tag:theconversation.com,2011:/us/topics/2015-intergenerational-report-15266/articles2015 Intergenerational Report – The Conversation2016-04-28T04:45:21Ztag:theconversation.com,2011:article/585812016-04-28T04:45:21Z2016-04-28T04:45:21ZWill Budget 2016 deliver a new deal for Australian cities?<p>Will this budget mark the inception of a new deal for Australian cities? And will it herald a new dawn for Australian local democracy? <a href="http://www.act.ipaa.org.au/pm-address">Addressing the Australian Public Service</a> in the Great Hall of Parliament on April 20, Prime Minister Malcolm Turnbull chose to emphasise that “smart cities” would be the engine room of innovation and growth in Australia’s new economy to be delivered through the concept of “<a href="https://theconversation.com/city-deals-nine-reasons-this-imported-model-of-urban-development-demands-due-diligence-57040">City Deals</a>”.</p>
<p>Turnbull said:</p>
<blockquote>
<p>The “City Deal” approach used in the United Kingdom has been instrumental in the renaissance of Manchester and Glasgow, and we believe there are many elements that can be applied in Australia.</p>
</blockquote>
<figure>
<iframe src="https://player.vimeo.com/video/163641838" width="500" height="281" frameborder="0" webkitallowfullscreen="" mozallowfullscreen="" allowfullscreen=""></iframe>
<figcaption><span class="caption">Turnbull’s address to the Australian Public Service.</span></figcaption>
</figure>
<p>But what is the value proposition underpinning the “City Deal”? And can it be applied here in Australia?</p>
<h2>The value proposition</h2>
<p>The value proposition has historical, democratic and economic foundations. </p>
<p>Historically, it builds on the role of iconic cities in the advance of civilisations. For example, the following quotation from <a href="https://%20publichalthmatters.blog.gov.uk/2015/08/14/greater-manchester-devolution-the-public-health-revolution/">Mel Sirotkin’s evocative work</a> perfectly captures the central role of Manchester as the engine room of the Industrial Revolution:</p>
<blockquote>
<p>During the Industrial Revolution Greater Manchester seized the initiative to become the world’s first modern industrial metropolis. It is home to the nation’s first public library, the birthplace of modern chemistry, and the professional football league. It is where Dalton developed atomic theory and Rutherford split the atom. Inevitably it is also where the rainproof mackintosh was invented.</p>
</blockquote>
<p>Democratically, it forms the next logical stage in the UK’s constitutional reform program, which began under Tony Blair in 1997. Blair delivered Scotland’s parliament and assemblies for Northern Ireland and Wales, but the English voted “no” to English assemblies on the basis that this would be too much government to bear. </p>
<p>The argument for delivering devolution through existing rather than new institutions – in this case city regions – has proved far more palatable.</p>
<p>However, it is the economic credentials of the “City Deal” that prove most powerful. The Cameron government believes that larger local government units such as city regions led by elected mayors with new powers will help spread prosperity. This is based on evidence – such as from the independent <a href="https://www.thersa.org/action-and-research/rsa-projects/public-services-and-communities-folder/city-growth-commission/">RSA City Growth Commission</a> – that the areas with the fastest growth and innovation around the world tend to have:</p>
<ul>
<li><p>large populations;</p></li>
<li><p>good connectivity;</p></li>
<li><p>high skill levels;</p></li>
<li><p>good infrastructure (including housing);</p></li>
<li><p>strong higher education institutions; and</p></li>
<li><p>empowered local leadership.</p></li>
</ul>
<p>The powers that the UK government is devolving to city regions are therefore focused mainly in areas such as transport, business support, infrastructure development and training.</p>
<p>A further economic argument for devolution to cities is that they provide a concentration of population and need. These in turn provide a potential focal point for innovation to foster economic development and improve service delivery and effectiveness. </p>
<p>In part, the argument is that necessity will be the mother of innovation. But there are also arguments that the greater scale of a city region provides fertile conditions for economic development. There is likely to be a greater pool of talent, experience and resources to draw upon.</p>
<p>Working across a larger area can promote more effective services. In many cases outcomes are likely to be better if several services are connected together. That applies, for example, to health and social care, to the various educational, health and social services that engage with families in trouble, and to the various bodies that can help prevent re-offending.</p>
<p>The argument for devolution to cities in England is mostly not about democracy, and more about economic competitiveness and service effectiveness.</p>
<h2>What’s been achieved so far?</h2>
<p>The way the deals have been negotiated reinforces the sense that this is about efficiency more than democracy. Deals have been cut within Whitehall in a top-down approach with various city regions according to their ambition and political clarity. </p>
<p>In most cases, an elected mayor has been added to the mix to provide a fig leaf of democratic legitimacy. But many of the deals have been criticised as a stitch-up between city and national elites with little input from citizens and little prospect of citizen control.</p>
<p>On the other hand, the ad-hoc approach of doing the deals city by city, region by region, means that progress has been rapid. Substantial devolution <a href="https://www.nao.org.uk/report/english-devolution-deals/">is occurring</a>. </p>
<p>Although some worry about creating an unequal governance framework, others argue it’s about doing what works for different cities. The pragmatic patchwork program has been deliberately designed such that no two city regions must necessarily have the same deal and level of devolution.</p>
<p>The <a href="http://dx.doi.org/10.1080/00344893.2016.1165496">Greater Manchester City Deal</a> is by far the most advanced but only started this month. So, in truth, it’s too early to say how the deals will work in practice.</p>
<h2>How do City Deals translate to Australia?</h2>
<p>It is easy to see why the “City Deal” concept resonates with the Turnbull agenda. The image of the Australian city region as a centripetal catalyst to economic growth is both in keeping with the gravity of international evidence and the demographic changes articulated in the <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">2015 Intergenerational Report</a>. This forecast a range of significant productivity problems arising from shifts in demography, workforce and participation.</p>
<p>It also provides a living laboratory for Turnbull’s <a href="http://www.innovation.gov.au/page/agenda">National Innovation and Science Agenda</a> and, in particular, the work of <a href="http://www.csiro.au/en/Research/D61">Data 61</a> and the <a href="https://www.dto.gov.au/">Digital Transformation Office</a>. </p>
<p>Most tangibly, it provides an opportunity for Turnbull to connect the government’s agenda to the everyday lives of Australians. This is something the polls suggest he has been unable to achieve so far.</p>
<h2>What would need to change make it happen?</h2>
<p>There are maximalist and minimalist versions of the “City Deal”. The minimalist version would be simply to negotiate a series of Commonwealth-funded programs with states and territories to lubricate the innovation agenda in Australian cities. The maximalist version, required to emulate the UK “City Deal”, would require constitutional change. </p>
<p>Devolution UK-style involves the transfer of power to a lower level, in this case to a local city or city region administration. However, unlike its European and North American counterparts, Australia’s political elite still has a strange, unfathomable disdain for local government – which is not shared by its citizenry. </p>
<p>Most significantly, devolution is not in the gift of Commonwealth government, as local government is a creature of state and (to a lesser extent) territory government. Changing federal powers requires constitutional change. </p>
<p>As Turnbull himself admits:</p>
<blockquote>
<p>It requires a firm commitment to collaboration. Success is dependent on federal, state and local governments agreeing on a set of long‐term goals for cities and the investments, policies and regulatory settings to achieve them.</p>
</blockquote>
<p>Is it likely that state governments would cede authority over the jewel in their crown – the state capital? It would be like turkeys voting for Christmas. The smart money is on the minimalist version even though Australia’s future economic prospects require the courage and ambition of the maximalist version.</p><img src="https://counter.theconversation.com/content/58581/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Evans receives funding from a variety of sources including foundations, research councils, governmental and non governmental organisations and international organisations. However, the views expressed in this article are his own and cannot be attributed to any particular funding organisation.</span></em></p><p class="fine-print"><em><span>As an independent academic researcher Gerry Stoker receives funding from a variety of sources including foundations, research councils, governmental and non-governmental organisations and international organisations. However, the views expressed in this article are his own and cannot be attributed to any particular funding organisation.</span></em></p>The Turnbull government sees the ‘City Deal’ as a way for ‘smart cities’ to drive innovation and growth. But what is the value proposition behind this UK concept and how might it work in Australia?Mark Evans, Professor of Governance and Director of the Institute for Governance and Policy Analysis and NATSEM, University of CanberraGerry Stoker, Fellow and Centenary Professor, Institute for Governance and Policy Analysis, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/479392015-09-27T19:22:25Z2015-09-27T19:22:25ZCaught in an intergenerational squeeze, grandparents juggle work and childcare<figure><img src="https://images.theconversation.com/files/96122/original/image-20150924-17067-1xvz9w2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Many grandparents compromise their own working lives to enable their daughters and daughters-in-law to go to work.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/hugabub/7459872934/in/photolist-cncNjS-u4r13-ouU5TB-8tVDC5-jUbmPe-GfGcd-aesgRq-7XAxhy-4kp8Uf-7TtUyM-7EsE7K-6KxKkC-67b7uS-9rYzh-67b7q1-676TF8-5QdMU7-joKj1a-63MUox-ntrTbn-nvdQci-nbXiqn-6efz9j-9HDkCe-6efA9f-cwkFP5-6ebpWz-6eboy8-6ebp8T-63S5TW-63S7dh-8oLrco-cZyMXA-cZyrhG-cZyzJd-cZyJ3d-cZyeLS-cZybdh-cZyiBj-cZyniN-cZyvyQ-aHASJT-7XuZLV-9xbHv9-9xbLx3-9x8HJr-9xbKh9-9xbJSq-9xbKWG-5bKh3X">Flickr/hugabib</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Grandparents are the most popular providers of childcare in Australia today. This reliance on them exposes weaknesses in current labour market and childcare policies.</p>
<p>Increasing workforce participation by mothers and older people have been the dual goals of policy for some time, particularly as the population ages. What is overlooked is that these policy priorities place increasing, and competing, pressures on one group of older Australians – grandparents who provide childcare.</p>
<p>Boosting workforce participation among women and older people is essential to Australia’s future prosperity, according to the <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">2015 Intergenerational Report</a>. In a speech the week before its release, the then-treasurer, Joe Hockey, <a href="http://jbh.ministers.treasury.gov.au/speech/002-2015/">said</a>:</p>
<blockquote>
<p>How can we contribute more and get more from a nation that has given us much over such a long period of time?</p>
</blockquote>
<p>Increasing the workforce participation of women and older Australians, Hockey said, can provide a huge boost to our economy. </p>
<p>But that participation depends heavily on the childcare that grandparents provide. In 2014, approximately <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/4402.0">837,000 children</a> received childcare from their grandparents. This is many more children than in any other form of care, including long day care or before- and after-school care. Grandmothers provided most of this childcare.</p>
<p>Increased maternal labour market participation, coupled with a lack of affordable and available formal childcare, is likely to result in continued reliance on grandparents for childcare. </p>
<p>At the same time, measures to boost employment and delay retirement among mature-age Australians place pressure on many grandparents to work longer and harder. The former policy priority places pressure on grandparents to provide more care; the latter asks them to undertake more work.</p>
<h2>Grandparents reorganise own working lives</h2>
<p>How do grandparents perceive and navigate the twin demands of childcare provider and mature-age worker? <a href="https://www.nationalseniors.com.au/be-informed/research/publications/grandparents">New research</a> I conducted with my colleague Bridget Jenkins for the National Seniors Productive Ageing Centre suggests that many grandparents who regularly care for their grandchildren reorganise their working lives considerably to do so.</p>
<p>Among those surveyed, 70% altered the days or shifts they work, 55% reduced their working hours and 18% even changed their job because of their caring commitment. In addition, grandparents regularly accommodate atypical, short-notice requests for care – such as when a child is sick or a parent is suddenly called into work.</p>
<p>Their care commitments also affect the way they use their workplace entitlements. Many organise their leave or request flexible work arrangements to accommodate the care of grandchildren. More than 40% reported finding it difficult to juggle the competing demands of work and care.</p>
<p>One-third of grandparents surveyed also reported that their childcare commitment changed the timing or expected timing of their retirement. For many others, while providing regular childcare is not the only factor, it figures heavily in shaping their decision to retire.</p>
<p>Significantly, most grandparents said they provided this care, and adjusted their work accordingly, to enable their children, particularly daughters and daughters-in-law, to participate in work.</p>
<p>The dual policy priorities of boosting paid work among mothers and older people therefore create tensions for grandparents faced with competing demands. Many go to considerable lengths to be able to provide the care their children require while also remaining in work. Grandmothers, who provide most of the childcare, probably feel these tensions most strongly.</p>
<p>The research also revealed an “intergenerational trade-off” that challenges these dual policy priorities. This trade-off is heavily gendered. Mature-age grandparents, mostly grandmothers, are adjusting or reducing their own workforce participation to help their daughters and daughters-in-law participate in the workforce. </p>
<p>In other words, one generation of women is reducing their workforce participation to support the participation of another.</p>
<h2>A massive policy blindspot</h2>
<p>In spite of the huge contribution grandparents make in supporting families to work, and the considerable impacts this has on their own patterns of work, the 2015 Intergenerational Report completely overlooked grandparent childcare. Nor was it acknowledged in public discussion of the report, or in any previous intergenerational report. </p>
<p>The role of grandparents in childcare is also invisible in all of the most relevant policy spheres. This affects not just maternal and mature-age employment policy but early childhood education and care and retirement incomes policies too.</p>
<p>As a result, current policy is blind to the potential intergenerational impacts of meeting the desired goals. If we achieve the 2015 Intergenerational Report’s objective of boosting workforce participation by both mothers and grandparents, what will be the implications for childcare demand and supply?</p>
<p>What’s more, policy is being formulated on the basis of incomplete information about the conditions facing Australian families and shaping their decisions about work and childcare. </p>
<p>Recognising the importance of childcare provision in the work and retirement decisions of grandparents is essential in the design of effective mature-age employment and retirement incomes policies. And understanding the role that grandparents play in families’ decisions about work and childcare is essential to the design of effective maternal employment and childcare policies.</p>
<p>In a <a href="http://jbh.ministers.treasury.gov.au/speech/004-2015/">ministerial statement</a> on the 2015 Intergenerational Report, Hockey said:</p>
<blockquote>
<p>The Intergenerational Report is the social compact between the generations – children, grandchildren, parents, grandparents and each other.</p>
</blockquote>
<p>Grandparents are central to Australia’s social compact. They make a fundamental contribution to families and to our social and economic fabric. It’s time to recognise what grandparents do and to adjust policy frameworks to account for their important role.</p><img src="https://counter.theconversation.com/content/47939/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The project that is the subject of this piece was funded by the National Seniors Productive Ageing Centre at National Seniors Australia. Myra Hamilton also currently receives funding from the Australian Research Council. </span></em></p>The role of grandparents as the biggest providers of childcare is a huge blind spot in policy-making for workforce participation, childcare, early childhood education and retirement.Myra Hamilton, Research Fellow in Social Policy, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/446632015-07-23T20:13:05Z2015-07-23T20:13:05ZTruthy untruths: behind the facade of the Intergenerational Report<figure><img src="https://images.theconversation.com/files/89278/original/image-20150722-31241-1ula9tm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Despite the Intergenerational Report's assertion about ageing’s negative impact on labour force participation, the effect turns out to be minimal.</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>The ostensible purpose of the <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">2015 Intergenerational Report</a> is to ensure Australia’s future prosperity in the face of demographic ageing over the next 40 years. Its real purpose is different.</p>
<p>The Coalition won the 2013 election as the party of economic management, a party that would balance the books after years of Labor profligacy, hence the 2014-15 budget cuts. The report uses the alleged ageing crisis to legitimate these budget cuts, as well as a high rate of immigration-fuelled population growth.</p>
<p>Thus it focuses on the costs of ageing. But <a href="http://tapri.org.au/">our new research</a> shows it makes three claims which are overstated to the point of being deliberately misleading. This is important as the IGR is being used as a basis for far-reaching policy decisions. </p>
<p>First, on page 1, the IGR says labour force participation will fall because the number of people aged 15-64 for every person 65 plus will drop from 4.5 today to just 2.7 in 2055. This fall will reduce per capita economic growth.</p>
<p>Second, the cost of providing health care, pensions and aged care for an older population will balloon.</p>
<p>Third, because migrants tend to be young, Australia must maintain high immigration. The authors project annual net overseas migration (NOM) of 215,000 from 2018-19 to 2054-55. This is a large number; from 1990-91 to 2005-06 the <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/3101.0Mar%202014?OpenDocument">annual average</a> was 95,000.</p>
<p>Together with natural increase, it will inflate the population from 23.8 million today to 39.7 million, an increase of 15.9 million, or 66.8%.</p>
<h2>Claim 1: ageing and Australians’ future prosperity</h2>
<p>Per capita economic growth is the product of the population, participation and productivity. The report’s calculations of their respective contribution are set out in in Figure 1. The main driver is productivity, projected to contribute 1.5 percentage points each year.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/89277/original/image-20150722-31241-1h3gqhr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/89277/original/image-20150722-31241-1h3gqhr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=326&fit=crop&dpr=1 600w, https://images.theconversation.com/files/89277/original/image-20150722-31241-1h3gqhr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=326&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/89277/original/image-20150722-31241-1h3gqhr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=326&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/89277/original/image-20150722-31241-1h3gqhr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=410&fit=crop&dpr=1 754w, https://images.theconversation.com/files/89277/original/image-20150722-31241-1h3gqhr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=410&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/89277/original/image-20150722-31241-1h3gqhr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=410&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Source: ABS cat. no. 5206.0, 6202.0 and Treasury projections</span></span>
</figcaption>
</figure>
<p>The chart shows a slight fall in per capita economic growth from declining labour force participation of 0.1 percentage points a year. This is a big surprise. Despite the up-front assertion about ageing’s negative impact on participation, the effect turns out to be minimal.</p>
