Impact of the recession on fiscal sustainability

The objective of policies aimed at fiscal sustainability has been to strengthen public finances enough to enable incurrence of debt by the government at a time when growth in expenditure related to population ageing starts to accelerate. Another central aim has been on promoting longer working lives. The third priority has been enhancement of public service provision. The current recession has rapidly eroded strategies based on budgetary buffers. There are also clear signs of working lives starting to shorten again. Another concern is the danger that the economic downturn may crowd young people out of the labour market, as in the recession of the 1990s. The recession thus strongly alters the long-term outlook for public finances. This report considers the implications of the downturn for fiscal sustainability, while simultaneously evaluating labour market prospects from the sustainability point of view.