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LONG TERM TRENDS IN PUBLIC FINANCES

Long-term sustainability of public finances and the costs of ageing population

Containing the sustainability of public finances is one of the key objectives of the EU Member States. Reliable and comparable data on possible changes in general government commitments and fiscal sustainability are required to achieve the objectives. The European Commission (EC) prepares the ageing report every three years in cooperation with the Ageing Working Group (AWG) at the Economic Policy Committee (EPC), which contains long-term projections of age-related public expenditures on:


• pensions,
• health,
• long-term care,
• education,
• and unemployment benefits.

The 2018 ageing report contains new projections for the period 2016 to 2070, based on previously adopted methodological assumptions. These projections represent important factor for determination of medium-term fiscal objective (MTO) and are the basis of a comprehensive assessment of the European Commission on the long-term sustainability of public finances for each individual country.


According to the baseline projection, the cost of ageing on EU level will increase by 1.7 pp of GDP over the period 2016 to 2070 and will reach 26.6% of GDP. On the basis of new projections on expenditure levels for the period up to 2070 it is expected that expenditure on ageing population in Slovenia will increase by 6.3 pp, from the current 21.9% to 28.2% of GDP. Slovenia is thus, according to the projections, among the countries with the largest increase of costs of ageing in the EU.

 

Regarding the structure of age-related public expenditures, the largest share of expenses relates to the pension system. These expensesare expected to increase by 3.9 pp in 2016-2070, which is the second largest increase among EU countries. On the EU level the expenses are expected to increase, on average, by 0.8 pp of GDP in the period 2016 to 2040 and then are expected to decrease to the present level until 2070. Public expenditure on healthcare and long-term care are expected to increase on average in the EU by 2 pp of GDP according to the baseline scenario. For Slovenia projections show a higher increase of public expenditure for healthcare compared to EU average, while long-term care expenditure is expected to increase slightly less than the EU average. According to other higher risk scenarios, the ageing costs would increase above the level of the baseline scenario.


The preparation of long-term projections for Slovenia are managed and coordinated at the Ministry of Finance through the inter-institutional working group which is in charge of the preparation of projections on age-related public expenditures. The main tasks of the working group are:

•          preparation and discussion on methodological materials and data within the working framework of the Ageing Working Group (AWG) in cooperation with the Economic Policy Committee (EPC); which is what Slovenia transmits to the European Commission;
• preparation of long-term projections of pension expenditure and coordinating the development of databases for projections of public expenditure on health, long term care, education and unemployment benefits;
• notifying line ministries and the competent authorities about the results of long-term projections of all public expenditures associated with aging population.

 

More about:

http://ec.europa.eu/economy_finance/publications/european_economy/ageing_report/index_en.htm

 

The 2018 Ageing Report:  

https://ec.europa.eu/info/publications/economy-finance/2018-ageing-report-economic-and-budgetary-projections-eu-member-states-2016-2070_en

 

Methodological assumptions, 2018:

https://ec.europa.eu/info/publications/economy-finance/2018-ageing-report-underlying-assumptions-and-projection-methodologies_en

 

The 2015 Ageing Report:  

http://ec.europa.eu/economy_finance/publications/european_economy/ageing_report/index_en.htm

 

The 2012 Ageing Report:

http://ec.europa.eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-2_en.pdf


Methodological assumptions, 2012:

http://ec.europa.eu/economy_finance/publications/european_economy/2011/pdf/ee-2011-4_en.pdf