<p>An even bigger surprise is that the chart shows a 0.1 percentage point annual increase in per capita economic growth from population. This is because the proportion who are children will fall relative to all those aged 15 plus.</p>
<p>This positive effect is astonishing. Treasury’s own modelling shows that the ‘population’ effect cancels out the small labour-force participation effect.</p>
<h2>Claim 2: budget costs</h2>
<p>The report projects a substantial increase in health expenditure. But most of this is due to rising costs in providing health care for everyone. The <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report/HTML/Chart-Data/chpt2-chart-data">online chart data</a> for chart 2.11 makes this clear; only 16% of the projected increase is due to ageing.</p>
<p>Scares about pension costs and aged-care funding are similarly exaggerated. Pension payments currently equal 2.9% of GDP. Depending on policies, this percentage may fall to 2.7 by 2054-55 or rise to 3.6 (p. 69). And government expenditure on aged care may rise from 0.9% of GDP in 2014-15 to just 1.7% in 2054-55 (p. 71).</p>
<p>These two sets of figures are hardly startling. Indeed Australia spends a much lower proportion of GDP on age pensions than most OECD countries; in 2007 <a href="http://www.oecd-ilibrary.org/sites/factbook-2011-en/11/03/02/index.html?contentType=/ns/StatisticalPublication,/ns/Chapter&itemId=/content/chapter/factbook-2011-97-en&containerItemId=/content/serial/18147364&accessItemIds=&mimeType=text/html">the OECD average was 7% of GDP</a>.</p>
<h2>Claim 3: the economic gains from high net migration</h2>
<p>The report asserts that high migration results in a younger population than would be the case without it (p. 11). To bolster this claim it presents an arresting bar chart. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/89280/original/image-20150722-31203-6fru13.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/89280/original/image-20150722-31203-6fru13.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=364&fit=crop&dpr=1 600w, https://images.theconversation.com/files/89280/original/image-20150722-31203-6fru13.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=364&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/89280/original/image-20150722-31203-6fru13.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=364&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/89280/original/image-20150722-31203-6fru13.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=458&fit=crop&dpr=1 754w, https://images.theconversation.com/files/89280/original/image-20150722-31203-6fru13.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=458&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/89280/original/image-20150722-31203-6fru13.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=458&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Source: ABS cat. no. 3101.0 and 3412.0.</span></span>
</figcaption>
</figure>
<p>But oddly the authors don’t quantify the difference and its long-term effects.</p>
<p>To fill this gap we used two ABS projections (with slightly different assumptions to those of the report) and estimated the difference that a NOM of 200,000 p.a. makes to the median age in 2055. We found that it produces a median age of 41.4. By comparison, no net migration over the next 40 years results in a median age of 46.1.</p>
<p>(The two projection series used here are series 38 (NOM 200,000 p.a, TFR 2.0, high life expectancy) and series 56 (Nom 0, TFR 2.0, high life expectancy). See data published online with <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/3222.02012%20%28base%29%20to%202101?OpenDocument">Population Projections, Australia, 2012</a>.</p>
<p>This minor “younging” effect is assumed to increase participation (page 20). But our research <a href="https://theaustralianpopulationresearchinstitute.files.wordpress.com/2014/12/2015_igr_tapri_final.pdf">(p. 6)</a> shows the report’s own data shows that this has a negligible impact on per capita economic growth. For example, an extra 70,000 net migrants per year until 2055 adds four million people but only increases per capita economic growth by 0.06%.</p>
<p>But the report’s goal is an extra 15.9 million, not four million. What about the infrastructure costs? Here it makes the bizarre claim that infrastructure costs “are not linked explicitly to demographic factors” (page 57).</p>
<h2>Two hidden agendas</h2>
<p>Demographic ageing does not impose heavy costs. Rather, the phony scare campaign has been used to justify the Coalition’s budget cuts, while the high NOM assumptions help justify its current immigration policy.</p>
<p>The government is desperate to find a short-term solution to the problem of lower economic activity post the resources boom. Population growth boosts the housing and city-building industries and this may help, not with per capita economic growth but with aggregate economic growth.</p>
<p>The latter is the key driver of tax revenue and, in the case of business, of growth in sales. The report does not say much about it, except to provide the results of its modelling. Here aggregate GDP is projected to grow by 2.8% per annum to 2054-55. (Page 27.) The IGR’s data shows that, while gains in productivity will make a substantial contribution to this, crude population growth accounts for nearly half.</p>
<h2>Why worry?</h2>
<p>The IGR does devote a few pages (See page 38) to the environmental implications of its population growth, conceding that careful management will be required. But it finds no serious costs for the Commonwealth as the “level of Commonwealth Government spending on the environment is not directly linked with demographic factors” (page 40).</p>
<p>So Treasury is off the hook. But all Australians will suffer from the impact of massive population growth on the environment and the alienation of agricultural land. (See contributions from Rhondda Dickson, Michael Jeffrey and Gary Jones in <a href="http://www.publish.csiro.au/pid/7291.htm">Sustainable Futures: Linking population, resources and the environment</a>].</p>
<p>The other pressing concern for voters is jobs and the economy. What are the newly arrived migrants going to do, apart from build houses for each other?</p>
<p>The supposed economic ill-effects of ageing are trivial. They should be easily managed by future generations themselves, provided they are not overwhelmed by the costs of bloated cities and environmental decay.</p><img src="https://counter.theconversation.com/content/44663/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Katharine Betts is vice-president of The Australian Population Research Institute, a not-for-profit organisation.</span></em></p><p class="fine-print"><em><span>Bob Birrell is president of The Australian Population Research Institute, a not-for-profit organisation.</span></em></p>The 2015 Intergenerational Report is being used as a basis for important decisions about future policies. But it makes some misleading claims.Katharine Betts, Adjunct Associate Professor of Sociology, Swinburne University of TechnologyBob Birrell, Researcher, Centre for Population and Urban Research, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/403162015-04-16T20:24:31Z2015-04-16T20:24:31ZDr Karl didn’t breach ethics, but now he should spruik the science<p>The headline “Media personality used by government for advertising” is hardly riveting. Yet Dr Karl Kruszelnicki’s <a href="http://www.smh.com.au/federal-politics/political-news/deep-regret-dr-karl-kruszelnicki-to-hand-over-intergenerational-report-pay-20150416-1mm3i0.html">travails</a> over his adverts for the federal government’s <a href="https://theconversation.com/au/topics/2015-intergenerational-report">Intergenerational Report</a> seem to have turned him into the Cate Blanchett of science. </p>
<p>Remember when Blanchett made a <a href="https://www.youtube.com/watch?v=ZcLd9Eh8CyU">partisan advertisement</a> in 2011, calling for a tax on carbon? The then opposition leader Tony Abbott <a href="https://au.news.yahoo.com/thewest/a/9546084/blanchett-defends-herself-from-abbott-attack/">retorted</a> that “people who are worth $53m have a right to be heard but their voice should not be heard ahead of the voice of the ordinary working people of this country”.</p>
<p>The difference between Blanchett and Dr Karl (aside from the obvious) is that Blanchett advocated a policy on behalf of the environmental groups who funded the carbon tax campaign, whereas Dr Karl has been rather blandly advocating for people to “join the conversation” and “make up their own minds” after reading the Intergenerational Report. </p>
<p>The other crucial aspect is money. While Blanchett reportedly gave her endorsement for free, Dr Karl was to be paid for his appearance, although we don’t know how much. He <a href="http://www.smh.com.au/federal-politics/political-news/dr-karl-kruszelnicki-my-role-in-government-video-does-not-mean-im-a-liberal-party-stooge-20150314-143dh5.html">told Fairfax Media</a> that he took the job partly because his employment with the ABC and University of Sydney paid him “bugger all”, although he subsequently pledged to <a href="http://www.smh.com.au/federal-politics/political-news/deep-regret-dr-karl-kruszelnicki-to-hand-over-intergenerational-report-pay-20150416-1mm3i0.html">donate the fee to public schools</a>.</p>
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<p>Neither Blanchett nor Dr Karl is beyond reproach. Speaking from a cashed-up celebrity position is suspect, but so is speaking from the position of an empty bank account. It’s not always wise to be politically vocal, but it’s also not good to be bland and merely advocate that others make up their own minds. </p>
<p>It’s a Catch-22 that is only worsened by the fact that critics on social media will gleefully find fault with either strategy.</p>
<p>But wait. It’s not just that Dr Karl did the adverts. There’s also the fact that when the full report was released, he decided he didn’t like the scope of the report he was spruiking, and <a href="https://twitter.com/DoctorKarl/status/587525711188983808">turned his ire on the government</a>.</p>
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<p>Dr Karl (and others) saw a glaring lack of discussion of climate change in the report. It would seem he arrived at this realisation a little late in the game, but at least it’s honest. </p>
<p>Up to this point it’s all really rather unremarkable – a bit of political argy-bargy with an ABC journo caught in a tight place. That is, until one considers what Treasurer Joe Hockey, who released the report, <a href="http://www.theaustralian.com.au/national-affairs/dr-karl-face-of-intergenerational-report-lashes-out-at-document/story-fn59niix-1227304391593">had to say last month</a>, before the issue blew up.</p>
<p>When asked what inspired the ad campaign, Hockey had said: “Dr Karl is a wonderful communicator. He can reach out to audiences that we’re not very good at being able to make contact with.”</p>
<p>This is a revealing comment about what exactly was in it for the government. By hiring Dr Karl, it is buying a specific audience. And this is where things start to get a bit uncomfortable. </p>
<p>The idea that journalists sell audiences is problematic, even though the mantra that media organisations sell audiences to advertisers has been popular since the 1980s. The journalists themselves generally stay far removed from that transaction, leaving it to the media company’s executives so as to preserve their editorial independence. The implication here is that, by taking Hockey’s coin, Karl wasn’t just selling out his audience, but selling the government potential voters. </p>
<h2>Ethical Guidelines for Journalists</h2>
<p>At this point, let’s have a quick look at the accepted ethical standards for journalists, as set out in the Media, Arts and Entertainment Alliance (MEAA) <a href="http://www.alliance.org.au/code-of-ethics.html">code of ethics</a>. The relevant sections say:</p>
<blockquote>
<p>4) Do not allow personal interest, or any belief, commitment, payment, gift or benefit, to undermine your accuracy, fairness or independence.</p>
</blockquote>
<p>and</p>
<blockquote>
<p>5) Disclose conflicts of interest that affect, or could be seen to affect, the accuracy, fairness or independence of your journalism. Do not improperly use a journalistic position for personal gain. </p>
</blockquote>
<p>Did Dr Karl violate these principles? Because he was asking for an audience on behalf of the government, and not advocating a policy, it’s not really about accuracy or fairness, though there might be an issue about independence. </p>
<p>But then again, it was Karl’s insistence on remaining independent (by speaking out about what he found <em>not</em> to be in the Intergenerational Report) that raised eyebrows, rather than any lack of independence. </p>
<p>The payment or personal gain (which he was very open about) might be seen to transgress the standards. But Dr Karl also writes books as a private author (not as an ABC journalist), so should he be censured for those personal gains too? That would seem harsh.</p>
<p>Finally, there’s this guideline, which Dr Karl surely followed to the letter:</p>
<blockquote>
<p>12) Do your utmost to achieve fair correction of errors.</p>
</blockquote>
<p>In an <a href="https://www.youtube.com/watch?v=CPEVUK3Ryus">ABC news interview</a>, Dr Karl spent well over 6 minutes explaining how he regretted doing the advertisements, including saying: “I made a mistake … how could you talk about the next 40 years without talking about climate change?”.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/CPEVUK3Ryus?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Dr Karl’s ABC mea culpa.</span></figcaption>
</figure>
<p>But as much as this episode may have been a simple case of Dr Karl trying to earn a few extra dollars for drawing our attention to a government report that turned out to be not what he thought, there is one final aspect of this saga that is worth looking at. </p>
<p>Dr Karl is one of Australia’s public faces of science. Joe Hockey certainly wanted the audience that he knew Dr Karl could draw. And, by association, he got Dr Karl’s implicit imprimatur on the report – until Dr Karl no longer wanted to give it. Karl said that as soon as he saw the “political” nature of the document, and its lack of credible detail about how Australia should address the climate threat over the next 40 years, he felt he had to say something. </p>
<p>And there’s the rub. How could this report not be “political”? At least one of its main purposes is to drive policy-making into the future. The knee-jerk response to the document’s perceived scientific shortcomings is to seek to defend “pristine” science from the political process. I suspect that this view was at least partly what prompted Dr Karl’s second thoughts. But this is misguided. </p>
<p>Science, and by this I mean the institutions of science as well as the questions that the scientific process tries to answer, has always been political. Indeed, many in Australia were recently very worried that science was being left out of the political process altogether. </p>
<p>On this reading, Dr Karl didn’t get involved enough. He’s mentioned that there is a some good information in the report, even some surprises. Could he help us out with the provenance of this “good information”, coming as it does against a backdrop of <a href="https://theconversation.com/csiro-cuts-will-rob-australian-industry-of-research-expertise-26759">cuts to publicly funded science</a>? </p>
<p>Until our science pundits have the status and courage to go that extra step, I suspect tempests in teacups (or hate on social media) will swirl around journalists (and celebrities) who spruik for the government. And that’s too bad. Because the sideshow distracts us from asking the hard questions about this report. </p>
<p>I suppose the only thing left to do now is actually <a href="http://d3v4mnyz9ontea.cloudfront.net/2015_IGR.pdf">read the report</a>, which of course is what Dr Karl asked us all to do in the first place.</p><img src="https://counter.theconversation.com/content/40316/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joan Leach receives funding from the Australian Research Council. She is President of Australian Science Communicators.</span></em></p>Dr Karl has been criticised for fronting adverts for a government report he turned out not to agree with. But despite his lapse in judgement, he hasn’t seriously breached his journalistic ethics.Joan Leach, Associate Professor in Rhetoric and Science Communication, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/386442015-03-18T23:49:36Z2015-03-18T23:49:36ZSuitable, affordable housing is key to our population ageing well<p>Whatever one’s opinion on the Intergenerational Report (IGR), it is undeniable that Australia faces challenging economic and personal realities over the next 40 years. Treasurer Joe Hockey has <a href="http://www.smh.com.au/federal-politics/political-news/intergenerational-report-joe-hockey-warns-difficult-days-lie-ahead-20150220-13jnkx.html">emphasised</a> the IGR highlights the need for Australia to respond to <a href="http://www.pc.gov.au/research/completed/ageing-australia">demographic changes</a>. Proposed responses include extending the average working life and increasing participation by Australian seniors. </p>
<p>On April 14, the Senate Economics References Committee is due to deliver its <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Affordable_housing_2013">report on affordable housing</a>. This report is expected to highlight shortfalls in affordable and <a href="http://www.jchs.harvard.edu/research/housing_americas_older_adults">age-appropriate housing</a>.</p>
<p>These major demographic and housing issues are closely connected. The challenges they present must be tackled against a background of deteriorating economic conditions and an oversubscribed health system.</p>
<p>The issues the IGR raises are many and varied. They are also subject to a plethora of contingencies. However, one issue that cannot be denied is the inescapable impact – one way or another – of an ageing population on Australia’s economic future.</p>
<p>The danger is that the government seems to be emphasising (albeit crucial) issues such as employment and health without taking a broader view of factors, of which housing is pivotal, that will nourish and buttress these aspirations.</p>
<h2>Housing is tied to health and productivity</h2>
<p>If Australian seniors are to remain healthy and work longer, the importance of appropriate housing cannot be underestimated. Much attention is being paid to the rising cost of health care for an ageing population. However, the nexus between secure accommodation and better health and financial outcomes for older people, the broader community and the economy is <a href="http://whqlibdoc.who.int/publications/2008/9789241563703_eng.pdf">largely overlooked</a>.</p>
<p>If older Australians are more secure in their accommodation, they are more likely to remain employed and in good physical and psychological health. All of the consequential benefits of this flow to the economy and the nation as a whole. Therefore, improved provision of affordable senior housing is vital to enable people to remain employed into their 60s, 70s and even 80s, and thereby lift Australia’s productivity and sustain economic growth.</p>
<p>To pursue these goals in the IGR, the government’s attention must extend to ensuring an adequate supply of affordable and suitable housing for seniors. The population of older Australians is naturally diverse, so individual housing preferences vary significantly. </p>
<p>The major asset of most Australian households is the family home. For seniors, housing equity makes up approximately half of their wealth. However, <a href="http://apo.org.au/research/asset-rich-income-poor-australian-housing-wealth-and-retirement-international-context">research to date</a> suggests few of these households are drawing on this wealth during retirement.</p>
<h2>Insecurity has multiple harmful impacts</h2>
<p>For older people who do not own a home and must find affordable accommodation in a competitive market, life can be particularly daunting. As social policy researcher Bruce Bradbury <a href="https://www.sprc.unsw.edu.au/media/SPRCFile/25_sprp_41.pdf">has noted</a>:</p>
<blockquote>
<p>Australia is unusual in that economic exclusion among the elderly is closely linked to a lack of home ownership (or access to public housing).</p>
</blockquote>
<p>Seniors have different housing requirements to younger people and families. Older Australians <a href="https://theconversation.com/affordable-housing-is-a-problem-for-older-australians-too-21555">often require</a> smaller and more accessible housing located close to services, care and support. </p>
<p>Transitions in later life are complex. These transitions, it has been observed:</p>
<blockquote>
<p>… challenge older adults to make projections of a future self and to anticipate their emotional, medical and financial needs.</p>
</blockquote>
<p>Older people who are secure in the knowledge that they can stay in their accommodation for an extended period – or permanently – exhibit demonstrably <a href="http://www.pubfacts.com/detail/19246417/Reasons-for-relocation-to-retirement-communities:-a-qualitative-study.">better physical and psychological health</a> than those in less stable accommodation. Insecurity in one’s home environment <a href="http://www.researchgate.net/publication/231759516_Anticipating_Relocation_Coping_Strategies_and_the_Meaning_of_Home_for_Older_People">heightens the risks</a> to <a href="http://www.ncbi.nlm.nih.gov/pubmed/17327545">physical and psychological health</a> in the short and longer term, including <a href="http://www.ncbi.nlm.nih.gov/pubmed/17327545">feelings of powerlessness</a>. </p>
<p>Insecure accommodation may also impact on older people’s social situations. They may become reluctant to engage in their local communities. If they have to relocate, they may lose <a href="http://www.healthyhousing.org.nz/wp-content/uploads/2010/01/Housing-and-health-in-older-people-aging-in-place.pdf">support and friendship networks</a>.</p>
