SHAPING THE FUTURE HOW CHANGING DEMOGRAPHICS CAN POWER HUMAN DEVELOPMENT

Health-care spending
begins a rapid rise
when the share of
older people in
a population reaches
around 9 percent
to cover the population at the current poverty
line, which is equivalent to 7 percent of GDP
per capita, and with an increased retirement age
of 65, could incur an annual cost of 0.7 percent
to 1 percent of GDP, which is not very high.
But a combination of more generous benefits,
early retirement age and lower than expected
fertility could raise the share to 4.5 percent. 104
Rising living standards and population ageing
are also associated, inevitably, with higher
health-care costs, with additional implications for
public budgets. The population ageing threshold
at which health-care spending begins a rapid
rise is around a 9 percent share of older people.
While there were only 13 Asia and Pacific
countries and areas over this threshold in 2015,
16 more will reach it by 2030.
Most East Asian and Pacific countries spend
less on public health care than countries in other
regions and subregions, when adjusted for per
capita income. 105 Ageing and the accompanying
increase in chronic non-communicable diseases
are likely to increase costs by 20 percent to 40
percent between 2000 and 2020, 106 however,
requiring improved financing mechanisms. 107
Among the world’s economically advanced countries,
including Japan, health-care spending per
capita is about four times higher for people aged
65 and older than for the rest of the population.
While many countries in recent decades
have enjoyed historically high rates of economic
growth, these are not sustainable, as countries
such as Japan, the Republic of Korea and Singapore
have demonstrated. High growth rate
periods are generally followed by long periods
of low growth, which means slower expansion
of government revenue. This will constrain government
abilities to fund pension programmes,
health care and other forms of support for older
people. In a business-as-usual scenario, the
transfer of wealth to older people could rise to
320 percent of total labour income by 2030, and
540 percent by 2050. 108 China, where the recent
economic boom has produced a sizable surplus,
could see it vanish within the next 20 years. 109
The fiscal support ratio can be used to
assess pressures on fiscal sustainability (Table
4.5). 110 Values less than 100 percent indicate a
decline in tax revenues relative to expenditures
in 2010, which is the base year. The ratio deteriorates
in advanced countries such as Japan by
26 percentage points. These countries would
have to either increase taxes or reduce public
expenditures. Ratios for India, Indonesia, the
Philippines and Thailand are higher, suggesting
that these countries can expand expenditures
at the existing tax rate. The danger, of course,
is that countries with favourable demographics
in the early to middle stages of transition could
implement generous systems of support that
ultimately prove to be unsustainable. 111
REVERSING LOW FERTILITY RATES
AND INCREASING THE FLOW OF
IMMIGRATION
A number of Asia-Pacific countries are looking
for ways to manage an ageing population. A
TABLE 4.5:
Fiscal support ratios of some Asia-Pacific countries
142
Source: Lee and Mason 2011.