Add articles to your saved list and come back to them any time.<\/p>\n
Our sixth intergenerational report envisages an Australia of fewer young people and more elderly, with slower improvement in living standards, climate change causing economic and social upheaval, aged and disability care becoming our fastest-growing industry, and home ownership declining, while we spend more defending ourselves from the threat of a rising China, real or imagined.<\/p>\n
That does sound like fun, but remember this: just as I hope many of the predictions I make will be self-defeating prophecies \u2013 because people act to ensure they don\u2019t happen \u2013 so it is with Treasury\u2019s regular intergenerational reports.<\/p>\n
<\/p>\n
Our sixth intergenerational report envisages home ownership declining.<\/span>Credit: <\/span>Erin Jonasson<\/cite><\/p>\n They say, here\u2019s the pencil sketch of the next four decades that we get when we assume present economic and demographic trends keep rolling on for 40 years, and<\/em> that present government policies are never changed.<\/p>\n Get it? Intergenerational reports are Treasury\u2019s memo to the government of the day, saying things will have to change. The memo to you and me says: you may hate change, but unless you let our political masters make changes, this is how crappy life may become.<\/p>\n Every intergenerational report comes to the same bottom line: if you think you won\u2019t be paying more tax in future you must have rocks in your head.<\/p>\n The media can\u2019t stop themselves from referring to the report\u2019s findings as \u201cforecasts\u201d. Nonsense. Forecasts purport to tell you what will<\/em> happen. These reports are \u201cprojections\u201d: if we make a host of key assumptions<\/em> about what will happen, plug them in the machine and turn the handle 40 times, this is what comes out.<\/p>\n Remembering that Treasury demonstrates almost annually its inability to forecast in late April what its own budget balance will be in just two months\u2019 time, June 30, let\u2019s not imagine that anything it tells us today about 2063 could prove close to the truth, except by chance.<\/p>\n This is no attack on Treasury. No one\u2019s forecasts are less wrong than theirs. It\u2019s just saying don\u2019t let the false confidence of the economics profession fool you. Only God knows what the world will look like in 2063 \u2013 and she\u2019s not telling.<\/p>\n We\u2019re all peering through a glass darkly, doing the best we can to guess what\u2019s coming around the corner. How many pandemics in the next 40 years? Treasury\u2019s best guess: none. How many global financial crises? Best guess: none.<\/p>\n We know from experience that the economy rarely moves in straight lines for long, but the nature of Treasury\u2019s mechanical projections is that most curves stay straight for 40 years. Unexpected things are bound to happen. Some will knock us off course only briefly; some may change our direction forever. Some will be bad; some will be good.<\/p>\n The report\u2019s single most important assumption is the rate at which the productivity of labour will improve. Until now, Treasury has avoided argument by assuming that the average rate of improvement over the next 40 years will be its rate over past 30 years.<\/p>\n The first report in 2002 assumed a rate of 1.75 per cent, but in later reports it was cut to 1.5 per cent. Now it\u2019s been cut to the seemingly less unrealistic 20-year average of 1.2 per cent.<\/p>\n This shift makes a big difference. The first report had living standards \u2013 measured as real gross domestic product per person \u2013 climbing 90 per cent in 40 years. This report has them climbing by only 57 per cent in the next 40.<\/p>\n Since this is only the second of the six intergenerational reports produced under a Labor government, it\u2019s only the second that takes climate change seriously. The other four looked into the coming 40 years and didn\u2019t see any consequences of climate change worth taking into account.<\/p>\n Labor\u2019s first report, in 2010, had a lot to say about climate change, but this report attempts to measure its effect on the economy and the budget. It estimates that climate change will cause the level of real GDP in 2063 to be between $135 billion and $423 billion less than it would overwise have been, in today\u2019s dollars.<\/p>\n The report\u2019s title has always been a misnomer. If it lived up to its name, it would deal with the intergenerational transfer of income and wealth from the young to the old \u2013 an issue that deserves much more attention than it gets.<\/p>\n It would talk about the way our treatment of housing favours the elderly, and how the tax, spending and superannuation decisions of the Howard government, in particular, shifted income from the young to the old.<\/p>\n But no. The real reason it\u2019s called the intergenerational report is that its main purpose is to bang on about the huge effect the ageing of the population \u2013 the rise in the nation\u2019s average age \u2013 will have on the federal budget (while ignoring any effects on the states\u2019 budgets).<\/p>\n It\u2019s here, however, that Rafal Chomik, of the ACR Centre of Excellence in Population Ageing Research at the University of NSW, has noted this overhyped story being toned down over the six reports. In 2002, the first report projected that, by 2023, the share of the population aged 65 and over would climb from 12.5 per cent to nearly 19 per cent.<\/p>\n Actually, it\u2019s only up to 17.3 per cent. And the projection for 2063 is 23.4 per cent, less<\/em> than the 24.5 per cent originally projected for 2042.<\/p>\n Another factor on which the report was too pessimistic at the start is the effect of ageing on participation in the labour force (by having a job or actively seeking one). Whereas it was expected to dive as the Baby Boomers retired, it\u2019s now expected just to glide down.<\/p>\n Participation actually reached a record high of 66.6 per cent this year \u2013 who knew our response to a pandemic would return us to full employment for the first time in 50 years? \u2013 and is now projected to have fallen only to 63.8 per cent by 2063. If so, that would be higher<\/em> than it was in 2002.<\/p>\n Chomik says the first report projected government spending on health care to reach more than 8 per cent of GDP by 2042. Now it\u2019s projected to reach just 6.2 per cent by 2063. But, thanks to the royal commission, the cost of aged care is now expected to grow faster, to 2.5 per cent of GDP by 2063.<\/p>\n Which brings us to Treasury\u2019s bottom line, the federal budget. Treasury projects that, as a percentage of GDP, the budget deficit will decline steadily until 2049, before ageing causes it to start heading back up.<\/p>\n Note, however, that while government spending is projected to rise by almost 4 per cent of GDP, tax collections are assumed, as always, to be unchanged.<\/p>\n Get the (unchanged) commercial message from Treasury? Taxes will have to rise.<\/p>\n The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion.<\/i><\/b> Sign up to get it every weekday morning<\/i><\/b>.<\/i><\/b><\/p>\nMost Viewed in Business<\/h2>\n
From our partners<\/h3>\n