Ageing population tests gov't ability to maintain fiscal sustainability

CORONAVIRUS | The fast spread of Covid-19 has caused a considerable impact on public health and government coffers as authorities scramble to contain the pandemic, said the Asian Development Bank Institute (ADBI).

The novel coronavirus has particularly threatened those in vulnerable groups, with the elderly being the most affected, especially those who work in the informal sector, it said in a blog post.

"They are likely to become more vulnerable if they need more care or stay in a nursing home. In essence, this means healthcare expenditure will increase in an ageing society.

"It is unfortunate to say that longer lives may increase the costs of the pandemic," said the Asian think-tank which focuses on identifying effective development strategies for Asia and the Pacific.

Therefore, the ADBI said efforts to protect the older population and maintain fiscal sustainability in the face of the pandemic are greatly needed but challenging.

It emphasised that protection and prevention, as well as infection control protocols, must be in place to ensure safety for the elderly.

In fact, it is important to equip family members and caregivers with knowledge of health services, sanitation, and humanitarian support.

Additionally, promoting care and support can be done by investing in healthcare coverage and expanding the coverage of social pensions and protection schemes to aged groups.

"A valuable lesson learned from this pandemic for all governments is that it is necessary to prepare the required fiscal space for these kinds of unprecedented circumstances," ADBI said.

The think-tank also highlighted that Asia is advancing toward becoming a gray society and noted a decreasing trend in fertility rates across the region.

The global number of people above 65 years old is projected to double to over 1.5 billion, with the largest increase estimated to occur in East and Southeast Asia, reaching 573 million by 2050, it said, citing United Nations 2019 forecasts.

To deal with these challenges and achieve fiscal sustainability, the ADBI suggested that policymakers manage both revenue and spending simultaneously.

"Policies can be adopted to maintain the taxpayer base, for example, enhancing the participation of female and senior workers in the labour market," it said, adding that the other option is a shift in the tax mix.

Japan, for instance, compensates for a potential shortfall in individual income tax by increasing its consumption tax from eight per cent to 10 per cent since September 2019.

Other developed countries have turned their focus to environmental taxes, including carbon and emission taxes, to raise government revenue without compromising efficiency.

For developing economies, strengthening tax administration can help enhance the revenue-generating capacity of governments, and a thorough review procedure is also required.

In addition to fiscal policies, it said social security systems as well as public and private pension schemes must be strengthened, taking into account socio-economic factors such as human capital, financial education, labour movement, informality, and equality. - Mkini