Serving the aging citizen
By 2011, the first wave of the Baby Boom generation will reach retirement age, which will mark a new era for governments across the globe. One measure neatly summarizes this challenge: In the coming years, the ratio of working-age people (15–65 years) to children (0–14 years) and elderly (65+), otherwise known as the "dependency ratio," is likely to rise in most developed countries. The shifting demographics will force governments to rethink how they will finance government services, because as the number of elderly increases, there will be a smaller percentage of workers to cover the bulk of the tax burden. Given that income and payroll taxes can only be raised so much, governments will have to find other ways of generating the revenue they need to fund public services.
This report outlines four trends that will likely become more prominent in the coming decades:
- Tax system modernization. Governments will have to modernize their tax systems to reduce their dependence on personal income tax revenues. This means fewer exemptions that poke holes in the tax base and a shift away from narrow-based, idiosyncratic tax structures.
- Rises in the average retirement age. The erosion of the tax revenues from income and payroll taxes can be somewhat offset by extending the average retirement age. The retirement age in the OECD countries has started to tick up since the end of the 1990s, but a meaningful impact is unlikely without significant changes in the demand for older workers.
- Increase reliance on user fees. Citizens may be required to pay user fees for access to government services.
- Growth of public-private partnerships. The emergence of a much bigger and more sophisticated nonprofit sector will create new opportunities for partnering and leveraging private dollars for public causes.