OECD reports warns about social impact of government cutbacks

Tuesday 18 March 2014 18.21
OECD head Angel Gurría said short term problems should not become long term disadvantages
OECD head Angel Gurría said short term problems should not become long term disadvantages

The OECD has warned that cutbacks in government spending on social policies risk worsening the effects of the great recession.

In a new report on social indicators, the Paris-based organisation of developed countries says many of those who benefitted least from economic growth before the crisis have borne a heavy burden during the recession.

It says while governments must do more with less money in some areas of spending, such as safety nets for poor families, governments may need to increase spending.

In particular the OECD says young people and children have been hardest hit by income poverty.  

It also says that high rates of joblessness and income losses are worsening social conditions in many countries, while budget cutbacks risk adding to the hardships of the most vulnerable in society and could create more problems for the future

The report says young people who suffer long periods of unemployment, inactivity or poverty face a lifetime of diminished earnings and weakened job opportunities.

It says labour activation policies and supports for the unemployed transitioning back into work should be funded at a high level, even if governments face a need to cut general government spending.

The OECD also warns governments against cutbacks to education spending, as it risks closing off access to educational opportunities for some families.  This, it says, causes long-term damage to economies.

Cutbacks in public health spending are also advised against, with the OECD saying public health spending must be targeted where it will have most effect.  

It notes that three in five low income earners say they have good health, but for high income earners the figure is four in five.

The long term effect of the recession may also be showing up in fertility rates.  

The report says the partial pick up in rates evident before the recession has petered out, with falling incomes and rising joblessness probably leading families to delay - or put off altogether - having children.  

It warns that if this trend is maintained it risks deepening the ageing challenge facing many developed countries, increasing the long term costs of the recession.

Families have also cut back on essential spending such as food and health care, it says, and this too will compromise their current and future well being.  It says unemployment and economic difficulties are known to contribute to a range of health problems, including mental illness.

It says especially hard hit countries should ensure access to quality services for children and prevent labour market exclusion for school leavers.  And it says maintaining and strengthening support for the most vulnerable groups must remain a crucial part of any strategy for an economic and social recovery.  

The OECD notes that poor people may suffer more from spending cuts than from tax increases.

It says government should avoid across the board cuts to social transfers such as housing and child or family benefits, as these often provide vital support to poor working families and lone parents.  

The report urges governments to target social spending on the most needy, as this can generate substantial savings in expenditure while protecting vulnerable groups.  It says health care reforms in particular should prioritise the most vulnerable.

It says governments need to increase structural reforms of social spending, and says the crisis has accelerated the need for these.

OECD secretary general Angel Gurría said "for our societies to remain prosperous and stable it is essential that social policies support families in troubled times and ensure that short term problems do not turn in to long term disadvantages".

The organisation notes support among voters in most OECD countries for maintaining or increasing social spending, despite the pressure on government budgets. 

It says that in designing future social policies, governments need to ensure that they are "crisis-proofed", and can operate in bad times as well as good.