<p>The prospect of possibly having to move weighs heavily on older people. This is especially so where options for accommodation elsewhere are limited.</p>
<p>Finally, significant economic costs are attached to the heightened risk of physical or psychological illnesses.</p>
<p>Beyond the headlines, a concerted strategy for an older – but healthier and more productive – population must be crafted. A focus on secure, affordable housing for seniors is a cornerstone for any such aspirations.</p><img src="https://counter.theconversation.com/content/38644/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eileen Webb receives funding from Lotteries WA and COTAWA for the project: Security of Tenure for Seniors in Western Australia and National Seniors Australia for the project: Seniors downsizing on their own terms: overcoming planning, legal and policy impediments to the creation of alternative retirement communities. She is a member of the ShelterWA Advisory Committee on Homelessness.</span></em></p><p class="fine-print"><em><span>Gill North does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Without affordable and secure housing that meets the needs of older Australians, the nation cannot hope to sustain the productivity that is needed to secure future prosperity.Eileen O'Brien, Professor, Faculty of Law, The University of Western AustraliaGill North, Associate Professor of Law, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/384972015-03-15T19:30:56Z2015-03-15T19:30:56ZAs China changes from world’s factory to innovator, Australia needs to keep pace<figure><img src="https://images.theconversation.com/files/74584/original/image-20150312-13502-jcsbzz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China has been the manufacturer to the world on the back of low wages. But authorities are now targeting innovation.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/dcmaster/5236053511/in/photolist-85CsKc-9NLrWq-5xXhC-9YKtGo-nJuLCD-9NMrMQ-bserk8-N6B9f-8YKhk5-7FRcDy-8YG9hF-7FRbfq-dPv85f-9NHECP-9NHGjZ-5orCyA-foL1ED-guNonP-nJtFiz-aGdWA4-ffetYs-dqLhuF-dqLs6G-5orCJy-nJtFft-o1SxHC-66BffH-9nEQ6-aHWPen-8YFdvP-63AQ3h-a8WtWU-9NMy6d-8iwrk9-9NJLY2-5orCVj-duF1ne-9NJK6D-9NMzAf-9NMvdh-7FRbDJ-dpjXDf-9NJr1p-9NJBR2-9NJGmv-9NMtB5-9NJvfz-9NMqQN-9NJpPK-9NMwcY">Flickr/Chris dcmaster</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Australia’s economic future can be bright. </p>
<p>The 2015 Intergenerational Report (IGR) says that in 2055 our pay packets will on average, be able to buy nearly 80% more goods and services than now. </p>
<p>But, as the IGR concedes, whether these happy days come true really depends on what happens to productivity between now and then. Government policy settings that foster a culture of innovation will be crucial.</p>
<p>And there’s the problem. </p>
<p>As it currently stands, the World Economic Forum (WEF) ranks the <a href="http://www.weforum.org/reports/global-competitiveness-report-2014-2015">strength</a> of Australia’s innovation environment in the bottom half of the OECD. </p>
<p>If we are benchmarking ourselves against the likes of Germany, then that may not seem so bad. But how about China, a country that made a name for itself as the factory of the world on the back of millions of workers paid next to nothing?</p>
<h2>China rises up the innovation rankings</h2>
<p>That’s the reality that Australia now faces: out of the 144 countries ranked by the WEF, the strength of China’s innovation environment now lies just seven places behind ours. And don’t forget: per-capita incomes in China are only around one-quarter of those in Australia.</p>
<p>To be sure, it’s not so much that Australia has gone backwards. It’s that China has caught up. The days of cheap labour in China ended more than a decade ago. </p>
<p>Nowadays when utilities and other costs are added to sharply rising wages, Boston Consulting Group says that manufacturing costs <a href="http://www.bcg.com/media/pressreleasedetails.aspx?id=tcm:12-168578">in China</a> are only 4% less than in the US.</p>
<p>That’s put enormous pressure on Chinese companies to innovate and produce higher value-added goods and services rather than try to compete on the lowest price. </p>
<p>It’s hard to argue with the results. According to the World Trade Organization, China’s share of world manufactured goods trade <a href="https://www.wto.org/english/res_e/statis_e/its2014_e/its14_toc_e.htm">leapt</a> from 4.7% in 2000 to 17.5% in 2013.</p>
<p>Some quip that China hasn’t yet discovered its own Apple. That’s true. But it does have Lenovo and Huawei, the world’s largest manufacturers of PCs and telecommunications equipment, respectively. Then there’s smart phone maker, Xiaomi, a company we’ll be hearing a lot more about in the next few years. And what’s unfolding in the digital space is nothing short of revolutionary. </p>
<h2>The world’s fasting growing e-commerce market</h2>
<p>Last month the Harvard Business Review said that over the past five years the digital evolution in China has been more <a href="https://hbr.org/2015/02/where-the-digital-economy-is-moving-the-fastest">rapid</a> than in any of the other 49 countries they studied.</p>
<p>China doesn’t need to find its own eBay or Amazon. </p>
<p>By 2012, China’s largest online retailer, Alibaba, already had sales <a href="http://www.economist.com/news/leaders/21573981-chinas-e-commerce-giant-could-generate-enormous-wealthprovided-countrys-rulers-leave-it">exceeding</a> that of the American giants combined.</p>
<p>Industry researcher, eMarketer, says that the value of retail e-commerce sales in China in 2014 was 40% higher than in the US. By 2018, it will be more than <a href="http://www.emarketer.com/Article/Retail-Sales-Worldwide-Will-Top-22-Trillion-This-Year/1011765">double</a>. Runs on the board in e-commerce are now being leveraged in other areas. </p>
<p>Alibaba just set up its own bank. To decide who to lend to it will tap its own treasure trove of <a href="http://techcrunch.com/2015/01/27/data-from-alibabas-e-commerce-sites-is-now-powering-a-credit-scoring-service/">data</a>: the payments histories of more than 300 million individual users and 37 million small businesses that trade of its online platforms.</p>
<p>In searching for the secrets of Chinese success, don’t look for hordes of state-owned enterprises pumped full of government subsidies. Alibaba and co are privately-owned and profit hungry. </p>
<p>But what the Chinese government has done well is to recognise the high cost challenge and respond with a narrative about how it can be overcome. </p>
<h2>Innovation as the buzzword</h2>
<p>We heard this loud and clear when Chinese Premier, Li Keqiang, delivered his work report at the National People’s Congress earlier this month. “Innovation-driven development” is now the national economic <a href="http://blogs.wsj.com/chinarealtime/2015/03/05/china-npc-2015-the-reports/">strategy</a>.</p>
<p>When <a href="https://agenda.weforum.org/2015/01/chinese-premier-li-keqiangs-speech-at-davos-2015/">addressing</a> the World Economic Forum at Davos in January, Premier Li spoke of innovation and entrepreneurship no less than 20 times. He said that in Chinese eyes they are a “gold mine”. It’s not just words. It was reforms by China’s banking regulator last year that cleared the way for Alibaba to act on its entrepreneurial instincts and branch into finance.</p>
<p>Yet far from the Chinese sense of urgency and mission, Australian governments have appeared content squandering the proceeds of the mining boom - a once in a generation opportunity to reposition the economy for sustainable, innovation-led growth.</p>
<h2>So what about Australia?</h2>
<p><a href="http://www.abc.net.au/radionational/programs/ockhamsrazor/does-manufacturing-have-a-future3f/6140892">Innovation policy in Australia</a> is now focused on establishing five industry “Growth Centres”, which will be designed to encourage business-university collaboration. But these have only been allocated around $190 million, compared with almost $3 billion for the UK Catapult Centres, on which they are based.</p>
<p>Australia doesn’t need to unleash its own Apple or Alibaba, however enticing such a prospect might be. The reality is we account for only 2% of the world’s R&D, and even less of its markets.</p>
<p>But we do need more knowledge intensive “micro-multinationals” that engage in niche production and feed into global networks and value chains. </p>
<p>Already in 2012, before the IGR, <a href="http://australianpolitics.com/downloads/foreign/12-10-28_aust-in-the-asian-century-white-paper.pdf">the Australia in the Asian Century White Paper</a> noted: “Using creativity and design-based thinking to solve complex problems is a distinctive Australian strength that can help to meet the emerging challenges of this century”.</p>
<p>Countries like Germany, Switzerland, and more recently the UK, have shown that being a high cost economy doesn’t mean that manufacturing needs to be abandoned. Nor does it mean that international competitiveness needs to be lost. </p>
<p>But when a country like China starts teaching the same lessons, it really is time to sit up and start paying attention.</p><img src="https://counter.theconversation.com/content/38497/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Roy Green has received funding from Australian Government, OECD and European Commission for research on innovation and manufacturing.</span></em></p><p class="fine-print"><em><span>James Laurenceson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Once the world’s factory, China is shooting up the innovation rankings. There are important lessons there for Australia.James Laurenceson, Deputy Director and Professor, Australia-China Relations Institute (ACRI), University of Technology SydneyRoy Green, Dean of UTS Business School, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/387072015-03-15T19:25:51Z2015-03-15T19:25:51ZSpeaking of future generations … let’s not forget culture<figure><img src="https://images.theconversation.com/files/74754/original/image-20150313-7054-1k9wgtz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Culture hardly rates a mention in the current Intergenerational Report, or those that preceded it. </span> <span class="attribution"><span class="source">Mark Roy</span></span></figcaption></figure><p>In recent weeks, the future has been firmly on the national agenda. The release of the fourth <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">Intergenerational Report</a> (IGR) has encouraged us to carefully consider “<a href="http://www.smh.com.au/comment/playing-the-long-game-in-a-fickle-climate-20150123-12wgqj.html">how actions taken today will affect the choices of tomorrow</a>”. Tonight’s Q&A on ABC will focus on intergenerational issues. </p>
<p>Yet in the latest IGR, as in the previous three, culture hardly rates a mention, in economic or any other terms. Recent media and public discussions about what Australia might look like in 2055 have also largely ignored the topic of culture. </p>
<p>This is hardly surprising. There’s a lot to worry about already: healthcare, housing, jobs, the ageing population (and could we remember <a href="https://theconversation.com/the-intergenerational-report-underestimates-climate-threat-an-open-letter-to-the-government-38699">climate change</a>, Hockey?). Many things are vying for the fair use of economic resources.</p>
<p>But when we talk about the future of Australia, let’s not let culture drop off our radar. Here’s why. </p>
<h2>Our common heritage</h2>
<p>“Present generations should take care to preserve the cultural diversity of humankind”, urged UNESCO in its 1997 <a href="http://portal.unesco.org/en/ev.php-URL_ID=13178&URL_DO=DO_TOPIC&URL_SECTION=201.html">Declaration on the Responsibilities of the Present Generations toward Future Generations</a>. We should “protect and safeguard” cultures, and “transmit this common heritage to future generations”. </p>
<p>This isn’t just to be decent. UNESCO believes culture is linked with the very “<a href="http://portal.unesco.org/en/ev.php-URL_ID=13178&URL_DO=DO_TOPIC&URL_SECTION=201.html">fate of future generations in the face of the vital challenges of the next millennium</a>”. Cultural expressions facilitate the transfer of knowledge from past to future generations. When they disappear, <a href="http://www.tandfonline.com/doi/full/10.1080/17411912.2010.508238#.U13aJl4pK0s">options become narrower</a> – for everyone, not only those directly implicated.</p>
<p>And to talk our government’s language, there are significant economic benefits to supporting sustainable cultural futures. As well as enriching Australian cultural life, strong cultural traditions will <a href="https://www.humanrights.gov.au/submission-ratification-2003-unesco-convention-safeguarding-intangible-cultural-heritage-2008">boost cultural industries and heritage tourism</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/74730/original/image-20150312-13499-808jns.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74730/original/image-20150312-13499-808jns.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=432&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74730/original/image-20150312-13499-808jns.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=432&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74730/original/image-20150312-13499-808jns.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=432&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74730/original/image-20150312-13499-808jns.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=543&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74730/original/image-20150312-13499-808jns.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=543&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74730/original/image-20150312-13499-808jns.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=543&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Aboriginal dancers at Woodford Folk Festival.</span>
<span class="attribution"><span class="source">Neils Photography / Flickr</span></span>
</figcaption>
</figure>
<p>A 2008 recommendation by the <a href="https://www.humanrights.gov.au/submission-ratification-2003-unesco-convention-safeguarding-intangible-cultural-heritage-2008">Australian Human Rights Commission</a> that Australia ratify UNESCO’s 2003 <a href="http://www.unesco.org/culture/ich/index.php?pg=00006">Convention for the Safeguarding of Intangible Cultural Heritage</a> (which fell on deaf ears) put it like this:</p>
<blockquote>
<p>Maintaining Australia’s cultural heritage, in all its many forms, has both a human capital and an economic capital dividend. Respecting, nurturing and supporting intangible cultural heritage has clear social benefits (happy, better functioning, more vibrant communities) as well as health benefits (freedom of cultural expression and to practice aspects of traditional life builds social and emotional well-being, which directly improves population-level health outcomes – an important economic saving to the health system).</p>
</blockquote>
<h2>The state of affairs</h2>
<p>If, as UNESCO claims, keeping cultures strong is a matter of intergenerational responsibility, Australia is failing. In just the few generations since colonisation, Aboriginal and Torres Strait Islander languages and cultural expressions have been decimated. Without strong government support, that trajectory looks set to continue. </p>
<p><a href="http://www.smh.com.au/nsw/far-from-extinct-indigenous-languages-thriving-in-public-schools-in-dubbo-20150228-13pvmk.html">An estimated 108</a> Australian Indigenous languages are at imminent risk of extinction. Northern Australia, with its vastly rich language diversity, is one of the worst <a href="https://livingtongues.wordpress.com/language-hotspots/">hotspots</a> in the world for language loss.</p>
<p>And along with languages, other kinds of cultural expressions are disappearing too. <a href="https://theconversation.com/weve-lost-98-of-indigenous-music-traditions-who-cares-26282">More than 98%</a> of Aboriginal and Torres Strait Islander music and dance traditions have already been lost. In 2011, <a href="http://www.ictmusic.org/sites/default/files/documents/IAMD_statement.pdf">a statement endorsed by the International Council for Traditional Music</a> urged urgent action against the “crisis” in Australian Indigenous performance traditions, “for the benefit of all Australians, and for cultural diversity worldwide”.</p>
<h2>Turning a blind eye?</h2>
<p>That was four years ago now … and time marches on. Australia has still conspicuously <a href="http://www.unesco.org/eri/la/convention.asp?KO=17116&language=E">failed to ratify</a> UNESCO’s 2003 Convention. Ratification would signal the government’s commitment to cultural heritage and cultural sustainability. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/74589/original/image-20150312-13520-4554a.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/74589/original/image-20150312-13520-4554a.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74589/original/image-20150312-13520-4554a.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=308&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74589/original/image-20150312-13520-4554a.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=308&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74589/original/image-20150312-13520-4554a.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=308&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74589/original/image-20150312-13520-4554a.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=387&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74589/original/image-20150312-13520-4554a.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=387&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74589/original/image-20150312-13520-4554a.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=387&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The countries that have ratified UNESCO’s Cultural Heritage Convention: Australia conspicuously absent.</span>
<span class="attribution"><span class="source">Wikimedia Commons</span></span>
</figcaption>
</figure>
<p>Instead, our prime minister refers to Indigenous people living on their ancestral homelands as making a “<a href="http://www.theguardian.com/australia-news/2015/mar/10/remote-communities-are-lifestyle-choices-says-tony-abbott">lifestyle choice</a>”, and <a href="http://www.theguardian.com/australia-news/2015/mar/10/remote-communities-are-lifestyle-choices-says-tony-abbott">makes plans</a> to force them to leave. </p>
<p>As Shayne Neumann, Labor’s spokesperson on Indigenous affairs, <a href="http://www.theguardian.com/australia-news/2015/mar/10/remote-communities-are-lifestyle-choices-says-tony-abbott">asked last week</a>: “Does he not understand the connection between land, language and culture?” </p>
<p>In painfully real ways, government attitudes affect Indigenous people’s ability to maintain their cultural practices. <a href="https://theconversation.com/aboriginal-ceremonies-are-not-bullshit-27210">An article</a> last year on The Conversation referred to “the arduous struggle to maintain ceremonial traditions in the face of unsympathetic government attitudes”. </p>
<p>It’s not all doom and gloom. Some Indigenous communities are making <a href="http://www.smh.com.au/nsw/far-from-extinct-indigenous-languages-thriving-in-public-schools-in-dubbo-20150228-13pvmk.html">considerable inroads</a> to securing viable futures for their languages and cultures. Such successes, though, are largely in spite of federal policies, not because of them. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/74733/original/image-20150312-13505-1t75qo8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74733/original/image-20150312-13505-1t75qo8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74733/original/image-20150312-13505-1t75qo8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74733/original/image-20150312-13505-1t75qo8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74733/original/image-20150312-13505-1t75qo8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74733/original/image-20150312-13505-1t75qo8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74733/original/image-20150312-13505-1t75qo8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ampilatwatja Walk Off: Angelina Luck hunting for goanna on her traditional country 350kms north east of Alice Springs.</span>
<span class="attribution"><span class="source">Rusty Stewart / Flickr</span></span>
</figcaption>
</figure>
<h2>Shirking responsibility</h2>
<p>Current government policies should not compromise the choices and circumstances of future generations. So goes the principle of intergenerational equity. Our Intergenerational Reports are founded on it, and our policies should be based on it too. </p>
<p>With other important issues clamouring for attention, it’s all too easy for culture to drop off the political radar. But we need strong policies to support cultural heritage, and we need them urgently. As <a href="http://www.unesco.org/cpp/uk/declarations/generations.pdf">UNESCO says</a>, we must actively safeguard our cultures so we can “hand on a better world to future generations”. </p>
<p>The alternative – political indifference – transgresses the principle of intergenerational equity. It compromises the wellbeing of future generations. </p>
<p>Come on Tony, <a href="http://www.theaustralian.com.au/arts/tony-abbott-says-arts-and-culture-as-important-as-sport/story-e6frg8n6-1227074438070">cultural advocate</a> and self-professed <a href="https://theconversation.com/will-tony-abbott-be-a-prime-minister-for-aboriginal-affairs-17985">PM for Indigenous Affairs</a>, can’t we do better?</p>
<p><br></p>
