sou · GWB3105EN · 2009-01-01 00:00:00 — A report from points out that many elderly want to take more responsebility and pay for a higher standard of elder care. Of those who sought a tax reduction for household-related services for the second half of 2007, when the option was introduced, almost 30 per cent were over the age of 70.263 In the area of health care, there has been an open discussion of priorities, including a discussion going on about whether pharma- ceutical products should be subsidised. The discussion needs to be deepened so that it also addresses whether in some cases it is possible for individuals to take more responsibility to avoid being contracting illnesses such as certain diseases of affluence. At the same time, supplementary options of insuring against the risk of 260Price elasticity expresses how the supply or demand for a good or service changes when the price changes. Income elasticity expresses how demand changes when income changes. See also appendix 7 to the Long-Term Survey 2003 (SOU 2003:57) for a detailed description of price and income elasticity of public services. 261Appendix 8 to the Long-Term Survey 2008 (SOU 2008:69). 262Rollén, B. & , M. [2008]. 263According to information from the Tax Authority based on applications received by 5 2008, which was the last day to apply. The Long-Term Survey 2008 economic hardship on account of illness are needed, regardless of how they have arisen. A clearer demarcation of just how far public commitments extend provides an opportunity whereby solutions in addition to the public systems are able to develop that are more compatible with distribution and efficiency ambitions. The estimates in the scenarios in the Long-Term Survey 2008 are based on current policies and systems. The overall picture shows that in principle it will be possible to maintain the same level of welfare services as there are today for the next 20–25 years without changing tax rates. Even if it is financially possible to maintain welfare services at todays level, there may, however, be problems recruiting staff with the appropriate training to the welfare services sector in all parts of the country. There is also good reason to believe that the demand for welfare services will exceed what is warranted based on demographic trends. This has historically proved to be the case. When material standards in society increase, the demand for more extensive and better quality services also increases. There is also considerable demand for freedom of choice and individually tailored welfare services. This puts additional demands on supply and on the service providers. The opportunities that exist for increasing productivity in the production of welfare services should be made use of. However, they are not big enough to help solve the public sectors long-term financing problem. A larger labour supply can also help mitigate the financing problem, but it solves the long-term problem of wanting to have better health care and social services as living standards increase. Additional changes are needed to be able to extend the welfare services more in line with the rise in demand. This means revising the priorities set for public commitments or introducing more charges in order to be able to improve the quality. High quality is important to maintain confidence in the welfare systems and their legitimacy. If the central government puts off or refrains from taking measures that facilitate financing and improving the welfare The Long-Term Survey 2008 systems, this is most likely to lead to continued development of solutions outside the public systems. This may be expressed not only in greater demand for various private alternatives but also in households performing more of the welfare services themselves. In elder care, work by relatives may increase still more. Such an increase in informal labour may in turn take place at the expense of participation in the labour market. There is also a gender aspect since in many cases it is believed to be women who devote more time to caring for relatives. Refraining from taking measures that may make it easier to satisfy demand therefore also has substantial distribution effects. Households having a good financial position will probably more often choose paths where they pay more with their own money when that is possible. Households with poorer finances will have to choose solutions that include more informal work. In order for there to be a welfare system that fulfils it basic aims of redistribu- tion and efficiency, a reform of the systems is therefore needed. Since changes take time, a broad inquiry should be launched as soon as possible. The Long-Term Survey 2008 recommends the appointment of a parliamentary inquiry with the remiss to examine the forms for financing the welfare services. The Inquiry should try various policy options and weigh the alternatives advantages against their disadvantages. In this way, an extension of the essentially publicly financed welfare services will be possible, even in the long term. The inquiry should also take into account how to handle the problems that can be expected to occur when one system is replaced by another. A process of change aimed at changing the design of the welfare systems takes a long time. The work on a new pension system took over ten years. It is therefore important to start this work as soon as possible with a view to reforming the welfare services before the differences between expectations and what can be provided become too large. A more precise specification of what society is to be responsible for and what the individual is to be responsible for may also give an impetus to the development of market solutions. Otherwise change may be difficult to get started or may develop in an undesirable way. 8 A Policy for the Future Changes in the composition of the population, changes in demand patterns and continued internationalisation are three particularly important