New Cabinet’s budget not sufficiently preparing for aging population: ABN Amro

The new government is not taking sufficient measures to absorb the consequences of the aging population, ABN Amro reported the day before Budget Day based on the plans in the coalition agreement and the budget details that have leaked to the press so far. The bank called the aging population a “major challenge for the long term” that will likely lead to lower economic growth and an increasing burden on healthcare and government expenditure.

The increasing proportion of elderly people in the Dutch population will put pressure on future economic growth because production slows down when the influx of new workers stagnates. Therefore, it is essential to allow and encourage those who are still part of the working population to participate more in the labor market.

According to ABN Amro, the new government trying to tackle this aspect of the aging population by using “a carrot and a stick” to promote labor participation. The carrot consists of lower taxes on labor by reducing the tax rate in the first bracket of income tax. The stick comes in the form of shorter unemployment benefits.

Given the current tight labor market and low unemployment, these measures will likely have limited effect in the short term. But they may prove more effective in a future period of economic weakness, the bank said. However, it added, that the shorter unemployment benefits would make people who become unemployed more financially vulnerable.

The government plans are lacking when it comes to other measures for increasing labor participation, such as helping more older people and people with disabilities or chronic illnesses find work. The bank also warns that extending the early retirement scheme for employees with physically taxing jobs could reduce incentives to improve working conditions, retrain employees, and thus promote labor participation.

The government also doesn’t have any concrete plans to ensure that the increasing demand for healthcare due to an aging population doesn’t overrun the healthcare system and, with it, government finances. “In order to save resources for other social purposes, it is necessary to organize healthcare as effectively as possible,” ABN Amro said.

Prevention can help keep the demand for healthcare and healthcare costs at a manageable level. While the PVV, VVD, NSC, and BBB’s coalition agreement calls prevention important, the Schoof I Cabinet has announced no concrete measures to promote it so far.

In fact, the government is dismantling the Growth Fund and cutting back on education and sciences. That means that fewer resources are available for innovation, while innovation is essential for efficient healthcare in the future.