Daily Management Review

Growing Old Before Becoming Rich Is A Risk Faced By Emerging Asian Countries


04/20/2017




Growing Old Before Becoming Rich Is A Risk Faced By Emerging Asian Countries
Giving rise to concerns that emerging economies such as China and Thailand could see growth stall before they transition into high-income status, economists said that Asian populations will grow old at a faster pace than any other region in the coming decades.
 
Governments' ability to put in place the necessary systems would be limited and public finances would be strained which are used to cater to the growing number of seniors if such a development materializes.
 
the growth of China, Hong Kong, South Korea and Thailand by 2020, and Singapore by 2025 will be hit by Asia's rapid aging, Standard Chartered economists wrote in a note.
 
"Getting old before getting rich is one the biggest medium-term structural challenges in developing Asia and (Latin America). The main reason why middle-income countries are concerned about this is that it might inhibit their ability to join the group of high-income developed countries," the Standard Chartered report said.
 
"Unfavorable demographics could lower potential GDP growth rates and hamper development… Aging affects a population's productive capacity, consumption patterns and investment."
 
Andy Seaman, partner and chief investment officer at Stratton Street Capital noted that the urgency for countries to strengthen their fiscal positions has been increased by the double whammy of higher social spending and declining tax income faced by aging economies.
 
"Debt is a major risk for countries with aging populations, particularly once working age populations start to decline, as the debt burden will need to be financed by a smaller number of people," he said.
 
Through measures such as increasing the number of working women and raising the retirement age, governments have tried expanding their workforce. Investments in upgrading the skills of seniors and deploying technology to boost productivity have also been made by countries such as Japan, South Korea and Singapore.
 
But experts noted that mainly advanced Asian economies have a prevalence of those measures. Tax specialists say that imposing higher taxes on the shrinking working population or expanding the tax base is the only way for government who need to increase government revenue as the countries age.
 
"No country can be lauded for being able to meet the needs of an aging population and have low taxes… In light of the global economic climate, the trend in current tax reforms in these major economies are now focused on lowering income tax rates. Yet, social and medical welfare needs still need to be met," said Chris Woo, tax leader at PwC Singapore.
 
Countries should address tax challenges that the digital economy brings, recommended the Organisation for Economic Co-operation and Development, in a 2015 report. Since then, while Taiwan and Australia will follow suit this year, New Zealand enforced a goods and services tax on digital services from October 2016.
 
However especially among developing economies where tax enforcement capabilities are limited and taxpayer compliance rates are poor, implementing such taxes can be tricky. An Asian Development Bank study that found higher tax arrears in developing economies was cited by Chiu Wu Hong, head of tax at KPMG in Singapore.
 
"The challenges arise because of various factors, such as it is harder to track transactions undertaken over the internet and suppliers of the digital services locating outside the country," said Chiu.
 
As growth in their elderly populations accelerates, Asian countries could also be running out of time. from when they first became an "aging" society to becoming an "aged" one, defined as having 14 to 20 percent of population above 65 years, China and Singapore will take 25 years to move away, estimated the World Bank. That transition will happen in just 20 years in Thailand and South Korea.
 
While U.S. and France got there in 69 years and 115 years, respectively, the U.K took 45 years to reach that stage.
 
The reasons behind the region's rapidly aging phenomenon are a fall in mortality, increased longevity — reportedly happening at a quicker pace in Asia and declining fertility, said Standard Chartered economists.
 
"Institutional support is not yet in place to respond to the rapid rise in ageing. Pension systems remain unsustainable despite recent policy reforms. China's nationwide pension system may run a deficit as early as 2030; Thailand will likely run a deficit from 2041. By then, the pension systems in Korea and Vietnam should also run small deficits," they wrote.
 
(Source:www.cnbc.comm) 






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