trends emphasised in the Long-Term Survey 2008. These trends affect economic development in the long term in various respects. The Survey report covers a broad range of issues, all of which are affected by these trends in various ways and to varying degrees. In this closing chapter, the Survey intends to go back to these trends and highlight its main conclusions. Under the base scenario in the Long-Term Survey 2008, economic growth will be relatively good until 2030, but not as rapid as in the last ten years. At the same time, there are a number of factors that may dampen economic growth. The design of climate policy, labour supply developments, and the greater demand for services and their increased production are examples of factors discussed in the Survey. In addition to the future for growth, another key issue is the ability to meet the rising demand for welfare services within the framework of what is basically a publicly financed system. 8.1.1The composition of the population affects the labour supply and the demand for welfare services A growing proportion of elderly and a working-age population with almost no growth will have an impact both on the labour supply, and hence growth, and on the public welfare systems. A Policy for the Future The Long-Term Survey 2008 The labour supply will grow modestly and the rising level of education will not include everyone There will be only a modest increase in the number of people of working age in the future and the increase will be mainly in the older age groups and from immigration. Given current employ- ment patterns, this means that the number of hours worked in the economy will increase weakly in the long term and the labour supplys contribution to growth will be very limited. At the same time, the population will generally speaking become increasingly well educated and thus may have stronger labour market ties in the years ahead. Women in particular appear to strengthen their position in the labour market by improving their level of education. At the same time, the percentage of young people with only a pre-upper secondary education has been for a long time and this group has problems getting a foothold in the labour market. This is a worrying trend. In the last few years, it has also been foreign students (i.e. incoming students) that have kept the number of new university students from declining in . Many foreign students come without the intention of taking a degree here. A manageable increase in the demand for welfare services, given the ageing population With a greater number of older people, the demand for welfare services, particularly health care and elder care, will increase in the future. Under the base scenario in the Long-Term Survey 2008, it is expected to be possible to meet the increased demand for health care, social services and education in the long term, provided that the current quality and quantity per person are perceived to be adequate. However, there will not be scope for meeting increased demand for more and better services as discussed at greater length below. Problems may arise in recruiting staff to the extent needed without raising relative wages, an action that would in turn drive up costs. Recruitment may pose a particular problem in some parts of the country. The transitory problem of an age group that is large and getting older can be managed by surpluses in the public finances when this The Long-Term Survey 2008 A Policy for the Future group is still of working age. But in the long term, the systems need to be adapted to take into account increasing average life expectancy and other changes. 8.1.2Changes in demand patterns may dampen growth The demand for goods and services is changing. Rising incomes and changed preferences are one reason. Another is the arrival of new products which find demand. There is increasing demand not only for goods and services but also for leisure time. This, in turn, has an impact on the labour supply. Increased demand for more and better welfare services In addition to the increasing demand for welfare services on account of an ageing population, demand will also probably increase with rising incomes. The historical trend shows that the demand for welfare services has increased at a considerably faster rate than that warranted by demographic developments. Under the base scenario in the Survey, the current level of wel- fare services can be maintained until 2030. At the same time, it is unlikely that the public will be satisfied with a more or less unchanged standard of welfare services when the consumption of other services and goods grows in quality and quantity. In addition, there has been a trend to a greater for more options to choose from. This requires a broad selection of welfare services and also may require some excess capacity. It is difficult to meet an increasing demand for welfare services partly because they are heavily subsidised and financed almost exclusively by taxes and partly because the possibilities of increas- ing productivity in such activities are often limited. Consequently a situation is created in which the demand for services is difficult to meet within the framework of current forms of financing. Demand for other services will also increase Rising household demand will also focus on services other than welfare services. In the last decade employment has grown in service industries having relatively low productivity growth and A Policy for the Future The Long-Term Survey 2008 this trend can be expected to continue in the years ahead. Future productivity growth will depend on how the demand for services develops. The growing business services involve more specialisation, which should mean greater efficiency in producing these services. productivity may also increase in those sectors that use business services as inputs. Productivity growth in the economy as a whole may thus be higher than it would have been without the structural