Implicit Public Debt in Social Security and elsewhere or What you see is less than what you have

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1 Implicit Public Debt in Social Security and elsewhere or What you see is less than what you have Prof. Dr. Bernd Raffelhüschen Albert-Ludwigs-University Freiburg, Germany University of Bergen, Norway Lecture given on the Conference Adequacy and Sustainability of the Central Administration of National Pension Insurance in Hungary on September, 20th 2013 at ther Pension Insurance Center, Budapest, Hungary

2 What is public debt? Is it just about nicely printed bonds? 2

3 General government gross financial liabilities in 2008 Percent of GDP Czech Republic Finland Denmark Switzerland Spain Sweden Ireland Poland Norway United Kingdom Netherlands Austria Germany United States Hungary France Portugal Belgium Italy Greece Japan Quelle:OECD

4 General government gross financial liabilities in 2009 Percent of GDP Czech Republic Switzerland Norway Finland Sweden Denmark Poland Spain Netherlands Ireland United Kingdom Austria Germany United States Hungary France Portugal Belgium Italy Greece Japan Quelle:OECD

5 General government gross financial liabilities in 2010 Percent of GDP Switzerland Czech Republic Sweden Norway Denmark Finland Poland Spain Netherlands Austria United Kingdom Hungary Germany United States France Ireland Belgium Portugal Italy Greece Japan Quelle:OECD

6 General government gross financial liabilities in 2011 Percent of GDP Switzerland Sweden Czech Republic Denmark Norway Finland Poland Netherlands Spain Austria Germany Hungary United Kingdom United States France Belgium Portugal Ireland Italy Greece Japan Quelle:OECD

7 Government net lending in 2009 Percent of GDP Norway Switzerland Sweden Finland Denmark Germany Austria Hungary Italy Netherlands Czech Republic Belgium Poland France Japan Portugal United Kingdom Spain United States Ireland Greece Quelle:OECD

8 Government net lending in 2010 Percent of GDP Norway Switzerland Sweden Denmark Finland Belgium Germany Hungary Austria Italy Czech Republic Netherlands France Japan Poland Spain Portugal United Kingdom United States Greece Ireland Quelle:OECD

9 Government net lending in 2011 Percent of GDP Norway Hungary Switzerland Sweden Germany Finland Austria Belgium Italy Denmark Czech Republic Netherlands Poland France Portugal Spain Japan Greece United Kingdom United States Ireland Quelle:OECD

10 Government net lending in 2012 Percent of GDP Norway Switzerland Sweden Germany Finland Italy Poland Belgium Netherlands Austria Czech Republic Hungary Spain Portugal France Denmark Greece Ireland United Kingdom Japan United States Quelle:OECD

11 So what you see is Government bonds but what about the true public liabilities? 11

12 Koordinierte Bevölkerungsprojektion:

13 Irland Großbritannien Dänemark Belgien Luxemburg Schweden Frankreich Niederlande Zypern Finnland Österreich EU27 Tschechien Malta Estland Spanien Italien Griechenland Portugal Litauen Ungarn Slowenien Deutschland Bulgarien Slowakei Rumänien Polen Lettland in Prozent What is sure: Demografic Change Old age dependency ratio (65+ / 20-64) Quelle: Europäische Kommission, eigene Berechnungen

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15 4. Results: Country comparison of pension liabilities 2006 (in % of GDP) 450% Government employer pension scheme 400% Social security pension scheme 359.9% 362.2% 361.1% 350% 300% 98.4% 329.6% 48.6% 61.0% 323.1% 1.0% 27.3% 269.0% 250% 42.7% 210.5% 200% 179.9% 9.5% 150% 100% 50% 261.5% 201.8% 201.4% 281.0% 204.2% 301.4% 301.2% 230.7% 257.5% 322.0% 13.0% 166.9% 124.8% 226.2% 236.2% 333.8% 298.3% 284.5% 201,1% 91.2% 0% AT BG CZ DE ES FI FR GR HU IT LT LV MT NL PL PT SE SK UK

16 Scope of pension liabilities Source: Müller et. al. (2010), p

17 Public health care expenditure by age groups 17 Source: OECD

18 Euro 6000 Age-specific contributions & transfers of the German Long-Term Care System Age in the base-year 2010 Contributions Transfers

