Demography to shatter core tax payment incentives

Much of the ongoing political debate in Latvia is on the deteriorating demography, Latvia is shrinking. More and more people are lamenting their no-pension old age. Here is a glimpse of what Johnny Åkerholm, President of the Nordic Investment Bank, said recently at a seminar on the future of the Nordic-Baltic integration.

The basis for the Nordic welfare model will change. Many may wonder how it has been possible to tax people so much and they are still working so much. Well, the answer is that very much the same people have benefitted from the taxing, receiving free education, comprehensive social security, good infrastructure and, on the top of all this, good health. It’s going to change because of the ageing of the population. Finland may expect a pace of economic growth at 2% per year in the near future. And of that growth, 40% will be going to support the passive population. This means that those producing added value will benefit a lot less. It will change the incentives quite a lot.