change that occurred. If instead demand ultimately is concentrated in services where productivity or productivity growth is low, such as personal services, long-term productivity growth in the economy will be more modest. Leisure time increases with increased prosperity The average amount of time people work during their lifetime has declined. This can be interpreted as a to enjoy some of the increased prosperity in the form of leisure. One aspect of working hours discussed in more detail in the Survey is how large a part of a persons life is spent in gainful employment. An increasing average life expectancy combined with an unchanged entry into working life and a relatively unchanged exit means that the amount of time an individual participates in working life has fallen. At the individual level, determining a balance between working life and private consumption involves a trade-off: less leisure time and more work normally makes it possible to increase private consumption. However, taxes and transfers sometimes make the connection less distinct. In contrast, the connection between individual input of labour and the supply of publicly financed welfare is much weaker. If one decides to spend less time in gainful employment in order to have more free time, one still has the same access to welfare services in the Swedish welfare system. But for society as a whole, there is a very close connection between the total labour supply and the ability to provide welfare services. The more hours worked in the economy, the more welfare services or the better their quality the public sector can provide at given tax rates. The design of the public welfare systems thus means that in this case, what is optimal for the individual is not necessarily optimal for society as a whole. The Long-Term Survey 2008 A Policy for the Future At the same time, it cannot be excluded that reduced working hours, perhaps particularly in the form of part-time work by those of working age, are in some cases an expression of an increase in unpaid work precisely because the welfare systems do not meet existing needs for such services as care for school-age children and elder care. In the long term, the combination of a reduction in the lifetime percentage of gainful employment and an increase in demand for publicly financed welfare services is unsustainable, at least within the framework of the current welfare system. 8.1.3Internationalisation requires economic adaptability Cross-border mobility has increased in various respects. Deregu- lation, fewer trade barriers and technological development have contributed to this development. There has long been trade in goods, but during the past decade trade in services and direct investment in service companies has increased sharply.264 Inter- national competition now exists in some parts of the service sector such as transport, telecommunications and financial services.265 Geographic labour mobility is an important part of the adjust- ment to changes in economic conditions.266 Migration is still hemmed in by regulations, but the aim and direction of policy is now to make labour immigration easier.267 In the last 30 years, immigration to has mostly consisted of the immigration of family members and refugees. Immigration has been, and will continue to be, an important factor in preventing a decline in the working age population in . At the same time, immigrants as a group have had difficulty getting established in the labour market.268 264Appendix 4 to the Long-Term Survey (SOU 2007:95) discusses the extent of trade and direct investment in the welfare services area and their potential. 265Appendix 5 to the Long-Term Survey 2008 (SOU 2008:12) describes the role of the financial sector in the economy and its development in . 266Appendix 3 to the Long-Term Survey 2008 (SOU 2007:35) analyses relocation and commuting patterns in 267In spring the Government submitted the bill New rules for labour immigration (Govt. 2007/08:147) to the Riksdag. 268Appendix 6 to the Long-Term Survey 2008 (SOU 2008:14) emphasises the economic gains to be had from improving labour market integration. A Policy for the Future The Long-Term Survey 2008 Internationalisation affects structural change Trade in goods and services leads to international specialisation of production, which contributes to more prosperity for participating countries. At the same time, internationalisation contributes to a need for continued restructuring of the economy to meet changes in prices and demand.269 industries and jobs will likely be affected in the future since technological development and regula- tory changes – for example, changes ensuing from the implement- ation of the Services Directive in the EU – mean that more services will be exposed to international competition. In addition, a continued expansion of the service sector may mean a higher general job turnover in the economy since job turn- over is higher in the service sector than in the manufacturing sector. This in turn requires a greater ability to adapt in the economy, both at the individual and the company level. For structural change to go smoothly, and for the labour force to match demand in the labour market, it is important for the economy to be able to adapt well to new conditions.270 Increased occupational and geographic mobility may improve matching the demand for labour with the supply in the short term. One long- term strategy for achieving good matching in the labour market is for individuals to choose the right education.271 Greater international specialisation in the service sector In the long term, internationalisation will probably also lead to greater international specialisation in the production of services, like that which has already taken place in the production of goods. This applies to those services that can be traded across borders and do not require a local presence. international competition in more parts of service production, which may also occur when foreign companies acquire a local presence through direct investment, should in the long term 269Appendix 2 to the Long-Term Survey 2008 (SOU 2007:25) deals with the growth of economic activity in and regional for economic growth. 