“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.”
The double whammy of higher social spending and declining tax income faced by aging economies has increased the urgency for countries to strengthen their fiscal positions, noted Andy Seaman, partner and chief investment officer at Stratton Street Capital.
“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.
Governments have tried expanding their workforce through measures such as increasing the number of working women and raising the retirement age. Countries such as Japan, South Korea and Singapore have also invested in upgrading the skills of seniors and deploying technology to boost productivity.
But those measures are prevalent mainly in advanced Asian economies, experts noted. The need to increase government revenue as the countries age means imposing higher taxes on the shrinking working population or expanding the tax base, tax specialists told CNBC.
“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.
The Organisation for Economic Co-operation and Development, in a 2015 report, recommended countries address tax challenges that the digital economy brings. Since then, New Zealand enforced a goods and services tax on digital services from October 2016, while Taiwan and Australia will follow suit this year.