<p><em>The author received the 2014 national <a href="http://www.futurejustice.com.au/index.php#">Future Justice Medal</a> for leadership and initiative in the advancement of future justice, which is concerned with what those living today leave behind for future generations.</em></p><img src="https://counter.theconversation.com/content/38707/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Catherine Grant does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Culture is barely mentioned in the latest Intergenerational Report – as was the case with the three preceding it. But we need strong policies to support cultural heritage, and we need them urgently.Catherine Grant, Joy Ingall Postdoctoral Research Fellow, University of NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/386562015-03-13T00:10:56Z2015-03-13T00:10:56ZDealing with the economics of ageing doesn’t have to be unfair<p>The most recent Intergenerational Report released by treasurer Joe Hockey last week is the first to offer up a policy solution in response to the fiscal challenge caused by Australia’s ageing population.</p>
<p>The three previous intergenerational reports flagged a “problem”, but did not propose explicit policies to eliminate the projected fiscal deficits. </p>
<p>It may be thought that it is “good government” to have an explicit policy. However, the actual policy proposed to deal with the fiscal challenge falls disproportionately on the less well-off and the less healthy. </p>
<p>Peter Whiteford <a href="https://theconversation.com/intergenerational-report-lays-uneven-path-for-tough-policy-choices-38295">estimates</a> that old age pensions will fall from their present level of about 28% of male total average weekly earnings to just under 24% in 2029. Unemployment benefits will also fall relative to average weekly earnings. Furthermore, Commonwealth support for health services will be reduced. </p>
<p>Not only is a major burden to be borne by the less well-off but also this burden will be borne too soon. </p>
<p>The proposed policy has the Commonwealth primary balance moving into a surplus of 1.2% of GDP by 2024-25. This move is to the benefit of the future population in the decades after 2024-25 relative to those currently alive. And yet with productivity growth in the future, which the report assumes will be at its historic average of 1.5% per year, those people in the future will be better off than we are today.</p>
<p>Under the proposed policy, fiscal surpluses are projected to continue until 2054-55, leading to a projected net asset position of the government of 15% of GDP by 2054-55. This is a further indication of how the proposed policy benefits the better-off people in the future relative to the less well-off that precede them. </p>
<h2>Hitting the vulnerable</h2>
<p>It is “doubly inequitable”, so to speak, that the less well-off of people living now are penalised in order to make future people even better off than they otherwise would have been. </p>
<p>Three aspects of the benefits people enjoy from government-provided old-age pensions and health services are relevant here. First, these government outlays redistribute wellbeing from the better-off to the less well-off, namely from the young to the old. This improves equity.</p>
<p>Second, some of the higher productivity of later generations is due to the efforts of the preceding generations; later generations will inherit an enlarged capital stock and an enlarged stock of knowledge. And those who are older now and in the near future have contributed to the support of earlier generations of old people. These considerations suggest that the old deserve some support from the young.</p>
<p>Third, government support through pensions and health care helps to insure the old from some of the risks associated with ageing, especially longevity risk and the risk of high health costs. Both of these risks are substantial. </p>
<p>While much discussion focuses on average life expectancy, there seems to be less recognition of the variation across people of actual lifetimes. One quarter of 65 year-olds will die some seven years or more before the 65 year-old who lives for the average life expectancy and another 25% will live some five years or more beyond the average person. One in ten will live for 10 years or more beyond the average person. Planning a consumption path for one’s later years to allow for this variation is helped by the annuity-nature of a government pension. </p>
<p>Health expenditures also vary considerably across people. According to the 45 and Up <a href="http://onlinelibrary.wiley.com/doi/10.1111/1759-3441.12009/abstract">survey of older people in NSW</a>, of women aged 75, for example, 5% have health costs greater than A$21,000 and 5% have health costs less than A$1000. (These are total health costs, public plus private.) </p>
<p>Of course, continuing government support at current policy settings implies a probable increase in the cost of government support, which may cost as much as 6% of GDP. But that would still leave the working population in the future much better off than is the working population today. Productivity growth dominates the ageing effect.</p>
<h2>Dealing with uncertainty</h2>
<p>There is another argument for not acting in advance of future ageing in the way proposed by the government’s Intergenerational Report policy. There is a case for a plan to be gradual, flexible and responsive to the challenge of the ageing population as it emerges. Fiscal adjustments should be made as circumstances develop. Policies should be assessed on the basis of their costs and benefits.</p>
<p>There is much uncertainty surrounding projections made for decades into the future. This uncertainty is especially large for projected health expenditures. The nature of future technological change in health care is unknown. New treatments may raise costs but new procedures may lower costs. How demand for health services will respond is not clear.</p>
<p>There is less uncertainty about projections of income support but there is still uncertainty. By how much will an increase in the age of eligibility for the old-age pension increase the number of people on disability pensions? </p>
<p>Government revenue projections are also uncertain. They are sensitive to the rate of unemployment and yet how robust is the assumption of a lower constraint on the feasible rate of unemployment equal to 5%, as assumed in the report, when the measurement of that constraint is notoriously inexact? </p>
<p>Ultimately, a policy that allows the overall tax share to increase with demographic pressures is preferable to one that relies on cutting benefits to the less well-off.</p><img src="https://counter.theconversation.com/content/38656/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian McDonald is Emeritus Professor at the University of Melbourne
Ian McDonald does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations. He has received funding from the ARC.</span></em></p>The policy solution to the ageing population laid out in the Intergenerational Report benefits the better-off in the future over the less well-off today.Ian McDonald, Emeritus Professor, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/382912015-03-12T19:15:01Z2015-03-12T19:15:01ZThe tenuous link between population and prosperity<figure><img src="https://images.theconversation.com/files/74404/original/image-20150311-20534-1cnk033.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Traffic congestion in the major cities is expected to cost Australians A$20.4 billion a year by 2020.</span> <span class="attribution"><span class="source">Image sourced from Shutterstock.com</span></span></figcaption></figure><p>The <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">Intergenerational Report</a> released last week by Treasurer Joe Hockey proposes extremely high rates of immigration, adding nearly 13 million people by 2054-55 above the numbers foreshadowed by natural increase. </p>
<p>The report claims such an increase will offset demographic ageing and boost economic growth, but neither claim is borne out by the evidence. The effects on ageing are both trivial and transient and, when economic growth is considered in per capita terms (and in terms of real welfare), the increase will certainly be detrimental.</p>
<p>The narrative of the Intergenerational Report is that the population will be growing (though this, it transpires, has little to do with ageing) and the larger population will need more services. This will put pressure on the budget. So how are we to build “a strong and resilient economy” and lay “the foundations for future prosperity”?</p>
<p>It is no surprise to readers of this report’s three predecessors that the answer lies in the odd trifecta of population growth, productivity and participation. </p>
<p>The scenario that the report focuses on is one where the total fertility rate remains at around 1.9, life expectancy is in the mid 90s and net overseas migration (NOM) is held at 215,000 per annum. The report is careful not to make too much of its immigration assumption, presenting the increase in percentage terms. If the absolute number for net migration remains constant, this percentage measure will always show an unthreatening decline year-on-year, because the base population on which it is calculated will have grown. (After all, the second person to step ashore from the First Fleet in 1788 increased the European population by 100%, and the 11th by only 10%.)</p>
<p>The report links migration with economic growth in a curiously indirect fashion:</p>
<blockquote>
<p>“Lower levels of net overseas migration would lead to lower population growth rates over time and, therefore, lower economic growth.”</p>
</blockquote>
<p>This is another way of asserting that high migration will increase aggregate GDP. Yes it will, but this has little to do with individual welfare. Here per capita GDP is the relevant measure.</p>
<h2>GDP and well-being</h2>
<p>The report projects a growth in aggregate GDP of 2.8% per annum over the next 40 years, but that of per capita GDP is projected at only 1.5%. So while the population will be growing briskly, the welfare of individuals will not be keeping pace with that of the economy as a whole. This may not concern the minority who profit from larger markets, but it will impact on voters.</p>
<p>Moreover the deep shortcomings of GDP as a measure of well-being are now all too well known; for example the misery that commuters experience stuck in traffic shows up as a positive for GDP (more petrol consumed, more costly wear and tear on vehicles), and the GDP takes no count at all of the drag that the congestion imposes on productivity. In contrast the <a href="http://www.infrastructure.gov.au/infrastructure/pab/soac/">State of Australian Cities</a> report predicts traffic congestion in the major cities will cost Australians A$20.4 billion a year by 2020 and <a href="http://www.theaustralian.com.au/news/features/time-for-the-hard-choices-on-transport/story-e6frg6z6-1226953760110">stories</a> of its ill effects on productivity are commonplace.</p>
<p>The report also says, quite modestly, that migration “has an impact on the age distribution of the population” (because migrants tend to be younger when they arrive). Other authoritative government <a href="http://www.pc.gov.au/research/completed/population-migration">reports</a> find little support for the argument that high migration cures demographic ageing so a modest statement is prudent. But the scenario the authors have adopted is one of historically high migration (the <a href="http://archive.treasury.gov.au/contentitem.asp?ContentID=378">first Intergenerational Report</a> assumed NOM of 90,000). Their subsequent justifications for their NOM of 215,000 in fact turn both on that of growth in aggregate GDP and the anti-ageing theme. (Yes, high migration will <a href="http://www.swinburne.edu.au/media-centre/news/2014/04/the-ageing-of-the-australian-population-triumph-or-disaster.html">reduce the median age</a> by around five years - temporarily.)</p>
<p>The report’s scenario leads to a population growing from 23.9 million in 2015 to 39.7 million in June 2055. Were we to follow a similar scenario but with nil net migration the population in June 2055 would be <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+features42012%20%28base%29%20to%202101">26.9 million</a>.</p>
<p>The report proposes a population increase of 12.8 million above and beyond where natural increase would take us. To what end? In June 2014 the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/3101.0">total population of Sydney, Melbourne, Brisbane and Adelaide</a> was 12.6 million. The report does not explain how building the equivalent of all these cities again in just 40 years will enhance our productivity.</p>
<p>Given the infrastructure demands, it is not surprising that data from 32 OECD countries show no statistically significant association between productivity and population growth. </p>
<h2>Growth in labour productivity by population growth, 32 OECD countries, 2009 to 2012</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/74398/original/image-20150310-20540-1vz01aa.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74398/original/image-20150310-20540-1vz01aa.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=476&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74398/original/image-20150310-20540-1vz01aa.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=476&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74398/original/image-20150310-20540-1vz01aa.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=476&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74398/original/image-20150310-20540-1vz01aa.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=598&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74398/original/image-20150310-20540-1vz01aa.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=598&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74398/original/image-20150310-20540-1vz01aa.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=598&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Calculated from ECD.StatExtracts for labour productivity and for population growth except for Australian population growth. The OECD defines labour productivity as GDP per hour worked. ABS data were used for Australia’s population growth rate as the OECD data had not been recalibrated in the light of the 2011 census.</span>
<span class="attribution"><span class="source">OECD/ABS</span></span>
</figcaption>
</figure>
<p>Better that the trifecta of the three Ps were reduced to a duo of productivity and participation. High immigration may have no effect on productivity, as the figure above shows, or as the Australian experience suggests, may reduce it. And it can be irrelevant to participation.</p>
<p>The report projects that, as the population ages, labour-force participation rates will fall from their current levels of 64.6% to 62.4% in 2054-55. But in the youthful and prosperous <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6291.0.55.001Jan%202014?OpenDocument">1960s rates were much lower</a>: 59.9%, for example, in August 1966.</p>
<p>This shows that labour-force participation can vary without necessarily affecting economic well-being and that it can be shaped by a range of factors other than demographics — for example, accessible childcare, employers’ willingness to hire women and older people, and cities that permit workers to get to work in a reasonable fashion.</p>
<p>It is therefore not surprising that evidence from comparable OECD countries shows no statistically significant association between the proportion of people aged 15 plus in the labour force and the proportion aged 65 plus. </p>
<h2>Labour-force participation as percentage of the population aged 15 plus, by age structure, 31 OECD nations, 2012</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/74400/original/image-20150311-20527-193lna8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74400/original/image-20150311-20527-193lna8.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=459&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74400/original/image-20150311-20527-193lna8.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=459&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74400/original/image-20150311-20527-193lna8.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=459&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74400/original/image-20150311-20527-193lna8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=577&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74400/original/image-20150311-20527-193lna8.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=577&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74400/original/image-20150311-20527-193lna8.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=577&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="http://databank.worldbank.org/data/views/variableselection/">World Bank</a></span>
</figcaption>
</figure>
<p>Too much emphasis can be placed on the crude demographic measure of the proportion of a population of so-called working age: 15 to 64. Equally, too little can be made of the social, economic and policy factors that help or hinder labour-force participation.</p>
<p>As the figure below demonstrates, quite a few people aged 65 plus are in the labour force and many of those aged 15 to 64 are not.</p>
<h2>Population, June 2014 by age, sex and other characteristics (23.5 million)</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/74401/original/image-20150311-20513-dq3far.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74401/original/image-20150311-20513-dq3far.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=313&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74401/original/image-20150311-20513-dq3far.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=313&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74401/original/image-20150311-20513-dq3far.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=313&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74401/original/image-20150311-20513-dq3far.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=394&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74401/original/image-20150311-20513-dq3far.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=394&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74401/original/image-20150311-20513-dq3far.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=394&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Studying means attending full-time education, and people aged 25 plus who may be studying full-time are not shown. A person is said to have a profound or severe disability if they always or sometimes need help with one or more of three core activities: mobility, self-care and communication. Primary carers are people taking the main responsibility for someone who is profoundly or severely disabled. Unemployment among people aged 15 to 24 is under-estimated as they have not been shown as unemployed if they are also in full-time education.</span>
<span class="attribution"><span class="source">ABS/Author calculations</span></span>
</figcaption>
</figure>
<p>The figure also highlights the dependence of children and young people. No one under the age of 15 is in the labour force, and many of those aged 15 to 24 are full-time students not in paid work.</p>
<p>Indeed it is only in childhood that chronological age inevitably means dependence on others. Now that we are emancipated from the hyper-youthful populations of the past, more adults are freed from the unavoidable labour of caring for the young. They are freed for work, for caring and for building strong communities.</p><img src="https://counter.theconversation.com/content/38291/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Katharine Betts is affiliated with Sustainable Population Australia.</span></em></p>Linking population growth with productivity and labour participation is problematic, just one of many questionable assumptions made in the Intergenerational Report.Katharine Betts, Adjunct Associate Professor of Sociology, Swinburne University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/386992015-03-12T03:13:08Z2015-03-12T03:13:08ZThe Intergenerational Report underestimates climate threat: an open letter to the government<figure><img src="https://images.theconversation.com/files/74558/original/image-20150311-24197-wta2as.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Australia's waterside cities and towns are under threat from rising sea levels unless more is done to stop CO2 emissions</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/tk_five_0/3323530470">Michael Dawes/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p><em>The following is an open letter initiated by Dr Andrew Glikson, signed by Australian environmental and climate scientists.</em></p>
<p>We the undersigned are concerned that the <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">2015 Intergenerational Report</a> underestimates the serious threat of global warming to future generations.</p>
<p>Based on the basic laws of physics, direct measurements and empirical observations in nature, the current rise in atmospheric greenhouse gases by about 40% since the 19th century is inducing a shift in the state of the atmosphere-ocean-land-ice sheets system, seriously endangering future generations, and indeed nature’s life-support systems.</p>
<p>Our concern is based on the peer-reviewed scientific literature, as summarised by the <a href="http://www.ipcc.ch/">Intergovernmental Panel on Climate Change</a> and on observations by the world’s national science academies and geophysical research societies of leading nations, including Australia.*</p>
<p>The current and projected trend in CO<sub>2</sub> from the 19th century concentration of 280 parts per million (ppm) to the <a href="https://theconversation.com/february-carbon-dioxide-levels-average-400ppm-for-first-time-38417">present 400 ppm</a>, currently rising at more than 2 ppm per year, threatens to transform the planetary climate, creating conditions in which large parts of the continents become subject to droughts, fires and other extreme weather events. If this trend is allowed to continue, low coastal and river valleys, where much of the world’s population lives and where its food supply is produced, would be inundated by rising sea levels.</p>
<p>At the current rates of CO<sub>2</sub> emissions, by 2055 (the projected date in the Intergenerational Report) CO<sub>2</sub> concentrations would rise to about 480 ppm, threatening the Antarctic and Greenland ice sheets and approaching conditions that existed on the planet more than 2.6 million years ago, before the
