Italy’s New Welfare Plan to Combat Aging Population Crisis

Summary

  • Italy’s aging population and low birth rates pose serious threats to economic productivity and welfare costs
  • A new policy package, featuring a “universal benefit” for the elderly, is anticipated to be unveiled by the government.
  • The euro zone’s third-largest economy anticipates more than one-third of its residents to be over 65 by 2050.
  • Public debt escalation poses a hurdle for Italy, which already has the second highest debt in the EU.
  • In its bid to address the demographic crisis, the Government has allocated around 1 billion euros in its 2024 budget towards related measures.

Demographic Challenges for Italy’s Economy

The graying population and plunging birth rates paint a worrying picture for Italy, the euro zone’s third-largest economy, driving down productivity and escalating welfare costs. By 2050, it is projected that over a third of citizens will be aged 65 and above.

The government plans to unveil a new policy package after a cabinet meeting this Thursday.

Monthly Welfare Initiative for the Elderly

The proposal features numerous approaches, one of which includes the so-called monthly “universal benefit” of 1,000 euros aimed at aiding individuals over 80 with “very severe welfare needs,” as per the draft statement. The benefit is slated to kick off from Jan 1, 2025, and continue till December 31, 2026.

According to Eurostat, Italy, with a median age of 48, holds the distinction of being the EU’s oldest country and has the highest old-age dependency, measured as the age 65 and over population ratio to those of working age.

Impact of Pensions on Italy’s Economy

Pension costs already consume more than 15% of the gross domestic product (GDP), and the Treasury forecasts this to surge to 17% of output by 2042. This trend is amplifying the challenge for Rome to manage its public debt, which already is the second highest in the EU around 140% of GDP, diverting resources from sectors such as education and childcare.

The 2024 government budget earmarked approximately 1 billion euros for various initiatives to combat Italy’s demographic crisis. One such measure temporarily exempts employee contributions paid by working mothers with at least two children.

(Note: $1 equals 0.9180 euros).

These demographic and economic trends could significantly impact foreign exchange dynamics, particularly for assets tied to Italy and the Eurozone.

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