Consider the long-term effects of care financing

A new structure for care financing is currently being discussed in Austria. "The issue of care financing is rightly on the political radar, as demographic change will lead to a significant increase in care expenditure in the medium to long term. However, the financing has not yet been clarified," says Tobias Thomas, Director of the economic research institute EcoAustria.

An analysis using the EcoAustria Debt Check generation account model shows that public care expenditure in Austria will rise from 1.2 percent of GDP in 2016 to 2.3 percent of GDP by 2060, according to OECD figures. In principle, there are various models of care financing available: from a tax-financed system, as in Austria to date, to an additional pillar of social insurance, such as in Germany, to a funded insurance solution with solidarity compensation.

It is important to remember: "If care is financed via taxes or social security contributions, this will lead to an ever-increasing tax burden as the population ages," says Thomas. This can have a negative impact on employment and the competitiveness of the business location. EcoAustria Policy Note 25 concludes that the long-term effects in particular should be taken into account when designing care financing.