Aging population, increasing demand for government services to overtake budgets by 2025

A multi-country report released by global technology firm Accenture shows that aging populations coupled with increasing demand for government services such as welfare programs and health care benefits is likely to overtake budgets for most of the world’s developed economies by 2025. This is especially true in the US, which has seen a strong uptick in the demand for health care and other earned entitlements in the wake of the financial crisis.

Accenture asked Oxford Economics to project total government spending on public services through 2025 in 10 countries – Australia, Brazil, Canada, France, Germany, India, Italy, Singapore, the United Kingdom and the United States. The U.S. cost for delivering public services is projected to total $7.3 trillion, or 34% of GDP, by 2025, compared to $4.5 billion or 31% of GDP in 2010. Oxford analyzed the impacts of projected economic and demographic changes on the costs of delivering all public services, including federal, state and local spending (except debt-interest payments and unemployment-related benefits).

One-out-of-five U.S. citizens are projected to be 65+ by 2025, a fact that will cause the government at the federal, state and local levels to spend almost $1 trillion more to fund public services by 2025, according to the report, accounting for an additional 4.4% of GDP. The aging population will be the primary driver of government expenses in the near term. In 2011, 13.1 percent of the population was 65 years or older, that is projected to increase to 18.2 percent by 2025. Currently, 93% of those over 65 are on Medicare, which alone is estimated to cost more than $500 billion in federal spending in fiscal year 2013.

In this election year, both candidates have made a variety of statements concerning how to control Medicare spending. President Obama has worked to codify his approach through the Affordable Care Act (ACA), while the Romney/Ryan campaign has been less specific, primarily noting that they will grandfather in to their future plans anyone currently on Medicare.

The report notes that public-sector service delivery and productivity lags behind that of the private sector. Typically much of that lag can be accounted for by changes in government revenue, budget priorities and the consistent regime turnover at all levels of government. However, there is still room for improvement – report data shows that the United States could save as much as $995 billion in annual expenditures by 2025 by increasing public-sector efficiency by just 1% per year.

Accenture also surveyed citizens on their satisfaction with public services. A poll of 5,000 people, conducted across the same 10 countries by Ipsos MORI, showed that 41% of U.S. respondents said they are dissatisfied with the services they receive from government, compared to a global average of 35%. U.S. citizens were asked what they considered most important for government to focus on to improve public services in the future and the majority of respondents (51%) cited, as a top priority, “provide services in a more cost effective way.” Interestingly, U.S. citizens were far more likely than the global average (34%) to choose this answer as a priority, indicating that the high costs of public-service delivery occupy a top place in the mind of the American public.

U.S. seniors, ages 50-64, reported the highest levels of dissatisfaction, with less than a third (29%) being satisfied. U.S. seniors represent a key voting demographic in the upcoming general election. Those under 35 were the most satisfied with government services (39%) followed by those aged 35-49 (30% satisfied). Confidence that the U.S. government will be able to deliver public services that meet people’s needs and expectations over the next five years decreases with age. Forty-four percent of those under 35 are confident that government can deliver compared to only 29% of citizens aged 35 to 49 and just 27% among those aged 50 to 64 who were surveyed.

“We believe increasing efficiency in the public-sector must be part of the solution; it gives government leaders an option beyond just the traditional choices of cutting services or raising revenue and, our own research shows, citizens’ top priority is for government to provide services in a more cost-effective way,” said Stephen J. Rohleder, group chief executive, who leads Accenture’s global Health & Public Service business.

To do that, Accenture has released recommendations as part of the report that focus on ways to make public-sector service delivery less reactive and based more on client insights. This will require more personalized service at the public-sector level and the growth of what the company calls “public entrepreneurs.” Public entrepreneurs are public officials that use new developments in technology to foster data driven insights and realize better procurement cycles. The report also notes that by opening up their repositories of data, governments at all levels will not only reap the citizen engagement-based benefits of increased transparency, they may also find economic ones by empowering technology firms to create more responsive solutions to public-sector challenges.

Report authors also propose reimagining the core functions of government to remove redundancy and generally run leaner – shifts that may come to pass by force if some form of sequestration moves forward at the beginning of next year. “Restructuring core functions through consolidation and collaboration allows governments to drive considerably higher levels of public service productivity through economies of scale and scope, which eliminate overhead and duplication,” report authors write.

Below is current federal economic data comparing receipts to real public debt.


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