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How global demographics shape governments

May. 8, 2014 - 04:43PM   |  
By JEFFREY STEINHOFF   |   Comments
Jeffrey Steinhoff is executive director of the KPMG Government Institute and former assistant comptroller general of the United States for accounting and information management. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP.
Jeffrey Steinhoff is executive director of the KPMG Government Institute and former assistant comptroller general of the United States for accounting and information management. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP. ()

National leaders must look far to the future to prepare for megatrends that could affect long-term economic prosperity, social cohesion, environmental stability, and national defense. With the assistance of the University of Toronto’s Mowat Centre at the School of Policy and Governance, KPMG identified and studied nine global megatrends that will impact governments. These are addressed in our research report, titled “Future State 2030: The global megatrends shaping governments.” Today, I will highlight the first megatrend – demographics – and in ensuing essays will address the others.

Our fiscal path is unsustainable and demographic trends help explain why. By 2030 the world’s population aged 65 or older is expected to double. Globally, the percentage over 65 compared to those 15 to 64 years old will rise from 8 percent to 13 percent, with the US expected to be in the 30 percent to 40 percent range. As someone who is already in the 65+ age group, I’m happy to report that life expectancy will continue to increase. At the same time, birth rates have continued to decline in developed countries, while exploding in developing countries, which today have 90 percent of the global youth population ages 15-24. This age group also represents 40 percent of the world’s unemployed, 17.6 percent in the US.

Among the principal consequences to the US are increased healthcare spending and seriously strained public pension and retirement systems. These two elements (together with interest on our burgeoning public debt) primarily drive the US government’s dire long-term fiscal projections. Medicare, Medicaid and Social Security were established when life-expectancy was far different. For example, the ratio of workers to Social Security recipients has fallen from 8.5 to 1 in 1955 to 3 to 1 today and is expected to drop to 2 to 1 by 2030.

There are a range of opinions on how to address these fiscal problems, with large, entrenched constituencies on all sides of any proposed action. Change is never easy; but the magnitude of change presented by an aging population to which promises were made is extremely difficult. Here are a few thoughts from our megatrends report.

■ Continue to monitor and adjust public policy to address impacts of an aging population
on the healthcare system. Implementation of the Affordable Care Act is underway. As it more fully rolls out in the coming years, policy makers will gain experience not only about the law’s fiscal impact, but its impact on healthcare delivery and health outcomes and whether further adjustments or enhancements to the health care system will be necessary.

■ Institute pension reforms, such as incrementally raising the retirement age over a phased-in period as has been previously done to bolster solvency of Social Security. Approaches to rein-in pension costs have been recommended by blue-ribbon deficit reduction commissions, such as Simpson-Bowles and Domenici-Rivlin, and some action is inevitable.

■ More closely collaborate with the not-for-profit and public sectors to help bridge gaps in social service delivery. Closer collaboration also applies to between government agencies. For example, various state and local government programs serving diverse and aging populations could be integrated and co-located to better and more efficiently serve their constituencies. And GAO has identified significant program duplication and fragmentation at the federal level.

■ Improve communications to garner public support for what will be daunting change. Americans rise to the occasion when faced with a challenge they understand and a solution they believe is well reasoned and equitable. No doubt, shared sacrifice will be required to address the U.S. fiscal problems. With the current low public confidence in government, gaining buy-in will be difficult, yet essential given the magnitude of the challenge and diversity of views on the way forward.

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