A European Union report shows that although Malta's public finances will be severely hit by the aging "problem", the impact is not expected to be as deep as in other EU member states.
The report, prepared by the European Commission and the Economic Policy Committee of the EU, projects how an aging population will affect the economic and budgetary costs in member states by 2050.
The report will be presented today at an Economic and Finance Ministers meeting in Brussels attended by Prime Minister Lawrence Gonzi.
According to EU projections, under the current Maltese policy scenario the cost of pensions, health care, long-term care, unemployment benefits and education is expected to increase by an additional 1.8 per cent of GDP by 2030. However, the country would then be expected to fork out only an additional 0.3 per cent of GDP by 2050.
According to the report, Malta is currently spending 18.1 per cent of its GDP on pensions, health care, long-term care, unemployment benefits and education.
The largest expense in 2004 was to cover pensions, which absorbed 7.4 per cent of GDP. Other substantial costs in these socially related sectors were connected to health care, taking up 4.2 per cent of GDP in 2004, and education, 4.4 per cent of GDP.
By 2030, the biggest increase in public expenditure is expected to be taken up by pensions, projected to cost 1.7 per cent of GDP more than in 2004.
Healthcare will be up by 1.3 per cent while unemployment benefits and education are projected to cost 0.2 and 1.2 per cent less of GDP respectively. This is due to a projection that by that time, more people will be working and fewer babies will be born.
The impact of ageing on Malta's public expenditure emerges somewhat differently, sometimes even going contrary, to the prevailing trends in the other member states.
For example, Malta's fertility rates are expected to drop less sharply than in other member states and its population is still projected to grow by over 30 percent by 2050 mainly due to longer life expectancy.
As a result of the current low participation rate of the working age population in the labour market at present, an increase from the present 58.6 per cent to 66 per cent by 2050 is also expected.
All these developments are expected to cushion the impact of ageing on Malta's public expenditure. The government is currently preparing the finishing touches to a deep reform of the pensions system. The EU has said that reforms in this sector are crucial if member states want to their economy sustainable.
Presenting the report yesterday in Brussels, Economic and Monetary Affairs Commissioner Joachim Almunia said that EU governments need to step up reform efforts in the face of rapidly ageing populations. He called the scale of the demographic challenge immense.
According to the report, the retirement of the baby-boom generation as of 2010 and continuous increase in life expectancy means that Europe will go from having four to only two people of working age for every elderly citizen by 2050. With unchanged polices, EU potential growth rates will be almost cut by half by 2030.