270Appendix 7 to the Long-Term Survey 2008 (SOU 2008:21) analyses structural change and the employment dynamic. 271Appendix 8 to the Long-Term Survey 2008 (SOU 2008:69) analyses the importance of the choice of education level and specialisation for an individuals labour market situation and lifetime income. The Long-Term Survey 2008 A Policy for the Future contribute to productivity increases and falling relative prices for these services. In the event, those services used as input in other production will become cheaper. An increasing international division of labour in the production of certain services would also affect employment and structural change in . What direction this would take is difficult to predict. It cannot be said for sure that there will be specialisation in the production of services or certain service industries. If, however, there is an increase in demand for services that must be produced locally, for example, cleaning, care and serving food and drink, employment in these industries will increase in . A shift towards increased production of services in also affects Swedish carbon dioxide emissions. The reduction in carbon dioxide intensity in since 1990 has largely been the result of restructuring of the economy. During this time, the consump- tion of goods has not decreased. Part of the production thus takes place elsewhere. This gives rise to carbon dioxide emissions there and thus underlines the need to address the climate problem in cooperation with other countries. The climate issue is a global problem Climate change is a global problem that has to be handled at an international level. The contribution to climate change is the same, regardless of where it occurs. Reducing greenhouse gas emissions will be demanding in terms of resources and will mean restrictions in the use of some energy and raw materials, which will affect economic development. However, a number of studies have shown that it is possible to achieve relatively large reductions in emissions at a relatively low cost compared with the cost of the damages expected if no measures are taken. This is the conclusion of the as well as the OECDs long-term scenarios and the Physical Sciences Basis from the United Nations Intergovern- mental Panel on Climate Change (IPCC). A common premise for these estimates is that climate policy is based on cost-effective solutions with measures that are internationally coordinated by such means as an international emissions trading scheme. The base scenario in the Long-Term Survey also assumes that the climate issue will be handled by means of broad international agreements in which flexibility will be a priority so that emissions A Policy for the Future The Long-Term Survey 2008 reductions will take place where they cost the least.272 The Surveys estimates indicate relatively modest costs for to achieve ambitious climate goals based on an effective international climate policy.273 If the same emissions reductions take place in the form of measures taken in , the costs will be substantially higher, as shown in an alternative scenario. Economic development leads to new conditions for the economy and the welfare systems. New conditions in turn create a need for the regulatory framework to be adjusted on an ongoing basis to be able to take the best possible advantage of the opportunities provided and meet the challenges that arise. This section draws attention to a number of areas that the Survey thinks are particularly urgent for policy to address. This does not mean that there is no need for change in other policy areas. The Long-Term Survey 2008 recommends that policy should focus on: encouraging a longer working life working for good adaptability and more competition in the economy examining forms of increased private financing of welfare services working for a global climate policy based on effective policy instruments. 8.2.1Encouraging a longer working life One important element in a policy for continued good growth and for preservation of a welfare system that is basically publicly financed and covers everyone is increasing the proportion of life spent working. The basis for financing the public welfare system is the number of hours worked in the economy. All measures boost- ing the labour supply among people of working age are of course 272In the estimates, this is achieved by an international emissions trading scheme without trade restrictions that includes all carbon dioxide emissions in the economy. 273Appendix 1 to the Long-Term Survey 2008 (SOU 2008:108). The Long-Term Survey 2008 A Policy for the Future They have been discussed in earlier Long-Term Surveys and elsewhere. The focus of the Long-Term Survey 2008 has been on the possibilities of increasing the labour supply at the beginning and end of working life. Earlier labour market entry The age at which young people secure a place in the labour market is steadily rising. This largely reflects the increase in the number of people getting a university education, which is a positive step. But it also reflects inefficiencies in the education system, where in many cases studies take considerably more time than should be needed. There is also a large group of young people who do not complete upper secondary school. Beginning early in their school life, these young people often find school more difficult than other students. Achieving earlier in the labour market by increase- ing the efficiency of the education system would yield several positive effects. Education system expenditure would not need to be as high if the need for supplementary studies declined. It would also have a positive effect on the individual concerned in the form of more income.