Thursday 13 December 2018

Young people 'putting their dreams on hold' after financial crash - Christine Lagarde at Davos

Christine Lagarde IMF Director attends the session
Christine Lagarde IMF Director attends the session "Creating a Shared Future in a Fractured World" during the World Economic Forum (WEF) annual meeting in Davos, Switzerland January 23, 2018 REUTERS/Denis Balibouse

Donal O'Donovan in Davos

European tax systems should be turned around so that older people contribute more and the young are better supported, according IMF managing director Christine Lagarde.

She was speaking after a new report from the IMF found that austerity measures in the wake of the financial crisis exacerbated an existing generational divide – with younger people in Europe increasingly left behind including in key areas like housing, wages and job security.

The fact that older people are more inclined to vote, means politicians tend to run with policy measures that favour them, she said at the World Economic Forum, in Davos.

The risks of intergenerational conflicts within developed nation is increasingly attracting the attention of the business and political elite gathered here in Switzerland, not least because of the electoral implications.

In an article written to coincide with the IMF report, Christine Lagarde quoted the poet Langston Hughes’ line: “What happens to a dream deferred?”.

Since the crash young people in Europe are, in essence "putting their dreams on hold", she said.

IMF data shows younger people suffered greater and longer lasting consequences of the great crash even if overall inequality didn’t increase, she said.

“Beneath the topline numbers, however, there is a worrying trend: the gap between generations in Europe has widened significantly. Working-age people, and especially the young, are falling behind.

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“Without action, a generation may never be able to recover.”

Incomes that declined for young people after 2007 have recovered, but not grown, she said.

Greater investment in education and lower labour taxes, such as PRSI, for those on lower incomes will help, she said. Social welfare should be adapted so that younger people are better protected of they lose their job, she said.

That approach contrasts strongly with the current Irish situation, where reduced rates of social welfare are paid to younger job seekers, and where starting salaries in the public sector were cut for new workers after the crash.

Potentially more controversial, she said tax systems need to be looked at some taxes hiked to help redress the generation gap.

“Wealth taxes are lower today than in 1970. In some countries, more progressive tax systems and wealth taxes (including inheritance taxes) could help fund much-needed social programs for younger citizens.”

Young people, often with big debts, are more vulnerable to financial shocks, she said.

"Let me underline again: this is not about one age group versus another. Building an economy that works for young people creates a stronger foundation for everyone. Young people with productive careers can contribute to social safety nets. And reducing inequality across generations goes hand-in-hand with creating sustained growth and rebuilding trust within society."

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