PARIS, October 19 (Reuters) – The costs of repaying debt raised to help households and businesses weather the COVID-19 crisis will be eclipsed by those of long-term trends like funding for pensions and health services as societies age, the OECD said in a report on Tuesday.
Examining the economic outlook to 2060, the Organization for Economic Co-operation and Development said governments will increasingly face the costs associated with an aging population and rising prices for public services.
This is in addition to servicing the huge debts left behind by COVID-19, which will take decades to pay off.
Many of the 38 mostly wealthy countries belonging to the Paris-based OECD have seen their budget deficits explode to record levels during the pandemic as they supported their economies during shutdowns.
If historically low interest rates persist, most OECD countries could afford to cover the additional pressure on their budgets by increasing their debt, according to the report.
But the tax burden on the median OECD country could reach 8 percentage points of GDP by 2060 as governments attempt to keep public service standards and delivery at current levels, the OECD has calculated.
The increased pressure on public finances was highest in Slovakia at 17%, followed by Poland at 14%, Spain and the Czech Republic at 13% and France and Japan at 12%.
But a permanent 1 percentage point increase in global interest rates from current historic lows would increase fiscal pressure by 1 to 1.5 percent in the most indebted countries, like Greece, Italy and Japan. , according to the OECD.
To ease the tax burden, countries could do little other than adopt reform programs to boost employment, which in turn would increase GDP per capita.
This could raise living standards by almost 7% by 2060, while the most reform-oriented countries – identified by the OECD as Belgium, France and Italy – could register gains from 9 to 10%.
Such programs would ease the tax burden by around 1.75 percentage point of GDP by 2060 in the median OECD country, according to the report.
Reporting by Leigh Thomas; Editing by Catherine Evans
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