ageing related expenditures for central and sub- national governments Impacts and implications for achieving fiscal sustainability and managing ageing related expenditures for central and sub- national governments

Macro and Micro Transmission Channels of the Crises in Advanced and Emerging European Economies

Macro Transmission Channels of the Financial Crises

Micro Impact of Financial Crises on Households

Changes in GDP Growth [Advanced and Emerging European Economies]

Fiscal Measures and the Interface with Social Policy  Fiscal Stimulus Measures - Advanced Economies :  Temporary – expire when economy recovers  Timely – to trigger new spending  Targeted – aimed at individuals who will spend rather than save  Fiscal Consolidation Measures – Emerging Economies  Prioritisation and selection to unwind imbalances – particularly social expenditures  Address policy issues neglected during growth years and/or where expenditures had grown faster than GDP  Protect essential services for vulnerable populations  Balance short-term temporary measures with permanent longer-term measures

Social Policy Measures Adopted in Emerging Economies  Labour and Employment – duration of UB benefits, public works, TVET Social Assistance – reducing fragmentation, targeting, labour market attachment, focus on children Social Assistance – reducing fragmentation, targeting, labour market attachment, focus on children Pensions – changes in indexation, eligibility for early retirement Pensions – changes in indexation, eligibility for early retirement Education – optimisation of school networks, expansion of ECE, teachers wage bill Education – optimisation of school networks, expansion of ECE, teachers wage bill Health – hospital reform, co-payments, transparency in out-of-pocket expenses, pharmaceuticals Health – hospital reform, co-payments, transparency in out-of-pocket expenses, pharmaceuticals

Unemployment Rates [%] Emerging European Economies [ ]

Advanced European Economies Stimulus measures varied in size and emphasis combining measures aimed at: Stimulus measures varied in size and emphasis combining measures aimed at:  Households  Businesses  Labour markets  Investment

Composition of Recovery Measures [% of GDP] in Advanced European Economies [ ]

Unemployment Rates [%] in Advanced European Economies

Fiscal Deficits as % of GDP in Advanced European Economies

Challenges of Fiscal Sustainability and the Exacerbating Effects of Ageing Related Expenditures

Changes in Govt Debt Ratio’s in Advanced European Economies [ ]

Changes in Govt Ratio’s in Emerging European Economies [ ]

Fiscal Sustainability Concerns in Advanced and Emerging European Economies  Debt levels, revenues and interest payments Effects of population ageing on key expenditures – pensions, health, and long term care Effects of population ageing on key expenditures – pensions, health, and long term care Fiscal costs of crises and projected demographic developments compounding each other Fiscal costs of crises and projected demographic developments compounding each other Fiscal sustainability becoming an acute challenge at national and sub-national levels Fiscal sustainability becoming an acute challenge at national and sub-national levels Fiscal impact of Ageing dwarfs the effects of the financial crises many times over Fiscal impact of Ageing dwarfs the effects of the financial crises many times over

Ageing Profiles: Advanced and Emerging Economies in the EU [ ]

Ageing and Population Dynamics in Advanced and Emerging European Economies and Sub- National Territories [ ]

Impact of Ageing on Public Expenditure Pension expenditures - increase Pension expenditures - increase Health Care - increases Health Care - increases Long Term Care - increase Long Term Care - increase Education – decrease? Education – decrease? Unemployment Benefits – decrease? Unemployment Benefits – decrease? But, also for PIT and Inter-governmental fiscal relations and revenue allocations But, also for PIT and Inter-governmental fiscal relations and revenue allocations

Projected Increases in Ageing Related Expenditures [%GDP]

Sustainability Challenges of Deficit and Ageing Factors in Advanced European Economies

Discussion Themes

Policy Implications of Fiscal Consolidation and Ageing Expenditures For National and Sub- National Governments Distribution of competencies for social policy Distribution of competencies for social policy Distinctions and ‘tilting’ between National Public Good and Services and Regional Public Goods and Services Distinctions and ‘tilting’ between National Public Good and Services and Regional Public Goods and Services Role of National Regulation and sub-national diversity Role of National Regulation and sub-national diversity National and local modelling of fiscal sustainability and ageing National and local modelling of fiscal sustainability and ageing Policies of ‘Place’’ Policies of ‘Place’’ Revenue implications – PIT, CIT, Equalisation, Block/Earmarked Grants Revenue implications – PIT, CIT, Equalisation, Block/Earmarked Grants Demand management Demand management ITC Applications – efficiency and effectiveness ITC Applications – efficiency and effectiveness