Among other duties, the government is responsible for ensuring access to health care and administering benefits for specific population groups , e.g. pensions, unemployment benefits and family allowances. These services entail high costs, and thus health care and social protection are two of the main categories of government spending. Demographic and technological changes have accentuated the relative importance of these categories over the past half-century.
For example, the number of people of retirement age has increased with respect to the working-age population and the length of time in retirement has grown. According to OECD research, in 2015, there were 28 people aged 65 and over for every 100 persons aged between 20-64 across OECD countries, up from 18 in 1970. Projections indicate that, by 2060, this ratio will be 57 people (OECD, 2019). Moreover, while in 1970 a man would have spent on average 11 years in retirement and a woman 15 years, in 2016 they would have enjoyed 18 and 22 years respectively (OECD, 2017).
According to the latest available data, in 2017 over half of the funds for social protection were allocated to old age pensions: 10% of GDP on average in OECD countries. In Finland, Greece, France and Italy old age pensions represent more than 13% of GDP. Iceland (3.0%), Ireland (3.4%) and Israel (5.0%), on the other hand,spend the least on pensions. Still, pensions play a key social role as the main source of income for older people in the majority of OECD countries. While the replacement rate (i.e. how effectively a pension system provides a retirement income to replace earnings) varies across OECD countries and over time is dependent on whether or not pensions are indexed similarly to salaries, most OECD countries aim to protect low-income workers from old age poverty by ensuring them higher replacement rates (OECD, 2017).
With almost 15% of social protection expenditures, sickness and disability benefits follow in terms of relevance, reaching on average 2.8% of GDP. Norway (6.7%), Denmark (4.4%) and the Netherlands (4.1%) spend the most in terms of GDP in this category. Japan spends only 0.9% of its GDP on disability and sickness, due to multiple factors including the eligibility criteria for disability pensions, the relatively low proportion of the working-age population that reports experiencing disabilities, and the low levels of applications, approvals and appeals to these programmes (Rajnes, 2010).
Austria, Estonia, Japan, Luxembourg and Poland are the only countries spending more on allowances for family and children than on sickness and disability. These countries are below the OECD average fertility rates, hence improving them is a strategic priority (OECD, 2019).
In terms of health, the largest share is spent on hospital services (3.1% of GDP on average in 2017), followed by outpatient services (1.0%). In analogy with sickness and disability benefits, expenditure in hospital services (e.g. general and specialised hospitals, medical and maternity centres, as well as nursing and convalescent home services) in Norway, Denmark and the Netherlands are above the OECD average.