OECD publishes long-term economic projections of future fiscal challenges


The decline in economic activity related with lockdowns and other restrictions in response to the COVID-19 pandemic brought government revenue down substantially in 2020. Governments have responded with a range of interim programmes to help workers and businesses, simultaneously raising expenditure. Consequently, fiscal positions have declined strongly and gross government debt in the OECD is projected to be around 20-25% of GDP higher in 2022 than it would have been absent the pandemic.

The urgent fiscal challenge for governments is to continue to target fiscal support towards sectors hardest affected by the COVID-19 shock, and as the pandemic ebbs, to phase out temporary programmes gradually, along with the regulations that limit doing business in these sectors. In the longer term, however, the direct fiscal impact of the pandemic may pale in comparison to additional fiscal pressures stemming from secular trends, such as the rising price of services and population ageing and.

The fiscal outlooks to 2060 highlight need for structural reform, brings together the latest long-run projections from the OECD. The fiscal pressures are assessed using stylised estimations that take secular trends into account. The goal is not to obtain precise forecasts, but rather rough orders of magnitude to size up the fiscal challenge ahead, notably stemming from growth in public health and long-term care expenditures, public pension expenditure, other central government expenditures and the cost of servicing long-term debt.

For the specific case of Spain, some of the correct measures claimed by the OECD are:

  • Raise the retirement age by two years for every three that increases life expectancy and and bring the effective retirement age closer to the legal one, since it is the OECD country with the greatest disparity after Belgium and France.
  • The OECD estimates that if public debt remained stable, the tax pressure would increase globally by 8 points of gross domestic product (GDP). This increase, which is mainly explained by the needs of the aging population in terms of care, health and pensions, would be much higher in Spain, 13.23% of GDP. It would only be exceeded by Slovakia (17,2% and Poland (13.95%).

Source: OECD