appearance of the genus <em>Homo</em>.</p>
<p>Australia has many excellent renewable and low-carbon energy resources and access to commercially available technologies that would enable Australia to transition to zero-carbon electricity within two to three decades, given the political will. This zero-carbon electricity system would be reliable, affordable and job-creating.</p>
<p>We call on the Australian government, and indeed the governments of all nations, to reconsider the consequences of ongoing emission of greenhouse gases and, as a matter of urgency, promote much more rapid transition to non-polluting energy-generating methods.</p>
<p>*Including NASA, NOAA, NSIDC, Hadley-Met, Tyndall, Potsdam, the world’s academies of science and in Australia the CSIRO and BOM. </p>
<h2>Signatories</h2>
<p><a href="https://theconversation.com/profiles/mike-archer-am-5995">Professor Michael Archer</a>, Evolution of Earth and Life Systems Research Group, University of NSW</p>
<p>Dr Leanne Armand, Senior Researcher/Lecturer, Climate Futures at Macquarie - Department of Biological Sciences, Macquarie University</p>
<p>Dr Linda Beaumont, climate ecologist, Macquarie University</p>
<p>Dr Tom Beer, Past President of the International Union of Geodesy and Geophysics</p>
<p>Professor Jason Beringer, School of Earth and Environment, University of Western Australia</p>
<p><a href="https://theconversation.com/profiles/helen-louise-berry-8608">Professor Helen Berry</a>, Dean, Research of Epidemiology, Faculty of Health, University of Canberra</p>
<p><a href="https://theconversation.com/profiles/andrew-blakers-3328">Professor Andrew Blakers</a>, Director of the Centre for Sustainable Energy Systems, Australian National University</p>
<p>Jette Bollerup, lecturer in human sciences, Institute of Early Childhood, Macquarie University</p>
<p><a href="https://theconversation.com/profiles/caryl-bosman-125241">Dr Caryl Bosman</a>, senior lecturer in urban and environmental planning, Griffith School of Environment, Griffith University</p>
<p><a href="https://theconversation.com/profiles/corey-bradshaw-9183">Professor Corey Bradshaw</a>, Sir Hubert Wilkins Chair of Climate Change, The Environment Institute and School of Biological Sciences, The University of Adelaide</p>
<p>Associate Professor Tim Brodribb, plant science, University of Tasmania</p>
<p><a href="https://theconversation.com/profiles/richard-broinowski-4032">Professor Richard Broinowski</a>, President of the Australian Institute of International Affairs, NSW</p>
<p><a href="https://theconversation.com/profiles/jason-byrne-6066">Associate Professor Jason Byrne</a>, Environmental Planning, Griffith University</p>
<p><a href="https://theconversation.com/profiles/carla-p-catterall-157799">Professor Carla Catterall</a>, Griffith School of Environment, Griffith University</p>
<p>Professor Chu Cordia, Griffith School of Environment, Griffith University</p>
<p><a href="https://theconversation.com/profiles/andrew-cockburn-114143">Professor Andrew Cockburn</a>, Evolutionary Ecology, Director of the College of Medicine Biology and Environment, Australian National University</p>
<p>Emeritus Professor Jann Conroy, Tree Nutrition and Physiology and Global Change Biology, Hawkesbury Institute for the Environment, University of Western Sydney</p>
<p><a href="https://theconversation.com/profiles/alan-cooper-18427">Professor Alan Cooper</a>, Director of the Australian Centre for Ancient DNA, University of Adelaide</p>
<p>Emeritus Professor Michael Crisp, Evolution, Ecology and Genetics, Research School of Biology, Australian National University</p>
<p>Ian Davies, Fenner School of Environment and Society, Australian National University</p>
<p><a href="https://theconversation.com/profiles/kirsten-davies-152460">Dr Kirsten Davies</a>, lecturer and researcher, Department of Environmental Sciences and Macquarie Law School, Macquarie University</p>
<p><a href="https://theconversation.com/profiles/mark-diesendorf-226">Associate Professor Mark Diesendorf</a>, Deputy Director of the Institute of Environmental Studies, University of NSW</p>
<p><a href="https://theconversation.com/profiles/robert-douglas-92052">Professor Bob Douglas AO</a>, Director of Australia 21; Former Director of the National Centre for Epidemiology and Population Health, Australian National University</p>
<p>Dr Ben Elliston, Power and Energy Systems Engineering, University of NSW</p>
<p>Professor David Ellsworth, Hawkesbury Institute for the Environment, University of Western Sydney</p>
<p>Associate Professor Jason Evans, Climate Change Research Centre, School of Biological, Earth and Environmental Sciences, University of NSW</p>
<p>Professor Jim Falk, Professorial Fellow Melbourne Sustainable Society Institute, University of Melbourne</p>
<p><a href="https://theconversation.com/profiles/tim-flannery-11549">Professor Tim Flannery</a>, Division of Environmental and Life Sciences, Macquarie University</p>
<p>Dr Sara Fuller, lecturer in Justice and Democracy in the environment, Macquarie University</p>
<p><a href="https://theconversation.com/profiles/andrew-glikson-2348">Dr Andrew Glikson</a>, Earth and Paleoclimate science, Australian National University; Honorary Associate Professor, University of Queensland</p>
<p>Associate Professor Victor Gostin, Earth Science, University of Adelaide</p>
<p>Dr Susan Gould, Adjunct Research Fellow, Griffith Climate Change Response Program, Griffith University</p>
<p>Professor Tom Griffiths, School of History, Australian National University</p>
<p><a href="https://theconversation.com/profiles/colin-groves-9842">Professor Colin Groves</a>, Bio-anthropology and Primatology, School of Archaeology and Anthropology, Australian National University</p>
<p>Dr Willow Hallgreen, Research Fellow at the Griffith Climate Change Response Program, Griffith University</p>
<p><a href="https://theconversation.com/profiles/liz-hanna-18032">Dr Elizabeth Hanna</a>, Director, Heat- health risks and adaption, National Centre for Epidemiology and Population Health, Research School of Population Health Project, Australian National University</p>
<p>David Harley, Associate Professor of Epidemiology, Research School of Population Health & The Medical School, Australian National University</p>
<p><a href="https://theconversation.com/profiles/christine-adams-hosking-4017">Dr Christine Hosking</a>, Research Officer at the Global Change Institute, University of Queensland</p>
<p>Associate Professor Mark Hovenden, School of Biological Sciences, University of Tasmania</p>
<p><a href="https://theconversation.com/profiles/lesley-hughes-5823">Distinguished Professor Lesley Hughes</a>, Department of Biological Sciences, Pro Vice-Chancellor of Research Integrity and Development, Macquarie University</p>
<p>Professor Michael Hutchison, Spatial and Temporal Analysis, Fenner School of Environment and Society, College of Medicine, Biology and Environment, Australian National University</p>
<p>Emiratus Professor Phillip Jennings, Physics and Energy, Murdoch University</p>
<p><a href="https://theconversation.com/profiles/darryl-jones-12696">Professor Darryl Jones</a>, Deputy Director of the Environmental Futures Research Institute and the Griffith School of Environment, Griffith University</p>
<p>Associate Professor Jochen Kaempf, Oceanography, School of Environment, Flinders University</p>
<p><a href="https://theconversation.com/profiles/naomi-langmore-111977">Associate Professor Naomi Langmore</a>, Ecology and Genetics, Research School of Biology, Australian National University</p>
<p><a href="https://theconversation.com/profiles/michelle-leishman-91918">Professor Michelle Leishman</a>, Department of Biological Sciences, Macquarie University</p>
<p>Professor Darryl Low Choy, Head of Discipline (planning)), Environmental and Landscape Planning Research Program, School of Environment, Griffith Unviersity</p>
<p><a href="https://theconversation.com/profiles/andrew-lowe-6534">Professor Andrew Lowe</a>, Chair of Plant Conservation Biology and Director of the Centre for Conservation Science and Technology, University of Adelaide</p>
<p><a href="https://theconversation.com/profiles/joshua-madin-11284">Dr Joshua Madin</a>, ARC Future Fellow, Department of Biological Sciences, Macquarie University, Sydney</p>
<p>Associate Professor Andrew McGregor, Department of Geography and Planning, Macquarie University</p>
<p>Professor Andrew Millington, senior academic, School of Environment, Flinders University</p>
<p>Dr Fiona Miller, Senior Lecturer, Department of Geography and Planning, Macquarie University</p>
<p><a href="https://theconversation.com/profiles/ben-moore-12868">Dr Ben Moore</a>, senior lecturer of ecology, Hawkesbury Institute for the Environment, University of Western Sydney</p>
<p><a href="https://theconversation.com/profiles/barbara-norman-10158">Professor Barbara Norman</a>, Foundation Chair of Urban and Regional Planning, Director of Canberra Urban and Regional Futures, University of Canberra</p>
<p><a href="https://theconversation.com/profiles/bradley-opdyke-16851">Dr Bradley Opdyke</a>, Research School of Earth Sciences, College of Physical and Mathematical Sciences, Australian National University</p>
<p><a href="https://theconversation.com/profiles/sebastian-pfautsch-157153">Dr Sebastian Pfautsch</a>, Terrestrial Ecosystem Function and Integration. Hawkesbury Institute for the Environment, University of Western Sydney</p>
<p>Dr Linda Prior, forest ecology, tree growth and savanna ecology, School of Biological Sciences, University of Tasmania</p>
<p>Associate Professor Markus Riegler, Hawkesbury Institute for the Environment, University of Western Sydney</p>
<p>Dr Oz Sahin, Research Fellow at the Griffith School of Engineering, Griffith Systems Modelling Group, Griffith University</p>
<p><a href="https://theconversation.com/profiles/tapan-sarker-9851">Dr Tapan Sarker</a>, Department of International Business and Asian Studies, Griffith Business School, Griffith University</p>
<p>Professor Brajesh Singh, Functional microbial ecology, climate change and environmental biotechnology, Hawkesbury Institute for the Environment, University of Western Sydney</p>
<p><a href="https://theconversation.com/profiles/ben-spies-butcher-145">Dr Ben Spies-Butcher</a>, Senior Lecturer in Economy and Society, Sociology Department, Macquarie University</p>
<p>David Teather, Emeritus Professor and former Dean of Education and Health, University of New England, Armidale NSW</p>
<p>Emeritus Professor Matthias Tomczak, Oceanography, School of the Environment, Flinders University of South Australia</p>
<p><a href="https://theconversation.com/profiles/patrick-troy-101251">Emiratus Professor Patrick Troy</a>, Visiting Fellow, Fenner School of Environment and Society, Australian National University</p>
<p>Professor Martin Van Kranendonk, earth science, Archean tectonics, early life, global geodynamics, School of Biological, Earth and Environmental Sciences, University of NSW</p>
<p>Dr <a href="https://theconversation.com/profiles/haydn-washington-127130">Hayden Washington</a>, Visiting Fellow, Institute of Environmental Studies, University of NSW</p>
<p>Professor Adrian Werner, Hydrogeology, Chief Investigator, National Centre for Groundwater Research and Training</p>
<p>Professor Patricia Werner, plant population dynamics, Fenner School of Environment and Society, Australian National University</p>
<p>Dr Jonathan Whale, Senior Lecturer in Energy Studies and Renewable Energy Engineering, Murdoch University</p>
<p>Emeritus Professor Ian White, Vice-Chair (Asia-Pacific) UNESCO IHP Water Resources; Fenner School of Environment & Society, Australian National University</p>
<p>Dr Phillip Wild, Postdoctoral Research Fellow, Global Change Institute, University of Queensland</p>
<p><a href="https://theconversation.com/profiles/jane-williamson-97058">Associate Professor Jane Williamson</a>, Marine Ecology, Macquarie University</p><img src="https://counter.theconversation.com/content/38699/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Glikson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The 2015 Intergenerational Report underestimated the threat of climate change. An open letter from environmental and climate scientists.Andrew Glikson, Earth and paleo-climate scientist, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/385732015-03-10T22:39:01Z2015-03-10T22:39:01ZWe’re getting richer, so why shouldn’t Gen Y subsidise baby boomers?<figure><img src="https://images.theconversation.com/files/74263/original/image-20150310-13546-10exdr0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Generation Y should be able to afford a more expensive lifestyle than their baby boomer parents.</span> <span class="attribution"><span class="source">N i c o l a/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>A lot of public debate at the moment is focused on the issue of intergenerational fairness. People argue for instance that it is unfair for the baby boomers to pass debts on to the next generation.</p>
<p>According to the <a href="http://grattan.edu.au/report/the-wealth-of-generations/">Grattan Institute</a>: </p>
<blockquote>
<p>“The housing boom plus rapid increases in government payments on pensions and services for older people risks creating a generation of young Australians with a lower standard of living than that of their parents at a similar age. The generational bargain, under which each generation of working Australians supports retirees while still improving its own standard of living, is under threat.” </p>
</blockquote>
<p>This is probably completely wrong.</p>
<p>The <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">Intergenerational Report</a> makes the point quite clearly when it says that “Real gross national income (GNI) is projected to grow at 1.4% over the next 40 years … If this level of growth is achieved over the next 40 years, the average Australian income will increase from $66,400 today to $117,300 in 2054-55 in today’s dollars”. Quite simply the current generation is likely to be much richer than the baby boomer generation. </p>
<p>There are really three separate elements to the discussion: productivity, longevity and gender.</p>
<p>The Intergenerational Report (IGR) focuses on productivity. It points out that over recent decades the baby boomers have managed to raise their productivity by around 2.2% per year. This has led to very substantial increases in Australian living standards and means the next generation starts with a much higher standard of living than its parents started out with. Even though the IGR expects the next generation to increase productivity by smaller increments, down to 1.4% improvement per year, the next generation will have a much higher average annual income than the retiring generation, growing as it does and off a much higher base.</p>
<p>The big driver of these productivity gains is intellectual. Over time we have consistently learnt to work smarter, to produce more with less. And knowledge cumulates; we build on the shoulders of giants, so that breakthroughs lead to subsequent productive inventions, better machines and better processes.</p>
<h2>Living longer, with more choice</h2>
<p>The next generation will also have much longer lives than the baby boomers. A male born in 1950 had a life expectation at birth of 66.5 years: a male born in 2000 expects to live for 77.6 years. Eleven more years of adult life are a second valuable advantage the next generation has relative to the previous one. To the extent that people can now work longer, they have more productive years in which to generate income and wealth.</p>
<p>The statistics for females in terms of life expectancy are similar to males but there are two additional drivers. Females now have a much wider range of employment opportunities than did their mothers, with <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1314/QG/LabourForce">female labour force participation</a> more than doubling since the late forties. Female wages have also risen considerably faster than those of men over the period, rising from about 60% of male wages to over 80% currently [See The (2014) <a href="http://www.cambridge.org/au/academic/subjects/history/economic-history/cambridge-economic-history-australia">Cambridge Economic History of Australia</a> for data on female participation and wages].</p>
<p>The combination of these three factors means Gen-Ys will have much higher lifetime incomes than their parents.</p>
<p>As an illustrative calculation, compare a male born in 1950 with one born in 2000. For the calculation assume they each enter the workforce at age 20, and then work for 70% of their remaining life. This gives the baby boomer 32.5 years of work, and the millennium person 40.3 year of work. Wages have risen over time and are expected to continue to do so. We can just assume that for the 1950 baby wages rose at the rate of productivity growth of 2.2% per year, and for the future that wages will grow in line with the IGR report of 1.4% per year up to his retirement in the 2060s. This is all inflation adjusted.</p>
<p>The experiment suggests that the male born in 2000 will have three times the expected income of one born in 1950. For females, as suggested above, the gains are probably even greater.</p>
<p>While the numbers are conjectural, they do suggest that there is little doubt the current generation will be much richer than its predecessor. So what does intergenerational fairness mean?</p>
<p>If we accept the ethical principle that the rich should subsidise the poor, then logically later generations should subside their parents, and Gen Y should be subsidising the baby boomers.</p>
<p>We can complicate the issue by considering environmental issues, congestion and other factors which the next generation will have to deal with as negative offsets to their income gains. However the quantum of these effects would have to be very large to offset the direct income gains the current generation is most likely to enjoy.</p>
<p>There are other factors too, such as the reduced probability of world war, which the baby boomer generation has handed on to the next generation as a benefit which might be considered in a broader calculus. People growing to adulthood in the 1970s and 1980s certainly considered nuclear war likely, and that prospect has diminished to the considerable benefit of the next generation.</p><img src="https://counter.theconversation.com/content/38573/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rodney Maddock is a baby boomer.</span></em></p>If we accept that the rich should subsidise the poor, then Gen Y should be subsidising the baby boomers.Rodney Maddock, Vice Chancellor's Fellow at Victoria University and Adjunct Professor of Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/384932015-03-10T19:32:35Z2015-03-10T19:32:35ZFederal health spending is forecast to slow, but states face rising bills<p>The <a href="http://www.abc.net.au/news/2015-03-10/matthewson-three-jostling-budget-narratives/6291502">narrative for the upcoming budget</a> appears to be in a state of flux. Is it still to be “tough love” or “we’re from the government and here to help you”? </p>
<p>The framers of the <a href="https://theconversation.com/we-need-medicare-reform-but-co-payment-3-0-is-the-wrong-place-to-start-36508">health spending narrative</a> face the same quandary. For the last 15 months all we have heard is the “health system is unsustainable” discourse. However, last week’s <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">Intergenerational Report</a> delivered a confusing prediction: Commonwealth health expenditure will decline over the next two decades. </p>
<p>Previous <a href="http://grattan.edu.au/report/budget-pressures-on-australian-governments-2014/">Grattan Institute work</a> has shown health to be the fastest-growing area of government spending. And the reason for the shift in the 2015 Intergenerational Report is not changed assumptions, since the 2015 ones are <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/FlagPost/2015/March/IGR-Assumptions">very similar</a> to those in previous reports. So, how can this be? </p>
<p>The Intergenerational Report looks at the Commonwealth government’s finances, not the whole of the public sector: federal, state and local. It therefore presents only <a href="https://theconversation.com/time-to-rethink-the-charter-of-budget-honesty-37851">half the picture</a> and may leave Australians with a warped view of government finances.</p>
<h2>Projected health expenditure</h2>
<p>The Intergenerational Report is organised around three spending projections: two based on whether the 2014 budget measures are implemented and another, labelled “previous policy”. </p>
<p>Both the report’s “proposed policy” scenario and its “currently legislated” one show a remarkably different outlook for government health spending from previous intergenerational reports.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/74258/original/image-20150310-13546-wh0ko.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74258/original/image-20150310-13546-wh0ko.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=372&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74258/original/image-20150310-13546-wh0ko.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=372&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74258/original/image-20150310-13546-wh0ko.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=372&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74258/original/image-20150310-13546-wh0ko.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=467&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74258/original/image-20150310-13546-wh0ko.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=467&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74258/original/image-20150310-13546-wh0ko.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=467&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Intergenerational report projections of Commonwealth government health expenditure as share of gross domestic product.</span>
