Front-page news stories this week have connected the political fallout of Portugal’s leadership to the country’s debt issue: “Another European government fell victim to the politics of austerity … when the prime minister of Portugal resigned after opposition parties rejected his last-ditch attempt to push through a package of spending cuts and tax increases,” said the New York Times. But the story not told is about the pressure from Portugal’s aging population – it has the fourth oldest population in Europe and the eighth globally – and all of that population’s pension and health-care demands. Meanwhile, Portugal continues to function with a set of social and economic institutions created in an earlier era.
The country is not unlike Wisconsin or Ohio here in the U.S., Japan or Korea in Asia, or many of the EU neighbors whose entitlement culture is increasingly fiscally unsustainable as we live longer and produce fewer offspring to fill the taxpaying gaps created by traditional retirement models. Largely unnoticed in the news stories about Portugal is a reference to the basic structural condition feeding the debt: “Ahead of the vote, Mr. [José] Sócrates [Portugal’s prime minister] had warned that parliamentary rejection of his latest austerity measures would prompt him to quit,” according to the Times article. “The main Social Democratic opposition party, however, had warned it would oppose an austerity package that would inflict further pain on Portuguese citizens, notably by raising taxes for pensioners.”
It’s interesting that as far back in 2001, the European Commission Economic and Financial Unit asked for a report on the impact of projected population aging on public spending on health and long-term care. So these questions have been on European officials’ agendas for at least a decade. Equally interesting is how the dots are not being connected between fiscal sustainability and realigning public policies through the prism of the massive social shift of aging populations.
With bailouts, Portugal may get through its immediate fiscal crisis. But will it and the rest of the world prepare for the mounting consequences of the aging demographic time bomb? It’s worth a reminder: By mid-century, there will be two billion people over the age of 60 – and they will outnumber children for the first time in history.
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