Monday, February 01, 2010

Rudd Government issues Intergenerational Report

The Rudd Federal Government has issued its first Intergenerational Report since taking power in 2007. The report assesses the fiscal and economic challenges of an ageing population as well as discussing associated environmental challenges and social sustainability. The tone of the document is set by its first sentence “Australia faces significant intergenerational challenges”. Bernard Keane called it a political document in an election year showing Labor's long-term economic reform agenda and how much of a threat the Coalition is to Australia.

Treasurer Wayne Swan launched the report today with a speech to the National Press Club in Canberra. Swan said the government was deliberately beginning “a big national conversation” on the topic of ageing. “When you're a baby boomer like me – and like many of you in this room – you never read a document with the year 2050 in it without some sober reflection on your own place (more likely, your lack of a place) in it,” Swan said. But Swan would not be alone in his swansong. By 2050 23 percent of all Australians will be over 65 – doubled the current number and 6 percent will be over 85 –quadruple the current number. The author of this blog is chastened to note he will just about fall into the latter category if still alive in 2050.

One in four over 65 means fewer workers to support retirees and young dependants with obvious effects to economic growth and increased demand for government services. The report overview says that a growing population will help manage this problem but at the cost of pressure on our infrastructure, services and environment. It also acknowledges climate change is one of the most significant challenges to long-term economic sustainability and says Australia's ability to meet these future challenges depends on “adjustments” taken now. These include increasing productivity and participation in the workforce, restraining unsustainable spending growth, planning for demographic change and tackling climate change.

The key mantra of the report is “responsible economic management” which at first glance is one of those terribly meaningless statements. After all, who would admit to following irresponsible economic management? But this particular version is informed by the three Ps: productivity, participation and population. Productivity is a walking Labor election platform based on “nation building infrastructure, skills and education” but it is astutely complemented by the traditional Liberal values of “sound monetary and fiscal policies and the microeconomic reform agenda”.

Fiscally that means capping real growth in spending to 2 per cent until the budget returns to surplus. The last budget estimated that it would be at least 2016 before surplus returned so it effectively caps real growth for the foreseeable future. The document blithely says this will “bring structural improvements to the budget, reducing the fiscal pressures of ageing and escalating health costs.” What the document does not say is what will happen to spending if the economy does not grow or there is another recession.

Health Reform and the CPRS were another two key planks of the report. The government said it has set up the National Health and Hospitals Reform Commission to assist with reforming the health and hospitals system. However the NHHRC recommendations have not yet been taken to COAG and there is some doubt they will fix the problems of public hospitals if a large central agency continues to tell hospitals how to treat their patients. The CPRS is also problematic not least because the Rudd Government is no closer to getting its legislation through the parliament.

The document forecasts a total population of 36 million in 2050 (currently 22 million). While the increased numbers will benefit the economy, it puts pressure on infrastructure, services and the environment. The report cites the CPRS and water reform as critical success factors in managing this problem. It says that without climate change action there will be an increase in extreme weather events, irrigated agriculture in the Murray-Darling Basin would cease, water supplies will decrease to dangerous levels and national icons such as the Great Barrier Reef will probably be destroyed. This is all true, but it is difficult to see how the Government’s weak CPRS will have much affect despite the backup of the Renewable Energy Target and the $4.5 billion Clean Energy Initiative.

Tax reform is another intriguing aspect of the report. The government plans to release the Australia's Future Tax System Review (commonly known as the Henry Review) early this year which it says “will lay out further steps for reforming the tax and transfer system to make it fairer, simpler and more competitive.” It says tax reform will be a 10-year project “likely to come in waves and will be conducted with extensive consultation.” It also notes drily “reform will not be easy.” Especially with a watching media determined to extract maximum value from judging winners and losers.

The report serves many sometimes conflicting ambitions. On the one side there is the need to continue economic growth but there is no acceptance that economic growth is a leading indicator of global warning. Similarly the difficulties of a rapidly growing population are touched on but it never really explains how the infrastructure challenges are going to be met – again without acknowledging the likely environmental impact. This is not to denigrate the report too much, it is a worthy document demanding of some respect and debate. Writing at the ABC, Stephen Long quoted one economist saying the report was “Thomas Malthus meets John Maynard Keynes.” But perhaps they both should meet James Hansen. Neither Malthus nor Keynes had to worry about living in a world where carbon dioxide emissions are rapidly approaching 400 ppm. That fact is the elephant in the Intergenerational Report.

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