<span class="attribution"><span class="source">2015 Intergenerational Report/Grattan Institute</span></span>
</figcaption>
</figure>
<p>Following a decline in Commonwealth health expenditure over the next couple of decades, the report projects health will account for a much lower proportion of GDP than previously reported. </p>
<h2>Budget impact on the states</h2>
<p>The 2015 Intergenerational Report adopts the same mixed focus as the previous three: it looks both on the economy broadly and the Commonwealth budget specifically. It captures the big picture about ageing, productivity growth, GDP and so on. </p>
<p>Yet when it comes to budget impacts, it is truly myopic. It describes the impact on the Commonwealth budget with great clarity but its description of the impact on the budgets of the states and territories is so out of focus as to be non-existent. </p>
<p>This doesn’t matter for those areas of government expenditure that are solely the preserve of the Commonwealth, but it has a significant impact in areas of policy where responsibility is shared and there are significant intergovernmental transfers.</p>
<p>In 2014-15, the Commonwealth is <a href="http://www.budget.gov.au/2014-15/content/bp3/html/bp3_03_part_2a.htm">budgeted to transfer</a> A$46.3 billion to the states as specific purpose payments. Health grants will account for more than a third of the transfers (A$16.4 billion).</p>
<p>The 2014-15 budget took an axe to Commonwealth payments to the states for health care. It abruptly terminated grants to states under the ironically named <a href="http://www.federalfinancialrelations.gov.au/content/npa/health_reform.aspx">National Partnership Agreements</a>, and, from 2017, sliced more than $1 billion a year from public hospital grants through reduced indexation. </p>
<p>Because changes to state grants don’t require Senate approval, these cuts are incorporated in both the Report’s “currently legislated” scenario as well as in “proposed policy’.</p>
<p>The effect is that the Commonwealth appears to have its health outlays more or less under control. The problem for the states, however, is dire. </p>
<h2>Rising health costs</h2>
<p>Health spending as a share of state taxation revenue has already increased from about 18% in 2002 to 28% in 2012.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/74259/original/image-20150310-13550-15zc2pd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74259/original/image-20150310-13550-15zc2pd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=324&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74259/original/image-20150310-13550-15zc2pd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=324&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74259/original/image-20150310-13550-15zc2pd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=324&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74259/original/image-20150310-13550-15zc2pd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=407&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74259/original/image-20150310-13550-15zc2pd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=407&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74259/original/image-20150310-13550-15zc2pd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=407&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Health share of tax revenue.</span>
<span class="attribution"><span class="source">AIHW/Grattan Institute</span></span>
</figcaption>
</figure>
<p>The Premier of New South Wales, Mike Baird highlighted the health Commonwealth <a href="https://theconversation.com/in-conversation-with-mike-baird-full-transcript-38171">funding shift</a> in a recent interview: </p>
<blockquote>
<p>The biggest challenge facing this state and the nation is health funding. And what happened last federal budget is not sustainable. That was, the commonwealth and the federal government said "we are going to allocate a large part of the future growth in health costs from ourselves to the state governments”.</p>
<p>…The states do not have the capacity to meet those health costs on their own.</p>
</blockquote>
<p>The states have been sharing more and more of the hospital cost burden. In 2000-2001 the state share of public hospital costs was 51%. By 2012-13 it had risen to 59%. </p>
<p>Projections of <a href="http://www.aihw.gov.au/publication-detail/?id=6442468187">health spending growth</a> in 2008 predicted that state spending would double, in real terms, between 2012-13 and 2032-33.</p>
<p>It was obvious this was not sustainable. A new <a href="http://www.federalfinancialrelations.gov.au/content/npa/health_reform/national-agreement.pdf">National Health Reform Agreement</a> was negotiated and signed by the Commonwealth and all states and territories. A specific objective of the agreement was to:</p>
<blockquote>
<p>ensure the sustainability of funding for public hospitals by increasing the Commonwealth’s share of public hospital funding through an increased contribution to the costs of growth</p>
</blockquote>
<p>That agreement was ripped up in the 2014 budget.</p>
<p>Slashing more than A$1 billion a year from state hospital revenues, as the 2014 <a href="https://theconversation.com/budget-takes-hospital-funding-arrangement-back-to-the-future-26701">Commonwealth budget did</a>, will exacerbate the pressures state governments already face. The Commonwealth has simply improved its position by hurting that of the states. Shifting a problem does not solve it.</p>
<p>The 2015 Intergenerational Report, like its predecessors, gives only half the picture of health-care spending. If these reports are to <a href="http://www.theguardian.com/commentisfree/2015/mar/05/the-intergenerational-report-is-redundant-hockey-should-abandon-it">continue</a>, they must take a broader, national perspective, not merely the Commonwealth’s own interest.</p><img src="https://counter.theconversation.com/content/38493/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Duckett does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Commonwealth appears to have its health outlays more or less under control. The problem for the states, however, is dire.Stephen Duckett, Director, Health Program, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/384902015-03-10T00:15:23Z2015-03-10T00:15:23ZPopulation growth could go far beyond IGR projections<figure><img src="https://images.theconversation.com/files/74234/original/image-20150309-13579-1o5wp43.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Australia's projected population for 2050 in the fourth Intergenerational Report is 1.9 million larger than the 35.9 million projected by the third report.</span> <span class="attribution"><span class="source">AAP/Joe Castro</span></span></figcaption></figure><p>Intergenerational reports serve the important purpose of putting economic sustainability and demographic change on the policy agenda. The fourth <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">Intergenerational Report</a>, released late last week, projected Australia’s population to be growing – to 39.7 million – and ageing, with the above-65 age group rising to 22.5% by 2054-55. </p>
<p>But how appropriate are the report’s demographic assumptions? How would some of the economic outcomes differ under alternative demographic assumptions and over a longer timeframe? And should greater attention be paid to the potential consequences of population growth?</p>
<h2>The demographic assumptions</h2>
<p>The population projections underpinning the report illustrate the population trajectory that would result under constant annual net international migration of 215,000, a total fertility rate of 1.9 births per woman, and forecast male and female cohort life expectancies at birth increasing from 91.5 and 93.6 years in 2015 to 95.1 and 96.6 respectively in 2055.</p>
<p>The projected population for 2050 is 1.9 million larger than the 35.9 million projected by the third Intergenerational Report. This sparked the <a href="http://www.abc.net.au/news/2010-01-29/the-population-debate-do-you-want-a-big-australia/313846">“Big Australia” debate</a>.</p>
<p>The difference is primarily due to the fourth report’s higher assumed <a href="https://theconversation.com/why-our-big-australia-is-getting-bigger-20846">net international migration</a>.</p>
<h2>Are the population growth projections too conservative?</h2>
<p>The assessment of prospective population growth in the fourth report is too conservative, mainly because its immigration assumption is <a href="https://theconversation.com/why-our-big-australia-is-getting-bigger-20846">too low</a>. The report assumes immigration will be lower than recent departmental <a href="http://www.immi.gov.au/media/publications/statistics/immigration-update/nom-sep-2014.pdf">forecasts</a>. </p>
<p>Even though it assumes the unemployment rate will fall, the report does not allow for future immigration to be affected by a tighter jobs market or by the increasing numbers of baby boomer retirements and the larger population it projects.</p>
<p>The report assumes fertility will continue to be around its <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/3301.0Main+Features12013?OpenDocument">post-2010 level</a>. Following the global financial crisis, fertility declined not only in <a href="https://theconversation.com/time-to-put-baby-bonus-myths-to-bed-10320">Australia</a>, but also in much of Europe and the US. Australia’s post-2010 fall in birth rates is due to reduced fertility below age 30. This may reflect a postponement of births, as research suggests is the case <a href="http://www.demographic-research.org/volumes/vol31/23/31-23.pdf">in Europe</a>. </p>
<p>A small recovery in fertility could be <a href="http://www.planning.nsw.gov.au/Portals/0/Fertility-Levels-and-Intentions-in-New-South-Wales_Accessible.pdf">in prospect</a> as previously postponed births eventuate – especially if, as the report assumes, the economy strengthens. </p>
<p>The report’s forecast life expectancies are consistent with recent <a href="http://www.tandfonline.com/doi/abs/10.1080/00324728.2012.689316#.VPkw0vmUeSq">research</a>. Despite its high and rapidly increasing life expectancies, Australia’s population is likely to remain one of the youngest in the OECD.</p>
<h2>The benefits of a youthful migrant intake</h2>
<p>In theory, “best policy” should be assessed relative to the entire future, as opposed to just the 40 years considered by the Intergenerational Report. Demographic changes that affect reproduction will have flow-on effects over the entire future.</p>
<p>Under higher migration levels, per capita living standards would be higher in 2055. The percentages of GDP spent on health, aged care and pensions would be lower compared to under lower migration, according to the report. Higher immigration creates a more economically favourable proportionate population age structure than lower immigration due to the high concentration of newly arrived migrants in the younger working ages. </p>
<p>Beyond 2055, the annual benefits from the age structure-related effects of higher immigration are likely to diminish. Between 2015 and 2055, the vast majority of the additional population which would result from higher immigration will still be below the retirement age. Beyond 2055, progressively larger shares of migrants and their descendants will enter older age. </p>
<p>My <a href="http://www.demographic-research.org/volumes/vol31/11/31-11.pdf">research</a> with Ross Guest shows the benefit of higher immigration to the employment-to-population ratio starts to diminish after 43 years.</p>
<h2>One for the country?</h2>
<p>The report projects a lower GDP per capita would result in 2055 under higher fertility than under lower fertility. This appears at odds with former treasurer Peter Costello’s <a href="http://www.theage.com.au/articles/2004/05/14/1084289883805.html?oneclick=true%28">playful urging</a> to Australians in 2004:</p>
<blockquote>
<p>You should have one [child] for the father, one for the mother and one for the country. If you want to fix the ageing demographic, that’s what you do.</p>
</blockquote>
<p>As shown by <a href="http://www.demographic-research.org/volumes/vol31/11/31-11.pdf">my research</a>, the negative effect of higher fertility on GDP per capita is likely to diminish over time, as the additional population resulting from the higher birth rates increasingly spreads beyond the child ages.</p>
<p>If, instead of a per capita basis, denominators that reflect the greater health and other needs of older age groups relative to the young are considered, my research shows the age structure-related effect of higher fertility could become positive in the longer run. </p>
<p>The Intergenerational Report’s projected benefit to GDP per capita from the age-structure-related consequences of higher immigration would have been diminished, and the cost of higher fertility increased, by the trend towards a later pattern of workforce participation and the measures to reduce ageing-related costs which it illustrates.</p>
<h2>Towards a ‘Huge Australia’?</h2>
<p>The modest age-structure-related benefits of higher immigration need to be weighed against its substantial long-run population size consequences. </p>
<p>If net immigration and fertility were to continue indefinitely at the report’s assumed annual levels of 215,000 and 1.9 births per woman respectively, and (just) the current (period) life expectancy were to prevail, then over the very long run Australia’s population would grow, ever more gradually, towards roughly <a href="http://www.demographic-research.org/volumes/vol26/14/26-14.pdf">143 million</a>. Clearly, such growth would transform the life conditions of future generations.</p>
<p>Future reports should incorporate more discussion of the challenges posed by the population size trajectories they project, how best to accommodate growth and the desirability and feasibility of changing the course of population growth.</p><img src="https://counter.theconversation.com/content/38490/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nick Parr previously received funding from the ARC and the NSW Department of Planning and Environment.</span></em></p>How appropriate were the fourth Intergenerational Report’s demographic assumptions? Should greater attention be paid to the potential consequences of population growth?Nick Parr, Associate Professor in Demography, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/377162015-03-08T19:03:20Z2015-03-08T19:03:20ZIt’s an age-old problem we still haven’t tackled<p>According to the 2015 Intergenerational Report, by 2054 our public debt level will be somewhere around about Japanese or Italian levels (see Chart 2.5 of the <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">Report</a> if you want to be scared). </p>
<p>But then what do I care, I’ll be in my 90s by then, and the good thing is that nothing much will have changed. I’ll still be able to get a pension, as the nice little story in the Intergenerational Report about “Kathleen and Steve” assures me.</p>
<blockquote>
<p>Kathleen and Steve are 68, own their home and have $1.1 million in superannuation, shares and bank accounts. They have no other income. They will receive a part-rate pension.“ </p>
</blockquote>
<p>Phew. Only $1.1 million. How do they get by? Sure need that pension. Behind all of the projections and big debt and deficit numbers there is really just one big question in the IGR. The question is what kind of economy do we want in 2054? Do we want to look like Japan or Western Europe today – old, sclerotic and bankrupt? Or do we want to rethink the policies that most OECD economies are continuing to persist with, despite their clear evidence of failure? Are we willing to promote self reliance and a culture of work, rather than reliance on government to support our ageing bodies?</p>
<p>We can afford the status quo. We can continue to fund Kathleen and Steve’s pension, and their rising health care costs, and as the population ages the burden on a smaller and smaller share of the population who are working must continue to rise. </p>
<p>This is the European solution. Rising taxes, rising public sector deficits and debt, and dead economies. Pensions for Kathleen and Steve worked fine when pensions were introduced in Australia early last century. That’s because almost all Kathleen and Steves were long gone by the time they were 68. And if they did manage to last that long the odds were that they weren’t going to last much longer. Small pension costs, small health care costs and a rising working age population to pay for a few oldies.</p>
<p>By 2054 there will be millions of Kathleen and Steves. Sure, Kathleen and Steve paid taxes while they worked, but the point of government is not to recycle their tax money back to them. The purpose of taxation is to pay for public goods, and to support those genuinely in need. </p>
<p>Some people should pay taxes over their lifetime, and the less fortunate should receive transfers. But we can’t afford to churn tax receipts to the majority of citizens over the course of their lifetime because the IGR tells us what every demographer worth her salt knows – that not enough of us are dying.</p>
<h2>Four reports, all saying the same thing</h2>
<p>We have now had four IGRs and they’ve all said pretty much the same thing. We’re getting older, and as a result our health and pension costs will continue to rise, but also our economic growth will slow down as the demographic dividend of rising labour force participation disappears. Despite the warnings in the IGRs, we have not gotten close to controlling the two main costs associated with an ageing population. This is perhaps not surprising in a world where the aged vote, our voters are getting older, and our politicians pander relentlessly to the median voter, but this mix is a recipe for an impoverished Australia.</p>
<p>Economic projections over a long time horizon are fraught with difficulty, but some general trends are reasonably straightforward to predict. The 2002 report predicted that by 2012 Australia’s population would be 21.5 million, with 14.6 million in the working age range. The actual population was 22.7 million during 2012, with the fraction of the population of working age slightly above the IGR forecast. The 5% underestimate of the population was mostly due to immigration rates being higher than predicted, and with immigrants being younger on average than the non-migrant population the result was also a slightly higher fraction of the population of working age.</p>
<p>Immigration rates in the future are a little bit difficult to predict, but it is pretty certain that average life expectancy will continue to rise, and the total fertility rate will remain below the replacement rate, so that the share of the population of working age will continue to fall. The result will be rising health and other age related costs which were predicted in 2002 to rise from 6.9% of GDP to 12.7% of GDP by 2042. </p>
<p>While the demographic projections have been reasonably accurate to this point, the economic forecasts have been far too optimistic. Actual budget outcomes in the areas of health and aged spending have deteriorated more rapidly than projected, and with the global financial crisis and the recent falls in the terms of trade the actual budget outcomes in recent years have been well behind forecasts.</p>
<h2>Status quo is not an option</h2>
<p>What can be done about this problem? One option is the status quo. Assuming that GDP continues to grow, a rising welfare and health burden can be dealt with through increasing tax revenues and government expenditure. This option will see living standards decline dramatically in the coming decades relative to where they should be, so that the opportunities for our children will be far less extensive than they should be. Rising tax burdens stifle innovation and entrepreneurship, and our new competitors in the more dynamic emerging markets will increasingly occupy spaces that Australians should also enjoy.</p>
<p>What can be done to control these costs? In regard to both health and aged care spending, government spending must be provided only to those who are in need of assistance. Pension tests are still far too lenient, with many pensioners who receive some assistance such as Kathleen and Steve clearly capable of caring for themselves. </p>
<p>Relatedly, anyone who receives any pension also receives very substantial health benefits and other subsidies. Over the past decade the government’s share of total health spending has risen. Private contributions to health need to be increased in future, notwithstanding the botched attempt to introduce co-payments in the last budget.</p>
<p>The IGR is a well intentioned attempt to get politicians to look beyond the next news cycle to the bigger economic issues facing Australia in coming decades. The IGR had identified the major challenges facing us. Unfortunately she’ll not be right. There does need to be a major rethink about the shape or our economy in coming decades. On evidence of our policy efforts since the first IGR in 2002 I am not optimistic that our politicians are up to the challenge.</p><img src="https://counter.theconversation.com/content/37716/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Crosby does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We have now had four IGRs and they’ve all said pretty much the same thing. Time to tackle the age-old problem.Mark Crosby, Associate Professor of Economics, Melbourne Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/378512015-03-06T02:24:52Z2015-03-06T02:24:52ZTime to rethink the Charter of Budget Honesty<p><a href="http://www.comlaw.gov.au/Details/C2012C00230/Html/Text">The Charter of Budget Honesty</a>, passed when Peter Costello was treasurer in 1998, introduced a number of innovations to fiscal reporting and strategy. The Pre-election Economic and Fiscal Outlook (PEFO), regular intergenerational reports (IGRs), and a medium-term fiscal strategy were all included in the Charter. After 17 years, are these measures supporting sound fiscal policy? There’s plenty of room for improvement.</p>
<h2>Pre-election Fiscal and Economic Outlook</h2>
