Transcript sdjkfkmls

Bureau Fédéral du Plan
Analyses et prévisions économiques
AIECE
Working Group on Longer-Term Prospects
and Structural change
5 November 2007
Long-Term Prospects for Belgian Social Protection
Presentation: Nicole Fasquelle, Senior Associate, Federal Planning Bureau
Author: Team « Social Protection , Demography and Prospective », FPB
www.plan.be – [email protected]
2
Structure of the presentation
I.
The public Belgian social protection system and population ageing
II. The institutional bodies studying the effect of ageing on public
finances
III. A possible scenario for the future
IV. Conclusions
3
I.
The public Belgian social protection system
 Act of 28 December 1944 establishing the social security for all
workers
The total social expenses represent 23.2% of GDP in 2005.
Distribution of social expenses among branches in 2005:
pensions: 39%
health care: 31%
unemployment : 12%
family allowances: 7%
others: 11%
 Bismarckian system = insurance system:
the contributions finance the social expenses
(versus Beveridgian system or assistance).
In practice, mixed system in Belgium.
Weight of the financing sources in 2005: 68% contributions and
32% taxes.
 Public pensions system based on the pay-as-you-go system
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A future challenge for social protection:
population ageing
Belgium


Population
ageing
(or
ageing
demography) occurs when a growing
part of the population reaches greater
ages (modification of the global age
structure).
This can result from declining fertility,
or rising life expectancy, or from a
combination of those two phenomena
called « demographic transition ». This
is the case in the most industrial
countries and so in Belgium.
Total
population in
thousands
Age structure
in %
0-14 years
15-64 years
65 et +
Median age

Those demographic phenomena can
add further to historical factors. In
Belgium, the less peopled generations
born from 1965 onwards have low
fertility rates. The many generations
born after WWII are currently reaching
retirement age and will live longer.
Old age
dependency
ratio
(65+/1564)
Belgium
EU 15
2005
2050
10479
11035
17
66
17
15
58
26
39.1
44.9
26
24
45
49
A rising life expectancy is a progress for humanity…
but a burden for public finances.
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
Decline in the population aged between 15 and 64, which is most likely to
pay contributions. This means a decrease in the revenues for the State (see
insurance system of the social security).

Increase in the population aged 65 and more, which is most likely to get a
statutory pension. This means a rise in the public expenses (see statutory
pensions based on the pay-as-you-go system).
Risk of a new large public deficit and of a new
snowball effect for the public debt.

II.
Institutional organizations studying the effect
of ageing on public finances
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
At the international level

IMF: specific studies

OECD: Economic Policy Committee (either own projections or
international exercises for which every country delivers its
estimations – Federal Planning Bureau for Belgium)

European Commission: GD ECFIN, Ageing Working Group
established in 2000 by the Economic Policy Committee of the
ECOFIN Council (international exercises for which every country
delivers its estimations for pension expenditures, sticking to
common assumptions – Federal Planning Bureau for Belgium)
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Institutional organizations

In Belgium

In 1987, at the request of the government, the Federal Planning
Bureau started to develop the Maltese system of models in order to
assess the long-term social expenditures within the overall
framework of public finances. This was done within the framework
of the statutory mission of the FPB to support economic policymaking.

From 1987 to 2001, the Maltese system of models was used at
several times, either on the initiative of the FPB or to support
economic policy-making (especially for measuring the impact of
various statutory public pension reforms in Belgium: 1990, 1996).

In 2001, the Law guaranteeing a continuous reduction in public
debt and the setting up of the Ageing Fund.
The Law of 5 September 2001 guaranteeing a continuous
reduction in public debt and the setting up of the Ageing Fund
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–
Goal of the Fund: to build up a demographic reserve to finance the
supplementary expenses pertaining to the statutory pension schemes due
to ageing during the period 2010-2030, so long as public debt has been
reduced to 60% of GDP
–
Study Committee for Ageing: Yearly report about the budgetary and social
implications of ageing (estimation of the budgetary cost of ageing and
specific studies) – the Federal Planning Bureau entrusted with the technical
and administrative secretariat
–
The department « Borrowing requirements of the Public Sector » of the
High Council of Finance: Yearly Advice with recommendations for budgetary
policy (based on the annual report of the Study Committee for Ageing)
–
Federal Government: Yearly « Memorandum on Ageing » (based on the
annual report of the Study Committee of Ageing and the annual Advice of
the department « Borrowing requirements of the Public Sector » of the High
Council of Finance)
III.

A possible scenario for the future
The tool: the Maltese system of models
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System of models: one central model and several specific
peripheral models (computing the number of pensioners, average
pensions, health care…)
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The Maltese system of models
Demography by gender and age
1
Socio-demography by gender and
age group
2
Central model Maltese
- macroeconomic projection
- final socio-economic projection
- social policy and budgetary strategy
- budgetary cost of ageing
- public sub-sectors accounts
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3
5
Calculation of the
average pension for
self-employed
4
Calculation of number of
pensioners by scheme,
gender and age
Calculation of
the average pension
in the civil servants
scheme
4
5
Calculation of
the average
pension in the
wage-earner scheme
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The Maltese system of models

Mecanical and accounting models adequate for translating
demographic projections into budgetary developments (social
security account and global public finances account)

Special attention is paid to modelling social expenses according to
the calculation rules (legislation), often by scheme, gender and
age: number of beneficiaries (new and other), average benefits
(ceiling, minimum, indexation rules…)