19 What is the background of the underlying Assumtions? Realistic Scenario Optimistic Scenario Economic and Fiscal Polic Base Assumptions Base-year 2012 determines economic and fiscal starting point and is projected into the future Until 2014: Economic and fiscal stance is projected according to EU Commissions outlook in fall, From 2015: GDP growth is BIP raising to the potential growth rate until 2019 (Grreece: 2024). Primary Deficit is lienar adlusted to 2014 level during that period. Age-specific Spending Pensions: Average of Ageing Report (AR) 2009 und AR Else: Growth according to Ageing Report 2012 Growth according to Ageing Report 2012 OBS!: Potential growth rate is set according to the assumptions in the Ageing Report 2012 of the EU Commssion.

20 EU-Sustainability Ranking 2012 Realistic Scenario, Base-year 2011 in Prozent des BIP Explizite Schuld Implizite Schuld Nachhaltigkeitslücke 1 Italien Lettland Estland Polen Deutschland Bulgarien Schweden Portugal Ungarn Rumänien Litauen Österreich Malta Tschechien Frankreich Dänemark Finnland Slowakei Niederlande Großbritannien Belgien Slowenien Zypern Spanien Griechenland Luxemburg Irland Source: EU Commission, own calculations

21 Italien Lettland Estland Polen Deutschland Bulgarien Schweden Portugal Ungarn Rumänien Litauen Österreich Malta EU27 Tschechien Frankreich Dänemark Finnland Slowakei Niederlande Großbritannien Belgien Slowenien Spanien Zypern Griechenland Luxemburg Irland Percent of GDP Stance of Fiscal Policy in the EU Sustainability gap (Sum of explicit and implicit liabilities, Base-year 2011) Realistisches Szenario Optimistisches Szenario Explizite Schuld Source: EU Commission, own calculations

22 Lettland Estland Polen Italien Portugal Bulgarien Großbritannien Griechenland Schweden Frankreich Dänemark EU27 Ungarn Österreich Tschechien Litauen Rumänien Spanien Deutschland Finnland Irland Slowakei Niederlande Belgien Zypern Malta Slowenien Luxemburg Percentage Points of GDP 15 Main Determinants of the Growth of Implicit Liabilities Growth of age-specific Spendings , optimististic Scenario 12, ,4 0,8 0,9 1,9 2,2 3,4 3,4 3,8 4,2 4,3 4,4 5,0 5,1 5,4 5,5 5,6 5,8 5,9 6,7 6,8 7,8 8,7 9,2 9,3 9,7 9, ,8 Rente Gesundheit Pflege Source: EU Commission, own calculations

23 Griechenland Italien Portugal Deutschland Schweden Ungarn EU27 Polen Finnland Österreich Rumänien Malta Dänemark Frankreich Lettland Belgien Irland Bulgarien Niederlande Estland Slowenien Litauen Luxemburg Slowakei Tschechien Zypern Spanien Großbritannien Percent of GDP Primary Deficits in Base-year ,4 Budget deficit/surplus without interest spendings for issued debt ,4 5,0 2,6 4,0-0,5 2,5 2,3 1,8 1,6 1,0 1,6 1,1 1,0 0,9 0,8 0,7 0,6 0,5 0,4 0,4 0,3 0,3 0,3 0,2 0,1 0,1-0,1-0,6-0,7-0,6-0,5-1,0 0,6-2,4-1,9-0,2 0,5-0,6-1,7-1,0-2,0 Positive: Surplus Negative: Deficit -1,0-0,4-1,4-0,8-0,9-3,1-2,1-1,1-1,3-1,7-1,5-3,0-6 -4,4-5,0 Realistisches Szenario Optimistisches Szenario Source: EU Commission, own calculations

24 Italien Deutschland Schweiz EU27 Eurozone Frankreich Großbritannien Spanien Griechenland USA Percent of GDP Fiscal Policy in the US, EU and Switzerland Sustainability gap (Sum of explicit and implicit liabilities, Base-year 2011) Realistisches Szenario Optimistisches Szenario Explizite Schuld Source: EU Commission, Congressional Budget Office, Eidgenössisches Finanzdepartment and own calculations