<p>The PEFO is produced by the Treasurer’s advisers. It is intended to provide an apolitical view of the fiscal and economic situation at the time of federal elections. Although it does not get the attention it deserves in the election campaign, and afterwards, it serves a useful brake on some of the more extravagant claims of government and opposition.</p>
<h2>Intergenerational Reports</h2>
<p>By contrast, the IGR is the Treasurer’s document. In providing 40-year projections, Mr Hockey can choose which measures to include in the projections, which issues to discuss, and the assumptions to make regarding demographic change, economic growth, and so on. As a result, projections in successive reports can vary widely, reflecting political requirements of the time.</p>
<p>Political messaging sometimes gets the better of even short-term forecasts – Agriculture Minister Barnaby Joyce’s forecast of a A$100 leg of lamb after the carbon tax provides a colourful illustration. When it comes to 40-year projections the effects of even a small degree of political influence can lead to major changes to long-term outcomes.</p>
<p>The effects of massaging could be reduced by following New Zealand, where the long-term projection model is a <a href="http://www.treasury.govt.nz/government/fiscalstrategy/model">public document</a> and analysts can use it to test alternative assumptions.</p>
<p>But this is not the only problem.</p>
<p>Given the uncertainty involved, a 40 year time horizon is far too long. The impact of fiscal policy changes can only be effectively assessed over a much shorter period.</p>
<p>Second, the federal IGR is silent on the implications of the projections for the financial position of the States. Over long time horizons, federal and state governments are joined at the hip. It is misleading to treat them as being independent. For example, the present IGR assumes that from 2017-18 onwards, real per person funding from the Australian government for public hospitals will remain constant. The burden falling on State budgets is likely to rise rapidly. What appears to be a positive outcome for the federal IGR is a negative long-run outcome for the States.</p>
<p>A related point concerns the treatment of infrastructure. For example, the accounting treatment in the IGR excludes funding for NBN Co. It also effectively excludes infrastructure spending funded by the Commonwealth but undertaken by the States – these are treated as current spending in the Commonwealth accounts.</p>
<p>The treatment of infrastructure is important because, as popularly conceived, equity requires that future generations don’t pay for our day-to-day spending. The golden rule of fiscal policy requires current generations to pay for day-to-day spending, including depreciation of infrastructure and interest on debt. Additions to long-lasting infrastructure which yield a return greater than the cost of capital (giving benefits to future generations) are financed by issuing debt.</p>
<p>It would be helpful, therefore, if the IGR focus on net debt were supplemented by data on infrastructure spending by, or on behalf of, the Commonwealth.</p>
<h2>Medium-Term Fiscal Strategy</h2>
<p>The third innovation in the Charter was to set the objective for fiscal strategy of “achieving budget surpluses, on average, over the economic cycle”. This sits oddly with the requirement to produce an intergenerational report. Were the medium-term strategy to be achieved, there would be no need for an IGR, at least from a budgetary point of view.</p>
<p>The medium-term strategy should be strengthened and given more emphasis than the IGR. A fixed time horizon should be chosen – say ten years. This would overcome the problem that the length of an economic cycle cannot be predicted with any accuracy and, even in hindsight, cycles are not unambiguously defined.</p>
<p>A classical economic cycle measures the interval between two recessions; in turn, a recession is indicated by two consecutive quarters of negative real GDP growth. The current, incomplete, cycle in Australia began in March 1992, an interval of 23 years. Since then, there have been quarters in which growth has fallen well below trend, but none in which real GDP has declined.</p>
<p>Alternatively, a “growth cycle” measures the interval between two periods in which real GDP growth falls below trend. Taking the 25-year average as a measure of trend, there have been five and possibly six cycles since 1992.</p>
<p>Adopting a fixed, policy relevant, time horizon would avoid these problems. Making the projection model publicly available would promote apolitical analysis. Distinguishing between current and capital expenditure would help discussion of intergenerational equity. One last problem – how to produce fiscal projections in a federation. That’s a tough one.</p><img src="https://counter.theconversation.com/content/37851/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Graeme Wells does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Forecasts released under the Charter of Budget Honesty are on the wrong time horizon and need greater transparency.Graeme Wells, University Associate, School of Economics and Finance, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/384942015-03-06T01:01:37Z2015-03-06T01:01:37ZVIDEO: Michelle Grattan on the Bali Nine executions<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/P2laU859ofU?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>University of Canberra Vice-Chancellor Stephen Parker and Professorial Fellow Michelle Grattan discuss the week in politics including impending execution of Australians Andrew Chan and Myuran Sukumaran in Indonesia, the release of the intergenerational report and the ruling out of an early leadership spill.</p><img src="https://counter.theconversation.com/content/38494/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>University of Canberra Vice-Chancellor Stephen Parker and Professorial Fellow Michelle Grattan discuss the week in politics.Michelle Grattan, Professorial Fellow, University of CanberraStephen Parker, Vice-Chancellor, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/384372015-03-06T00:32:36Z2015-03-06T00:32:36ZThe IGR focuses on the old, when the future belongs to the young<figure><img src="https://images.theconversation.com/files/74008/original/image-20150306-3314-1eqlcji.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Australia is experiencing a baby 'boom', with 13% more babies born between 2003 and 2012 than in the previous decade.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/lonfong/5635564997/in/photolist-9zZK8K-dasc5u-fGmoAN-iM53i-85zEys-m1CDgf-eiAs6C-eKs4E2-5dCocV-eKyYiQ-eKnxxk-55wwUi-auTHk9-m1CDn7-3aJy4d-mkKvsR-paeje-asmM8n-8vVqqW-n3L2s6-9Ssqt8-6B5QMD-7orQvd-35v9m-m1BNgF-aE1WZH-569jnn-9yAr3e-asmpD4-cqJa11-55QXwv-cTxB5-cA4usd-bp56g-k9uGjf-22nqiw-bpfzWX-gjdH68-ofFjvw-gXYFdk-adhkd4-pNBdDL-8yQxKj-55Njpf-6tJikW-dyBP5f-aspDnL-aspvvW-nNvp7w-8rq5hu">Flickr/Lon Martin</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Releasing Australia’s fourth <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">Intergenerational Report</a>, Joe Hockey described it as the “social compact between generations”, which would help “identify where the future opportunities will be” and “unlock the immense potential of our future”. According to the Treasurer, these opportunities are to be found in Australia’s older population - a “grey army” to drive productivity and prosperity. </p>
<p>By 2055, however, the large majority of Baby Boomers who make up this “grey army” of workers will no longer be alive. The remaining Boomers who by then will be aged somewhere between 70 and 90 will be highly unlikely or unable to contribute to the labour market in a productive manner. Any suggested increases in the labour force participation amongst this group are of course on the condition that this generation is willing to (re)negotiate with the government to work beyond the long held idea of retirement at 65. A prospective that seems <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Previousproducts/6238.0Media%20Release1July%202010%20to%20June%202011?opendocument&tabname=Summary&prodno=6238.0&issue=July%202010%20to%20June%202011&num=&view=">unlikely</a>. </p>
<p>The 2015 Intergenerational Report misidentifies future opportunities for greater productivity and labour force participation by looking to the past and not to the future. As with the previous <a href="http://archive.treasury.gov.au/igr/igr2010/report/pdf/IGR_2010.pdf">2010 Report</a>, the 2015 IGR stubbornly and somewhat blindly focuses on the current workforce and ways to improve older and female labour force participation. </p>
<p>Aside from avoiding “entrenching disadvantage over the longer term” and a generalised statement to “support human capital formation, improved productivity and labour market outcomes and social opportunity”, there is a complete lack of acknowledgement of the fiscal and economic opportunity attached to investing in younger and future generations.</p>
<p>By ignoring the youth dimensions of the Intergenerational Report, the government squanders the opportunity to address a number of policy issues concerning younger (and future) Australians that are critical to future productivity and labour force participation, namely employment and education. </p>
<p>Youth unemployment has doubled in the last seven years from 7.5% in 2008 to 14.2% at the start of this year. There is no solution within the IGR other than to ensure young Australians make the transition from education and training to the labour market. </p>
<p><a href="http://www.bsl.org.au/fileadmin/user_upload/files/campaign/The_teenage_dream_unravels_trends_in_unemployment_MAR2015.pdf">Evidence</a> from the Brotherhood of St Laurence found that between 2010 and 2015, there was an increase in the proportion of those unemployed with tertiary education. Conversely, the unemployment rate for those without Year 12 qualifications decreased over a similar period. This suggests that education and training-to-workforce transitions are more complex that previously thought.</p>
<p>Youth are the future labour force; they are key drivers of the very issues outlined in the IGR - productivity and labour force participation. As the CEO of the Brotherhood of St Laurence Tony Nicholson has pointed out, “youth unemployment is a key intergenerational issue. We need to tap into the productive potential of young people to secure future economic prosperity”.</p>
<p>But it is not just the young workforce of today that the IGR has forgotten, but also the young workforce of tomorrow. This lack of interest is perhaps predicated on a misunderstanding of current fertility trends. While the proportion of the younger population is projected to decline relatively to the older population by 2055, the number of young will continue to increase. </p>
<p>While the IGR asserts that “over the coming decades younger people will make up a smaller proportion of the population…[and] a smaller proportion of the population likely to be engaged directly with education, especially in the primary and secondary sectors”, Australia is currently experiencing a baby boom, creating a “young army” of future workers. </p>
<p>Between 2003 and 2012, more than 2.8 million babies have been born, an increase of almost 13% on the previous decade. </p>
<p>This generation, which we have previously termed <a href="https://theconversation.com/baby-boomers-be-nice-to-your-grandkids-they-may-save-australia-32629">‘Generation Thank God You’re Here (TGYH)’</a> is larger in size than previous generations. In the coming decades, this generation will move through both the primary and secondary education sectors and be our future workforce. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/74011/original/image-20150306-3289-1ntcdm7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74011/original/image-20150306-3289-1ntcdm7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=359&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74011/original/image-20150306-3289-1ntcdm7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=359&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74011/original/image-20150306-3289-1ntcdm7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=359&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74011/original/image-20150306-3289-1ntcdm7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=452&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74011/original/image-20150306-3289-1ntcdm7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=452&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74011/original/image-20150306-3289-1ntcdm7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=452&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Source: ABS, Births(2012), Australia, Cat, Not. 3301.0., Australian Historical Population Statistics, (2008), Cat. No. 3105.0.65.001.</span>
</figcaption>
</figure>
<p>As the proportion of the population who will be the future workforce gets smaller, the risk of not investing in these future generations for maximum productivity is heightened. Generation TGYH is critical to Australia’s future prosperity: they will enter the labour market just as the oldest of the Baby Boomer generation begin to retire. </p>
<p>However, as we have cautioned before, they will be unable to fill the gaps left by the Baby Boomers unless they are sufficiently educated and trained. This scenario is unlikely given that future expenditure on education and training will <a href="http://www.theaustralian.com.au/national-affairs/intergenerational-report-education-spending-to-flatline/story-fn59niix-1227249085051">decrease</a> over the long-term should the Coalition implement its schools and higher education policies. These policies are largely at odds with the rhetoric of both Joe Hockey and the IGR report.</p>
<p>But if the Treasurer really wants as he says, entrepreneurial, innovative, skilled and productive future workers, then this current government and future ones will need to invest in both the education of today’s and future generations and provide better support in making the transition from school to work. Young and future generations need to be at the forefront of policy development. This is the only way Hockey’s prediction of future generations being “luckier” than the current generation will come true.</p><img src="https://counter.theconversation.com/content/38437/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Releasing Australia’s fourth Intergenerational Report, Joe Hockey described it as the “social compact between generations”, which would help “identify where the future opportunities will be” and “unlock…Brendan Churchill, Associate Lecturer in Sociology, University of TasmaniaLisa Denny, Demographer/PhD Candidate, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/382952015-03-05T19:28:29Z2015-03-05T19:28:29ZIntergenerational Report lays uneven path for tough policy choices<figure><img src="https://images.theconversation.com/files/73902/original/image-20150305-1916-pemcjc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The three scenarios in Joe Hockey's Intergenerational Report present very different pictures of the future budget situation.</span> <span class="attribution"><span class="source">AAP/Lukas Coch</span></span></figcaption></figure><p>The <a href="http://www.treasury.gov.au/Policy-Topics/PeopleAndSociety/Intergenerational-Report">2015 Intergenerational Report</a> has been interpreted by some as presenting a gloomy picture of Australia’s future. However, the report delivers a range of very good news. Our children and grandchildren will be living longer than us and, on average, they will be much better off in material terms.</p>
<p>The report projects that a girl born in 2055 could expect to live 96.6 years compared to 93.6 years for a girl born in 2015. For boys, the corresponding increase in life expectancy at birth by 2055 is from 91.5 to 95.1 years.</p>
<p>Australia will be a much richer country than it is now. Productivity growth is assumed to be 1.5% per year on average, which would lift real Gross National Income (GNI) per person from around A$66,400 in 2014-15 to A$117,300 in 2054-55. </p>
<p>Using the assumption specified in the report, real Male Total Average Weekly Earnings (MTAWE) – the benchmark currently used to index Age and Disability Pensions and some other payments – would rise from around $71,500 now to close to $128,000 in 2054-55. </p>
<p>On average, then, Australians – particularly those employed – will be better off in real terms by more than 75%.</p>
<p>Nevertheless, the Intergenerational Report shows that Australia faces an extended period of difficult social policy choices.</p>
<p>The report presents three scenarios. One is said to be based on “previous policy” – although this is <a href="http://www.chrisbowen.net/media-centre/media-releases.do?newsId=6952">disputed</a> by shadow treasurer Chris Bowen. A second scenario is based on “currently legislated” policies that have been passed by the federal parliament. A third scenario is based on “proposed policy”, which assumes full implementation of the 2014-15 budget, or “alternative measures of equivalent value”.</p>
<p>These three scenarios present very different pictures of the future budget situation. </p>
<p>In the first scenario, the underlying federal government cash deficit would reach 11.7% of GDP; net debt would reach 122% of GDP. In the second, the deficit would be around 6% of GDP; net debt would be close to 60% of GDP. </p>
<p>In the third scenario, there would be a surplus of 1.4% of GDP in 2039-40, falling somewhat thereafter. Net debt would be zero by 2031-32, before declining further (assets would exceed debt).</p>
<p>However, some of the necessary assumptions used to generate these scenarios have desirable budgetary outcomes but very unpleasant outcomes for the poor.</p>
<h2>What does it mean for the Age Pension?</h2>
<p>One of the biggest savings proposals in the 2014-15 budget was to change the indexation of the Age and other pensions to be only in line with increases in the Consumer Price Index (CPI) rather than the higher of MTAWE or the Pensioner and Beneficiary Price Index. </p>
<p>Interestingly, the report assumes that once the budget reaches a surplus of 1% of GDP in 2028-29, a future government will return to wage indexation of pensions. However, strictly speaking, this is what not the proposed budget policy would do since there was no “sunset clause” in it.</p>
<p>Following this assumption, the base rate of the Age Pension for a single person would fall from about 28% of MTAWE currently to just under 24% in 2029 and be stable thereafter. The total pension package including supplements is higher. But because these supplements are already only increased in line with the CPI or not indexed at all, the total payment would fall from 31% to 25% of MTAWE.</p>
<p>However, if a future government failed to change the indexation back to wage rates, by 2055 the single rate of Age Pension would fall to not much more than 16% of average wages. This is a level considerably lower than at any time in the <a href="https://www.dss.gov.au/about-the-department/publications-articles/research-publications/social-policy-research-paper-series/number-6-trends-in-the-incomes-and-living-standards-of-older-people-in-australia?HTML">last 50 years</a>.</p>
<h2>What for the unemployed?</h2>
<p>Even more worryingly, all the scenarios – as in <a href="http://archive.treasury.gov.au/igr/">previous</a> intergenerational reports – properly assume the continuation of existing policies for the indexation of working-age payments and family payments.</p>
<p>What this means is that while the average worker is projected to be 75% better off in real terms by the middle of the 21st century, the unemployed would be relatively worse off. A single person relying on Newstart would see their payment fall from just under 19% of MTAWE currently to around 10.5% in 2054-55. </p>
<p>Given that the <a href="https://theconversation.com/paltry-newstart-allowance-is-fast-becoming-a-poverty-trap-6218">current level of Newstart</a> is already recognised as inadequate, we could ask whether these projected future levels of payments would be socially acceptable in the much richer country that Australia is likely to be.</p>
<p>It is also worth noting that the report assumes that the unemployment rate stays at around 5% over most of the projection period. According to the report, this rate is:</p>
<blockquote>
<p>… the lowest sustained unemployment rate that does not cause inflation to increase. </p>
</blockquote>
<p>In addition, the “proposed policy” scenario assumes the implementation of a six-month waiting period for Newstart for unemployed people under 30 years of age. As I have previously <a href="http://insidestory.org.au/the-budget-fairness-and-class-warfare/">explained</a>, unemployed people under 30 receive under 1% of total budget spending, but are the source of close to 10% of proposed expenditure savings in the 2014-15 budget.</p>
<p>So, the current and previous reports assume fairly constant unemployment, but with the ongoing impoverishment of those who experience it and the potential halving of support for some of the most vulnerable unemployed. This is the path the government sees as the way back to surplus.</p>
<p>The then-Labor government’s <a href="http://www.openforum.com.au/content/growth-middle-class-welfare-fact-or-fiction">2009-10 budget</a> changed the indexation of Family Tax Benefits from wages to prices. Under the same assumptions shown above, Family Tax Benefit Part A for the lowest-income families would also nearly halve relative to wages over the period up to the middle of the century. This might lead to an increase in the <a href="https://theconversation.com/australia-bucks-child-poverty-trend-but-the-future-looks-a-lot-bleaker-33456">depth of child poverty</a>.</p>
<p>Under both the “previous policy” and the “currently legislated” scenarios, spending on working-age payments fall from 2.8% to 2.6% of GDP. Spending on families falls from 1.8% to 0.9% of GDP. But under the “proposed policy” scenario, the falls are larger – to 2.4% of GDP for working-age payments and to 0.8% of GDP for family payments.</p>