Baseline with no change in legislation, rules and policy

Prospective exercise up to 2050 (scenarios with hypotheses)
No real macroeconomic modelling, no endogenous reaction of
policy
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The Maltese system of models

Uncertainty around the hypotheses:

Demographic
(in 2050):
fertility rate
life expectancy at birth
net immigration flow

1.75
M 83.9 / W 88.9
17320
Socio-economic: population breakdown among socio-economic
categories (employment, unemployment, disability, students,
pensioners)
Probabilities of transition from category X to category Y by age and gender
(bottom-up approach), based on behaviour in recent years (including effects of
reform already decided)
Except for employment and unemployment by age and gender: Nairu assumption
(top-down approach)
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The Maltese system of models
Population breakdown among socio-economic categories
0-14 years
15-29 years
students



30-49 years

50-64 years

65 and more

students
labour force
other
labour force
 disabled
 other (included full time career breaks, survivors’
pensions…)
labour force
 disabled
 preretirement
 other (included full time career breaks, survivors’
pensions…)


pensioners
labour force (employment)
other
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The Maltese system of models

Uncertainty around the hypotheses:

Economic:
Structural unemployment rate in 2030
Employment (average annual growth rates between 2000 and 2050)
Labour productivity (or wage growth) – (average annual real growth rate)

Social policy
(average annual real growth rate)
:
Wage ceiling
Welfare adjustment
Lump-sum benefits adjustment

8%
0,1%
1,75%
Budgetary policy:
revenues: unchanged fiscal and parafiscal pressure
non-age related expenditures: mostly related to the GDP
budget balance strategy: see further
1,25%
0,5%
1,0%
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Social expenditures calculation
in percent of GDP
•
In general:
Social expenditure = number of beneficiaries x average benefit
GDP
employment x labour productivity
with
Average benefit =
social benefit (pension, unemployment…)
number of beneficiaries of the allocation
Labour productivity = total production = ___GDP___
employment
employment
•
Except for the health care expenditures:


long-term care: hierarchical model with probabilities
acute care: econometrical equation with demographic drivers and nondemographic drivers (observed profile by age and gender of per capita
health care expenditures, population prospects, indicator of the effect of
population structure on health care expenditures, GDP per capita)
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The budgetary cost of ageing
(or the evolution of the total social expenditures in % of GDP)
2006
2006-2030
2006-2050
Pensions
8.9
+3.6
+4.5
Health care
7.0
+2.2
+3.5
Other social
expenditures
7.0
-1.4
-1.8
22.9
+4.4
+6.2
Total
Large increases in pensions and health care expenditures.
Decrease in the other social expenditures: especially family allowances and
unemployment benefits.
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Financial sustainability of the public finances
Facing the budgetary cost of ageing through a reduction in public debt
(see Law of 5 September 2001)?
It is a possible solution provided that the debt has been sufficiently
reduced by 2010 so that a new snowball effect is avoided.
One possible budgetary strategy:




Until 2010 the « Stability Program of Belgium » foresees budgetary
surpluses, going from 0.3% of GDP in 2007 and growing up to 0.9% of
GDP in 2010.
From 2011 onwards, the High Council of Finance recommends, in his
« Advice » of March 2007, to have growing budgetary surpluses until
2017-2019 (2% of GDP), then to gradually return to the equilibrium
around 2035, and afterwards to converge to a deficit about 1% of GDP
in 2050.
If this budgetary strategy is applied, then the budgetary cost of ageing
is sustainable.
This implies a very strict budgetary policy, with either a rise in the
revenues, or a decrease in the expenses, or both of them.
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Political and social sustainability

Political sustainability: a mechanism in the calculation of the wageearner pension (the wage ceiling) implies that the pensions become
less and less proportional to the contributions. In this context, will
the workers still be willing to pay contributions?

Social
sustainability:
problem
of
the
social
benefits
level.
In absolute terms or poverty: at present, the social beneficiaries
run a greater poverty risk than the workers and the minimal
benefits
are
lower
than
the
poverty
threshold.
In relative terms when comparing the average social benefits to
the average workers revenues (benefit ratio): there is a difference
between the average social benefits and the average workers
revenues, which is growing in time of the projection (deterioration
of the benefit ratio).
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IV.
Conclusions about the long-term prospects

Financial, political and social sustainability: prudence and vigilance

The Prospects are based on scenarios  sensibility analyses are carried out
in which some hypotheses are modified. The results either improve (or
deteriorate):
 productivity more (less) high
 employment rate more (less) high

What is the strategy of the Belgian government?





To reduce the public debt and put money in the Ageing Fund
To increase the employment rate (especially of the young and the
older people)
Statutory pension: adaptation of the wage ceiling, adaptation to
welfare
To raise the minimum pensions and the social aid for the elderly
(Guaranteed income for the elderly)
The Occupational Pensions Law of 13 March 2003
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Bibliography

Federal Planning Bureau, “Financial prospects for social security
2000-2050 . Ageing and sustainability of the public pensions»,
Planning Paper 91, Federal Planning Bureau, 2002 (see website:
http://www.plan.be)

High Council of Finance – Study Committee for Ageing – Yearly
reports – april 2002, may 2003, april 2004, may 2005, june 2006,
june 2007
(see website : http://www.plan.be)

High Council of Finance, Department « Borrowing requirements of
the Public Sector», Advices and yearly reports