The sustainability of public finances in the context of population ageing

In the decades ahead, the size and age structure of the European population will change dramatically. These demographic changes will obviously have a significant impact on society. Economic growth is expected to slow down following the reduction in the population of working age. In addition, there will be strong upward pressure on public expenditure on pensions, health care and long-term care for the elderly. It is in that context that questions arise regarding the long-term sustainability of public finances. The article aims to explain the challenges inherent in population ageing for public finances, and how the authorities can respond with an appropriate fiscal policy. After a succinct account of some of the most striking demographic trends, the estimates of the budgetary costs of ageing are presented. Next is explained what is meant by sustainable public finances and how that concept can be made operational. The sustainability of public finances is a key element in the process of budgetary surveillance organised at the European Union level. In Belgium, it is also a key aspect addressed by the “Public Sector Borrowing Requirement” section of the High Council of Finance in its periodic opinions. For coping with the ageing costs, this section recommends that the Belgian public administrations build up significant structural budget surpluses in the years ahead.