Issue Safeguarding fiscal sustainability as potential growth declines

Summary

Slower growth erodes the tax base, so systems designed when the working-age share and potential growth were high need reform to remain sustainable. Rapid ageing means public pensions, including the National Pension and the Basic Pension, could place a heavy burden on government finances and should be redesigned. The authors caution against repeated stimulus that lets fiscal deficits become chronic. Misreading a decline in potential growth as a short-term downturn and stimulating again and again could damage fiscal soundness and destabilise the economy. To strengthen economic dynamism, they argue, effort should go into easing market failures and fixing distorting institutions rather than relying on public spending.