News brief – July 2006

OECD Observer

Unhealthy costs

Health spending continues to rise in OECD countries and, if current trends continue, governments will have to raise taxes, cut spending elsewhere or make people pay more out of their own pockets if they are to maintain their existing healthcare systems, new OECD data indicate.

According to OECD Health Data 2006, now out, health spending has grown faster than GDP in every OECD country except Finland between 1990 and 2004. It accounted for 7% of GDP on average across OECD countries in 1990 but reached 8.9% in 2004, up from 8.8% in 2003.

In many OECD countries, most healthcare costs are financed through taxes, with 73% of health spending on average publicly funded in 2004. The share of health spending in GDP is set to increase further, reflecting costly new medical technologies and population ageing.

Although the public share of health spending has eased back in countries such as Poland, Hungary and the Czech Republic, it has risen in Korea, Mexico, Switzerland and the US. In Korea, for example, the public share of health spending rose from 38% in 1990 to just over 50% in 2004, and in the US, from 40% to 45% over the same period. Although the private sector in the US continues to play the dominant role in financing, public spending on health per capita is still greater than in most other OECD countries.

OECD Health Data 2006 provides a comprehensive database of comparable health statistics with more than 1,200 indicators. See www.oecd.org/health.

Growth to moderate?

The latest OECD composite leading indicators to May point to improved performances in the euro area and Japan, but a weakening performance in Canada and the US. The indicator for the US fell by 0.6 point in May and its six-month rate of change was down for the second consecutive month. By contrast, Japan’s sixmonth rate of change has been on an upward trend since June 2005. The euro area also sees a positive trend. The latest data for major non-OECD economies indicate slightly moderating expansion ahead in China, an improvement for India and Russia, while a weaker trend ahead in Brazil.

Source: OECD

The OECD composite leading indicators incorporate a wide range of data, such as building permits, order flows, long-term interest rates and sentiment surveys in a bid to deliver early signals of forthcoming trends in economic activity. For details with graphs and background data, see www.oecd.org/statistics.

Separately, the OECD Economic Outlook published in June (with a May cut-off date for forecasts) says that growth may continue for a fifth year, though warns of headwinds from high energy prices, and flags current account imbalances and long-term interest rates as concerns. However, high corporate profitability may bring favourable surprises, the report suggests, and urges governments to step up fiscal consolidation. The twice-yearly Economic Outlook contains a detailed overview and 100 pages of country-by-country analysis, including non-OECD countries Brazil, China, India and Russia. A forecast update for major economies will be issued in September. See www.oecd.org/economics.

Unemployment falls

The standardised unemployment rate for the OECD area fell to 6.1% in May 2006, 0.1 percentage point lower than the previous month and 0.5 percentage points lower than a year earlier. The euro area saw a sharper than average fall, with the standardised unemployment rate of 7.9% in May 2006 some 0.8 percentage points lower than a year earlier. French unemployment at 8.8% was 0.9 percentage points lower, while in Germany, the drop was 1.2 percentage points, to 8.3% in May 2006. By contrast, UK unemployment in March 2006 stood at 5.2%, 0.6 percentage points higher than a year earlier. The US rate for May 2006 was 4.6%, 0.5 percentage points below its level 12 months before. For Japan, the rate was 4.0% in May 2006, 0.4 percentage point lower than in May 2005.

Full details and charts are available at www.oecd.org/statistics/data, see Frequently Requested Statistics.

Safer pensions

Urgent regulatory action is needed to promote pension security for retirees throughout the OECD area, while avoiding excessive costs on employers. The OECD is preparing guidelines to help governments and regulators improve the way certain types of pension funds are run. Now in draft form, the Guidelines on Funding and Benefit Security will be the first international standard on funding regulations, particularly for occupational pension plans.

The public is being invited to comment on the draft, with a deadline of 15 September 2006. Views, however general or detailed, are being sought from stakeholders in private systems in particular–pension supervisors, national associations of pension plan sponsors, associations, consulting firms, actuarial associations, relevant international financial institutions and NGOs.

The current draft contains recommendations on occupational pension plans, particularly defined benefit pension schemes. Such schemes are common in Canada, Japan, the Netherlands, the UK and the US, though many are now closed to new employees. A key question is how money paid by employees into their company pension scheme should be protected if employers or the company that finances their pension plan goes bankrupt. The draft guidelines and background policy papers are available at www.oecd.org/daf/pensions.

New risk tool

Around 900 million people, or approximately 15% of the world’s population, live in so-called weak governance zones, particularly in sub- Saharan Africa, where governments are unwilling or unable to assume their responsibilities in relation to public administration and protecting human rights.

The OECD Risk Awareness Tool for Multinational Enterprises in Weak Governance Zones is designed to help companies to think about the risks and dilemmas they may face in such zones and how they can respond to them. Responding to a request by participants in the 2005 G8 Summit and developed with inputs from business, trade unions and civil society, the new tool is non-prescriptive and sets out a range of questions for companies to consider in such areas as: obeying the law and observing international instruments; heightened care in managing investments; knowing business partners and clients; dealing with public sector officials; and speaking out about wrongdoing.

One dimension of the tool is the renowned OECD Guidelines for Multinational Enterprises, a yardstick for responsible business conduct the world over. The Risk Awareness Tool can be downloaded at: www.oecd.org/daf/investment/guidelines.

Fairer business

The Netherlands, Denmark and Japan have been warned to take stronger action against bribery of foreign officials, in the most recent country reviews published by the OECD’s Working Group on Bribery.

The Dutch should take a more proactive approach to fighting bribery of foreign public officials, the working group says. There have been no trials or convictions to date, the report notes, despite the size and international nature of the economy. Denmark should increase the penalties for foreign bribery, the recommendations say, since the maximum sanction is lower than for comparable offences in the Penal Code. The absence of an efficient framework for detection and reporting should also be addressed. Japan, meanwhile, is urged to undertake an assessment of the impediments to effective investigation and prosecution of bribing foreign officials and to change the priority of offences from an Unfair Competition Prevention Law to the Penal Code.

It was a first review for the Netherlands and Denmark by the36- country working group, and a second for Japan. The reports are available at www.oecd.org/corruption.

G7 trade slows

Merchandise trade volume growth in the Group of Seven most industrialised countries grew in the first quarter of 2006, with exports 11.2% higher and imports up 6.9% on year earlier levels. However, compared with the fourth quarter of 2005, trade actually slowed to a seasonally-adjusted 2.9% for exports and 1.3% for imports.

Plus ça change…

“Rising participation rates, diminishing labour market opportunities and intense competition for public and private funds have combined to put tertiary education policy under renewed pressure. Moreover, education at this level is increasingly led by demand, with institutions of all types having to adapt themselves to students’ requirements. Governments have to readjust their policies too. Tertiary education is where the pressures of growth and change are most acutely felt.” Alan Wagner, “Redefining tertiary education” in No. 214 October/November 1998.

©OECD Observer No 256, July 2006




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