NORWAY - Increasing labour market participation and extending working lives is a “key response” to the challenges of an ageing population that could see the number of people over the age of 67 double over the next 50 years.

A report by the Ministry of Finance on the “Long-term perspectives for the Norwegian economy” said from 2010 “the working population in Norway will grow at a slower rate than the population as a whole and the proportion of elderly will rise steeply”.

Projections showed a continuation of current welfare schemes and tax levels will lead to an “increasing finance gap” in the public sector, so action must be taken “either to curb public expenditure or to increase public revenues in the long run”.

The ministry argued a large labour force is important in maintaining comprehensive public welfare schemes, and as the “potential for a general increase in an already-high tax level is limited”, the government believes the natural step for individuals to increase income should be continued employment.

It added the government considers “a key response” would be to stimulate high labour force participation “by focusing on an activation approach in welfare policy and by pursuing a proactive labour market policy”, and further claimed pension reform is a “central element of this strategy” as it will make it “financially lucrative to prolong working life b,y for example, combining employment with pension”.

That said, while the report takes into account that pension reform will reduce old-age pension expenditure, pension benefits to households may still rise from 16.2% of mainland Norway GDP in 2007 to over 26% by 2060.

In addition, the report noted while the capital in the Government Pension Fund - Global could rise from 118% of GDP at the end of 2007 to around 240% at the start of the 2020s, through higher oil revenues, the scheme’s contribution to financing welfare policy will be “relatively modest compared with overall taxes and excise duties” from the mianland economy.

The ministry also added the financial crisis had demonstrated the uncertainty of the annual return on the pension fund capital, in addition to concerns regarding shifts in oil prices over recent years, and warned “it is therefore clear that assessments of the room for manoeuvre in budgetary policy should not be based on overly optimistic expectations on future oil prices”.

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