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"Globalisation and an ageing population will be the EU’s main challenges in future"

This was the main emphasis of the address by the Slovenian Minister of Finance and current President of the Economic and Financial Affairs Council (ECOFIN), Dr Andrej Bajuk, at the international EU-LAC (Latin America and Caribbean) forum entitled "Fiscal Policies for Social Cohesion and the Fight Against Poverty". Dr Bajuk focused on challenges and the response of EU policy aimed at boosting prosperity and maintaining social cohesion in the context of sound fiscal policy, observing, "The main challenge is to carry out reforms that maintain and improve on our fine social achievements."

The Slovenian Minister of Finance opened by pointing out that, although different social models and political preferences co-existed within the EU, all the Member States nonetheless faced the same challenges and had agreed on a broad policy framework to address them in the form of the revised Lisbon Strategy for Growth and Jobs. He stressed that the common challenges facing the EU and, to a similar extent, Latin-America countries involved:

  • globalisation, and ensuring that benefits and opportunities are shared among all citizens,
  • technological change biased against low-skilled workers and against the maintenance of social inclusion,
  • population ageing, and ensuring long-term fiscal sustainability, and
  • climate change and the pursuit of an adequate global response.

Responding to these challenges requires modernisation of the welfare state and its policies. At EU level, the response to the challenges takes the form of the Stability and Growth Pact, aimed at macroeconomic stability, and a three-pronged strategy dealing with the pressures of population ageing through fiscal restraint, pension reform and increased participation in the labour market. The Slovenian Presidency, together with other EU Member States, is placing emphasis on investing in human capital as a means to facilitate the shift towards a knowledge-based society, to enhance social inclusion through creating more and better jobs and to ensure a sound fiscal position.

The EU Member States attach great importance to their social models. Nevertheless, they all face the same challenges in varying degrees. Rates of inequality in the distribution of income among the population within EU Member States and the risk of poverty rate after social transfers differ widely between EU Member States. Unemployment is one of the prime reasons for poverty and social exclusion; there are 17 million people unemployed in the EU and unemployment rates range between 5% and 15%.

On average, social spending in the EU-25 Member States amounts to 54% of total public expenditure. Member States devote the bulk of resources to pensions, with healthcare expenditure taking the second place, unemployment benefits in third place and education in fourth place.

Turning to tax revenue in the EU, the last few years have seen some stabilisation in the overall tax burden. The structure of taxes indicates that indirect taxes are the main source of tax revenue, representing about 35% of total tax revenue; however, taxation on labour remains fairly constant.

Dr Bajuk concluded with an examination of the prospects for the future , underlining that, "Considering the two main challenges that EU countries will have to face in future – globalisation and ageing – the crucial question is how to ensure the sustainability of social models in European countries. Maintaining or improving the social model will require, on the revenue side, finding alternative tax bases and simpler and more efficient tax structures, which will be less subject to fraud and will be broad-based but fair. On the public expenditure side, it will require increasing efficiency and effectiveness, with emphasis on increasing human capital formation. Investing in more and better education will ensure the sustainability of public finances, will maintain and improve social cohesion and will give individuals better opportunities."


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Date: 12.03.2008