The US Government faces an unprecedented “fiscal crisis” as the baby-boomer generation begins to retire, driving up public spending on pensions and healthcare, the Organisation for Economic Cooperation (OECD) said yesterday.

The problem will be magnified because an unsatisfactory standard of education could combine with social security incentives to “premature retirement” to weaken America’s productivity and increase inflation, the report said.

Ethan Harris, Lehman Brothers’ chief US economist, said that the OECD report raised serious concerns about the future of the American economy, which politicians had failed to address. Mr Harris said: “The first wave of the baby-boomer generation is now 61 and is starting to put huge pressure on healthcare costs, much of which will be borne by the government.

“The cost of healthcare is the biggest challenge over the next 30 years and there will need to be some radical changes, such as big tax increases, if we are to avoid enormous budget deficits. But any politician who tries to address the issue ends up getting burnt, so nothing has happened and there is no sign of anything happening in the future.”

The OECD predicts that government spending on social security and healthcare will double, as a proportion of gross domestic product, to 15 per cent by 2030. The OECD warning comes a month after Alan J. Auerbach, a Professor of Economics at the University of California, Berkeley, predicted that the United States’s budget deficit, forecast to be $177 billion (£89 billion) this year, would grow to $40.9 trillion in present-value dollars by 2081. To keep its budget deficit at its present proportion of GDP, America would need to increase taxes or cut spending by an equivalent of $480 billion a year, he said.

The OECD urged the US Government to introduce measures such as a national sales tax and increased carbon emission taxes to help to control consumer spending and encourage companies to improve productivity, Mr Harris said.

The OECD forecast last week that the US economy would grow by 2.1 per cent this year and 2.5 per cent in 2008, down from 3.3 per cent in 2006.

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