Joe Hockey issued a solemn public alert last month: when the intergenerational report was released and it became apparent government would be unable to respond effectively to the long-term budgetary challenges of an ageing population, Australians would "fall off their chairs". The Treasurer has been the most insistent of the Coalition's economic "Hanrahans" – those warning Australia would be ruined by worsening budget deficits unless public spending cuts were implemented and the age of entitlement ended – so his alert failed to generate the shock and awe that perhaps he was hoping.
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As it happens the intergenerational report, the fourth since the inaugural report of May 2002, is not noticeably alarmist in its forecasts of the increase in public expenditure which will be required to deal with an ageing population over the next 40 years. It is, however, replete with warnings that debt and deficit trajectories will soar to uncomfortable levels if the government's 2014 budget measures are not passed by Parliament. And in the third scenario canvassed by the report (in which the policies of the previous Labor government were regarded as still being in in place), "the levels of debt would negatively impact economic growth, waste significant resources on interest payments, and leave Australia exposed in the event of an economic downturn".
The initial intent of the IGR was to canvass the economic effects of population growth and ageing over the long-term and to canvass suitable policy responses. The overtly political nature of the "scenarios" contained in this report appear somewhat at variance with that purpose, however. Indeed, the primary aim appears to be to bolster the Coalition's case for getting its stalled budget measures through Parliament, or failing that, to prop up the case for long-term spending cuts while damping expectation within the electorate for future tax cuts. On the other hand, the report, concludes, "the strong budget position projected under the 'proposed policy' scenario would afford significant scope for future governments to provide tax relief".
It comes as no surprise that the government should seek to extract propaganda value from the IGR: Mr Hockey's failure to convince Parliament and the wider electorate of the pressing need to end the "age of entitlement" and to implement the Coalition's more contentious policy and budget measures is of near epic proportions. For all of Mr Hockey's chatter about unsustainable deficits, rising public debt and the "intergeneration theft" this represents, the IGR's summation of where Australia will be in 40 years' time demographically speaking is not entirely bleak. In 2055, the population will have reached 39.7 million, based on a population growth rate of 1.3 per cent, with average life expectancy for men and women reaching 95.1 and 96.6 respectively. The proportion of working-age people to those aged over 65 will have fallen, but against that the workforce participation rate of older Australians is tipped to rise strongly. The report envisions productivity growth of about 1.5 per cent annually, and economic growth of about 2.8 per cent per annum, which, while being somewhat less that the rates recorded over the past decade, is hardly grounds for sinking into a slough of despond.
Long-term economic forecasting is a fiendishly difficult proposition, and indeed it was J.K. Galbraith's view that it existed only to make astrology look respectable. The other major weakness of the IGR is that it pays little attention to the flipside of population growth, which is, by the standards of the developed world, very high – the requirement to fund and build new infrastructure. For all their boosterism about the benefits of a high rate of population growth, the proponents of such policies rarely dwell on the enormous cost involved in housing, educating and providing health care for an additional 400,000 people each year, the current rate of growth. It is not something that governments can or should ignore. And nor should they disregard the environmental costs that population increase frequently entails.
As difficult as it is for governments to confront long-term economic and demographic challenges, the task must nevertheless be approached with determination and resolve to ensure Australia's prosperity is maintained and enhanced. To that extent, the government's politicisation of the IGR is disappointing.
