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3/5/2015
Intergenerational report: Australia’s road ahead is bigger, older and broke | The Australian
THE AUSTRALIAN
Intergenerational report: Australia’s road ahead is
bigger, older and broke
DAVID CROWE THE AUSTRALIAN MARCH 05, 2015 1:12PM
Treasurer Joe Hockey discusses the 2015 Intergenerational Report ahead of its release today. Source: News Corp Australia
AUSTRALIANS will be richer and healthier as the population grows to 40 million by mid­
century but the nation will be burdened with crippling debt and deepening deficits if federal
parliament cannot agree on budget reform.
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Intergenerational report: Australia’s road ahead is bigger, older and broke | The Australian
Life expectancy will rise to 95 years for men and almost 97 for women and people will keep
working longer according to a new government report that paints a picture of the nation in 2055.
National income will almost double to $117,300 for each Australian on average in today’s dollars
under Treasury forecasts that take account of slightly slower economic growth compared to the
booms of the past four decades.
The population will grow from 23.9 million today to 39.7 million by mid­century but only if the
country continues to attract about 215,000 migrants in net terms every year — a key assumption
some believe to be too low.
Joe Hockey is using the new findings to insist on the need for further budget savings beyond
those already passed by the Senate, arguing that Labor must have an answer to the long­term
challenges if Coalition proposals remain blocked.
The government is considering other savings in the coming May budget but is describing the
fiscal strategy as a “consolidation” plan rather than a repeat of last year’s dramatic and
contentious changes.
The Treasurer told The Australian that the report showed the need for further savings.
“We have to maintain momentum towards a credible surplus and living within our means,” he
said.
“The status quo is not an option.”
Ringing the alarm on the need for hard government action, the Intergenerational Report warns of
the need to improve productivity and encourage more people into the workforce to shore up
growth.
The 2015 Intergenerational Report was released today.
Source: Supplied
Annual GDP growth is assumed to be 2.8 per cent compared to 3.1 per cent over the past four
decades, making it clear that stronger growth could help the nation confront its financial
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Intergenerational report: Australia’s road ahead is bigger, older and broke | The Australian
challenges.
The IGR projects worsening deficits that will reach 6 per cent of GDP by 2055 even after the
impact of savings already legislated from last year’s budget, making it clear that further savings
are needed. The deficit would amount to $270 billion in that year in today’s dollars.
If all the government’s reforms were passed by the Senate, including an increase in the pension
age to 70, the deficits would turn into surpluses from early next decade and debt would be paid
down.
“The uncertainty around projections highlights the importance of placing the budget in the
strongest possible position to meet whatever challenges the future may bring,” says the IGR,
written by Treasury and circulated by Mr Hockey.
The Treasurer is arguing that “doing nothing is not an option” and that parliament must agree on
further reforms if the country is to set a credible strategy.
As people live longer, spending on age and service pensions will grow by more than 50 per cent
in real spending per person by mid­century, from $2,000 today to $3,200.
This assumes all of the government’s reforms including those blocked in the Senate, such as the
increase in the pension age to 70 and the change to indexation of the age pension.
Total education spending will remain flat at $1,200 per person in real terms over the decades
ahead but this assumes the government unwinds the “Gonski” school reforms over future years
and legislates its controversial university changes.
While Labor has attacked the IGR as a “political document” that seeks to score points, some of
the central assumptions are in line with those used by former treasurer Wayne Swan in the same
report five years ago.
Mr Hockey’s report assumes GDP will grow at 2.8 per cent each year on average, slightly higher
than the 2.7 per cent assumed in Mr Swan’s report and countering any claim that Mr Hockey is
trying to keep the number down to scare Australians about the need for budget savings.
Mr Hockey’s report assumes tax revenue will be around 23.9 per cent of GDP, slightly above Mr
Swan’s assumption of 23.5 per cent and thereby countering any claim that the tax take is being
kept low to make future deficits seem worse.
There are questions over the migration forecasts, however, in the wake of an independent study
by the Migration Council of Australia that assumes existing policies will lead to a net overseas
migration intake of 250,000 a year.
The IGR assumes 215,000 instead, which is higher than the figure used in Mr Swan’s report –
180,000 a year – but is a relatively small proportion of the growing population over time.
A higher figure for net overseas migration would have produced stronger economic growth and
lower deficits, but some believe the very high migration intake of recent years should not be
extrapolated over four decades given the extraordinary scale of the mining boom.
The ageing of the population will mean that by 2055 there will be only 2.7 workers for every
retiree compared to 4.5 today and 7.3 four decades ago.
The result is that fewer taxpayers will be supporting more pensioners, highlighting the argument
for pension reforms to ease the cost over time.
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While there will be $9 trillion in superannuation accounts by mid­century – about twice the size
of annual economic output – this will not cut the number of people who need a pension from the
government.
“The proportion of retirees receiving any pension is not projected to decline,” says the report.
Instead, it assumes there will be more part­pensions as older Australians draw on their own
savings.
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