<p>If the implicit distributional outcomes of these spending trends are unacceptable in a society as rich as Australia, we need to recognise that these projected falls in expenditures may not happen. This means that the report may actually be underestimating the scale of the budgetary challenges ahead.</p>
<p>Australia has a very real dilemma in cutting spending on social security. Because the Australian social security system targets lower-income groups more effectively than any other rich country, cutting social security benefits would <a href="http://www.oecd-ilibrary.org/economics/the-equity-implications-of-fiscal-consolidation_5k4dlvx2wjq0-en">increase income inequality</a> more than anywhere else in the OECD.</p>
<p>UNSW’s Rafal Chomik has <a href="https://theconversation.com/the-intergenerational-report-and-reforming-the-age-pension-38056">pointed out</a> that, in relative terms, the proposed changes to indexation of payments and the proposed increase in the Age Pension age to 70 would actually have the most negative impact on the poorest pensioners. Greater targeting of payments is always possible, but the scale of potential savings is unlikely to be as substantial.</p>
<p>Social sustainability is an essential part of the debate Australia needs to have about the future of spending and taxation. The projected deficits in the report also reflect the assumption that the projected Commonwealth tax-to-GDP ratio stays constant at 23.9% of GDP from 2020-21 onwards.</p>
<p>In addition to having an open and serious public discussion of how to target Australia’s social spending better, we need to look at the revenue requirements necessary to fund social and government spending more broadly. As my colleague <a href="https://theconversation.com/its-time-to-choose-what-kind-of-tax-system-we-want-38050">Miranda Stewart</a> has argued:</p>
<blockquote>
<p>Since federation, the Australian community has made broad choices about government expenditures, redistribution and taxes. It’s time to do it again.</p>
</blockquote><img src="https://counter.theconversation.com/content/38295/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Whiteford receives funding from the Australian Research Council. He is an independent member of the Sustainability Committee of the Board of the National Disability Insurance Agency.</span></em></p>The Intergenerational Report may actually be underestimating the scale of the budgetary challenges ahead.Peter Whiteford, Professor, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/383792015-03-05T19:28:06Z2015-03-05T19:28:06ZSuperannuation missing from the IGR’s ageing narrative<figure><img src="https://images.theconversation.com/files/73905/original/image-20150305-17474-1xvuufi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Puzzling omission: the Intergenerational Report is light on detail about the future of superannuation. </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/lizadaly/2944376209/in/photolist-5ubGt4-86G1RV-kSbSA-5ubRQX-81wTMa-cAgtQs-a5E3tn-9VEPNM-4fiwA7-2saPB2-9VEP7K-iCwoFe-7YdriJ-5ug6uo-5ubCmB-2amqzF-5ugeqj-2Sa9io-kSbQy-kUtVs-kN3AE-5st2qA-7GPZjM-5vZeKj-7GPZ5M-52UX7B-3zz8tA-8oaHn-8oYiH-vESM9-5PEzDi-6Nwe3i-iDkCXp-47cgC2-9VHErA-4rhXqm-hGHh1x-5ubKtR-9VEPCX-cUQNWf-DvtpY-2Nr3y-2NqCH-47cgC4-efqP7-8oYj3-HSAXL-9VHEM3-4rdx1g-4rhkDE">Flickr/Liza</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>The 2015 Intergenerational Report makes it clear that Australia will have an ageing population by 2055 and the undeniable fact that we are living longer. Life expectancy will, by 2055, be well into the 90s. It is also predicted that the participation rates of people aged 65 and over will increase significantly from 12.9% in 2014-2015 to 17.3% in 2054-55. </p>
<p>The report notes that this will provide a significant opportunity to benefit from the wisdom and experience of older Australians. What it is also means is that these older working Australians will contribute to income tax revenue receipts for the Australian Government. </p>
<p>What does this then means for the expenditure side for the Government, with respect to the aged pension and the elephant in the room – superannuation? </p>
<p>The 2015 Report notes that around 70% of people of Age Pension age were receiving the Age Pension. Of these, 60% were in receipt of the full rate pension. It is predicted that the proportion of part-pensioners relative to full-pensioners is expected to increase, although the proportion of retirees receiving any pension is not projected to decline.</p>
<p>The really interesting issue relates to how the superannuation system will fit into this overall mix. The 2015 report is very light on with relevant details. This is a major weakness in the report, considering that the superannuation system is a critical element of how an ageing population can retire comfortably and reduce reliance on the aged pension from the Government.</p>
<p>The report notes that as Australians receive compulsory superannuation contributions for longer periods of their working lives, they are likely to retire with higher superannuation balances. This is particularly true as the amounts in superannuation are vested until the age of 55, increasing to the age of 60. So it is fair to say that Australians will have a higher superannuation fund balance in 2055 than they currently have in their funds. </p>
<p>The report states that the median account balance for a person aged 60 or over in the accumulation phase in 2011-12 is around $95,000. This is clearly not enough to be self-sufficient in retirement. So there is no doubt that the balances will be much higher by 2055. The report does not estimate what that balance might be by 2055.</p>
<p>Why? The answer could be that the Australian government is signalling that the superannuation system is about to the reviewed and that the tax concessions that favour superannuation are to be clawed back. The report actually notes that the government will consider several aspects of the superannuation system as part of the review of the tax system. </p>
<p>Presumably this is a reference to the impending White Paper on the tax system, which is already overdue. There is little doubt that the government has in its sights the current very generous tax concessions, which allows superannuation fund earnings to accrue with a minimal 15% tax rate and to allow substantial contributions to be made also at only 15%.</p>
<p>The real area that could be targeted is the fact that most superannuation benefits to those aged over 60 are tax exempt. Considering that the report notes that we have an ageing population and that those older Australians will continue to work then there is clearly an opportunity for such older Australians to put earnings into a superannuation fund, only be taxed at 15% within the fund and then receive tax free benefits when the amounts are withdrawn. </p>
<p>This is clearly a target area for the government and the report is laying the ground work for such a review. The Report also suggests that the Government is reviewing the manner in which the superannuation system can transform the superannuation fund pot of money into a retirement income stream. That is force older Australians to take their superannuation benefits as an income stream rather than as a lump sum.</p>
<p>Superannuation will be a major policy area for the government in the near future and it is a shame the 2015 Report provides very little guidance on preparing for that future.</p><img src="https://counter.theconversation.com/content/38379/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael William Blissenden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A discussion about what superannuation will look like in the future is essentially from the Intergenerational Report.Michael William Blissenden, Associate Professor in Law, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/383712015-03-05T19:27:48Z2015-03-05T19:27:48ZClimate is an intergenerational issue, but the report ducked it<p>The <a href="http://www.treasury.gov.au/%7E/media/Treasury/Publications%20and%20Media/Publications/2015/2015%20Intergenerational%20Report/Downloads/PDF/2015_IGR.ashx">2015 Intergenerational Report</a> (IGR) fails to engage with the likely impacts of global warming on Australia’s economy, society and environment. In this sense, it is detached from a reality that is far more challenging than Treasurer Joe Hockey dares to represent.</p>
<p>This is not wholly surprising. Most countries that have adopted the practice of reviewing emerging threats to their long-term financial sustainability have tended to focus most strongly on easily identified domestic factors – such as ageing populations – which have implications for economic productivity, workforce participation, pension and health cost.</p>
<p>They have typically been weakest in considering external threats, such as global economic or environmental change. </p>
<p>Added to this is the fact that the openness of these reviews tends to reflect the prevailing political culture. In Scandinavia, for instance, where disparities of wealth are rejected in favour of social cohesion and the legitimacy accorded to strong tax regimes is sufficient to support consideration of significant welfare state intervention, there have been fewer problems with debating tough policies to tackle emerging long-term social, economic and environmental problems. </p>
<p>In contrast, in countries where neoliberalism has prevailed and the state is seen as having a lesser role, reports and responses have been much weaker. While economic times were good, Australia seemed to fall somewhere in the middle, with its A$110 billion <a href="http://www.futurefund.gov.au/">Future Fund</a> aimed at benefiting future generations. </p>
<h2>Glossing over the climate question</h2>
<p>While the first two IGR reports in 2002 and 2007 ignored the environment and climate change, the issue was given its own modest chapter in the <a href="http://archive.treasury.gov.au/igr/igr2010/report/pdf/IGR_2010.pdf">2010 report</a>. This emergence could hardly be surprising, given that Australian public awareness, political anxiety, and policy focus around climate change had increased greatly since 2002.</p>
<p>The 2015 IGR briefly discusses climate change, offering less than two pages (out of 170) on the issue. These report that Australia has warmed by 0.9C since 1910 and that the frequency of extreme weather events has increased. But the 2015 IGR mainly spends its time reassuring us that current policy is sufficient for the task and that Australia’s emissions targets will be met courtesy of the government’s A$2.5 billion <a href="http://www.environment.gov.au/climate-change/emissions-reduction-fund">Emissions Reduction Fund</a>. It offers no critical comment about the adequacy of current targets or about additional demands for mitigation or adaptation that might arise in future.</p>
<p>Climate change is most certainly an intergenerational issue. It involves major and disproportionate benefits to current generations from fossil fuel use, and the transfer of negative impacts to future generations. </p>
<p>As the <a href="http://www.garnautreview.org.au">Garnaut Climate Change Review</a> and more recent work on <a href="https://theconversation.com/are-you-ready-for-a-four-degree-world-2452">Australia in a Four Degree World</a> show, the intergenerational costs of climate change are easily listed – if not easily estimated. </p>
<p>They include economic impacts associated with:</p>
<ul>
<li><p>Emissions reduction: new technologies will get cheaper over time, but delayed action will mean emissions targets must become tougher and thus more expensive overall;</p></li>
<li><p>Adaptation: delays in mitigation will make impacts more severe and more costly;</p></li>
<li><p><a href="https://theconversation.com/unburnable-fossil-fuels-set-to-leave-investors-stranded-13611">Stranded assets</a>: fossil fuel resources and mining infrastructure will decline in value as will, potentially, the value of related investments such as superannuation funds (with consequences for pension payments) and coastal properties;</p></li>
<li><p>Structural economic transition: the fossil fuel market is likely to disappear in the medium term, and revenue, employment and productivity from other climate-affected sectors such as agriculture, tourism, forestry and fisheries will decline in the long term;</p></li>
<li><p>Emergency assistance and remediation: extreme events such as fires, floods and droughts will intensify, increasing costs associated with damage to infrastructure and property, health and welfare, and hamper our access to environmental benefits such as water.</p></li>
</ul>
<h2>Dodging the issue</h2>
<p>While some of these costs reflect Australia’s commitment to cut its greenhouse emissions, their scale and severity are compounded by the relative success or failure of global negotiations to reduce emissions rapidly. A surprisingly good outcome at the United Nations talks in Paris later this year may deliver us climate stabilisation at around 2C of global warming by the end of this century. This will still have major deleterious consequences across Australia.</p>
<p>However, all signs presently indicate that those negotiations will fail to restrain emissions significantly, and that the world is heading towards catastrophic warming of 4C or more by 2100. The more rapid the warming during the timeframe of the IGR (the next 40 years) and the less restrained the trajectory beyond, the worse the intergenerational picture becomes, both during and after the term of this report.</p>
<p>Complex interactions between climate-related factors outside Australia’s control – for instance, changes in international demand for Australian coal and gas, regional population shifts, and climate-related regional <a href="https://theconversation.com/climate-change-and-drought-a-spark-in-igniting-syrias-civil-war-38275">insecurity and unrest</a> – will have further domestic consequences. </p>
<p>Given these variables, projecting the potential costs of climate change is very difficult – but it’s also essential for good precautionary fiscal policy. </p>
<p>A clear-sighted attempt to forecast the risks and costs of existing policy settings would also most likely raise the political pressure to reduce emissions rapidly now. Perhaps unsurprisingly, then, Treasury and the latest IGR have failed to do this basic, necessary job. Instead, the report restricts itself to looking at “projections of the three long-run drivers of economic growth in Australia: population, labour force participation and productivity”.</p>
<p>There is not a single mention of climate change in Hockey’s speech, or the report’s summary projections for revenue and expenditure. The full report offers a weak summary of projected physical trends but no critical consideration of the fiscal benefits, risks and failures of existing collimate policy. In glossing over one of the most significant emerging challenges to Australia’s economy, the IGR presents a fiscal fiction.</p>
<p>A review process intended to provide Australians, including policy makers, with guidance about possible emergent distant economic (and social and environmental) problems in order to provoke timely and reasonable discussion about how to tackle them, has yet again been captured by the usual small-minded, short-termist partisanship of Australia’s political elite. </p>
<h2>Meanwhile, the costs mount up</h2>
<p>Recent reports (for instance, <a href="http://australianbusinessroundtable.com.au/assets/documents/White%20Paper%20Sections/DAE%20Roundtable%20Paper%20June%202013.pdf">here</a> and <a href="http://www.pc.gov.au/inquiries/completed/disaster-funding/draft-report">here</a>)
have pointed to the growing public and private expense – and institutional difficulties – of dealing with extreme weather events. Meanwhile the cost of Australia’s economy meeting a responsible and globally equitable 2020 emissions target of around 40% below 2000 levels would be between A$30 billion and $40 billion of public and private investment each year for the remainder of this decade.</p>
<p>In the absence of a carbon tax, levy, or emissions trading scheme, and with only some $2.5 billion in the existing Emissions Reduction Fund, this government would hardly want to focus on future climate-related funding shortfalls.</p>
<p>Yet delay in adequate expenditure in the near term could have dramatic consequences for Australia’s longer term fiscal future: the costs of future climate impacts could end up diverting public funds from other programs such as health or education. It could conceivably require the future introduction of large new taxes, or send public debt soaring, or all of the above. Without long-sighted planning, Australia’s welfare state could end up being forcibly reconfigured by the costs of climate.</p>
<p>We need a mature national exchange of views about how future climate action should be funded. We need to plan for ambitious and equitable emissions-reduction targets through to 2050, and decide how we will meet their costs, and of adapting to climate impacts. </p>
<p>The past five years of toxic and partisan climate politics have made such reasoned discussion almost impossible, yet this remains vitally important. The IGR should have helped to reopen this space for debate but it failed. Its task seems too political to be handled by Treasury, which ducked for cover at the crucial moment. </p>
<p>Let’s instead hand the IGR process over to an independent body, which might be brave enough to raise unpalatable issues for us to consider. Only then will we be get proper warning about threats to our intergenerational prospects, before those issues hit us in the face.</p><img src="https://counter.theconversation.com/content/38371/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Christoff does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Climate change barely rates a mention in the Intergenerational Report, despite the huge potential costs. Peter Christoff says the only way to overcome this short-sightedness is to end the politics and make the review independent.Peter Christoff, Associate Professor, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/380562015-03-05T03:00:15Z2015-03-05T03:00:15ZThe Intergenerational Report and reforming the Age Pension<figure><img src="https://images.theconversation.com/files/73900/original/image-20150305-1931-1pkork5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There are a number of reform options to address the increase in spending on the Age Pension.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/lendingmemo/11746064545/in/photolist-juCyQi-hcmJpw-bW1fnH-nhDAF7-bz71qH-dYDyCq-qik4Sn-jrPn36-py2qQH-oo3679-iTXDLe-a2Lejn-5ri5YE-h68X3j-6yzSjp-2arkz4-aixQRZ-4t1Q7F-aNjN5P-6NNQ8J-9sjtrL-9pv5X6-g7Sa14-fuSEFK-8SzMqv-atSHuE-atQ4qn-atSJ1h-atSHHu-atQ4gK-atQ4bB-oQ4QTp-oCbrmH-oiVJUd-oA9Rer-oAoJ4s-5pavrB-sQkcW-nfTes4-aNjPQ4-9DkVfj-ayhcLq-ayeuD2-ayeuwZ-ayeuq8-ayeq3R-ayepWK-8YcmYk-atQ56e-atSJny">Flickr/Simon Cunningham</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>In launching the <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">2015 Intergenerational Report</a>, treasurer Joe Hockey has called for a debate on budget sustainability in the face of population ageing.</p>
<p>The Age Pension (including service pensions) costs 2.9% of GDP and takes up over a tenth of the Commonwealth budget. Add civil servants and the figure for all age-related pensions is about 3.3% of GDP. According to the Intergenerational Report such spending is expected to increase to 3.8% of GDP by 2055 with no changes or decline to 2.9% with the government’s indexation and eligibility age reforms. </p>
<p>Nobody denies that pension expenditures are large and growing - but an international perspective is helpful (see figure 1). Our pension expenditure is one of the lowest in the developed world and less than half the OECD average. By 2055, it will remain relatively slight – lower than some of the lowest spenders today. </p>
<p>The key reason is <a href="http://www.mrrc.isr.umich.edu/publications/publications_download.cfm?pid=1007">means testing</a>: unlike in other countries, where pensions are more generous and increase with an individual’s earnings, the Age Pension is more modest and reduces with means. There are few developed countries that would not trade their circumstances for our own.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/73883/original/image-20150305-1923-16p20w5.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/73883/original/image-20150305-1923-16p20w5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/73883/original/image-20150305-1923-16p20w5.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=267&fit=crop&dpr=1 600w, https://images.theconversation.com/files/73883/original/image-20150305-1923-16p20w5.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=267&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/73883/original/image-20150305-1923-16p20w5.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=267&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/73883/original/image-20150305-1923-16p20w5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=335&fit=crop&dpr=1 754w, https://images.theconversation.com/files/73883/original/image-20150305-1923-16p20w5.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=335&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/73883/original/image-20150305-1923-16p20w5.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=335&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Though increasing, Australia’s expenditure on pensions is low compared to other developed countries, and is expected to remain so with or without reforms.</span>
<span class="attribution"><span class="source">OECD, Treasury</span></span>
</figcaption>
</figure>
<h2>What are the reform options?</h2>
<p>Still, if we want to reduce pension costs there are five broad options: (1) cut benefits; (2) delay receipt; (3) increase private means; (4) increase the scope of means testing; and (5) increase the bite of the means test. The Commonwealth has focused on the first two (more inequitable) measures, but let’s look at each one in turn.</p>
<p>First, in linking pension increases to prices, which grow slower than wages, Australia follows a <a href="http://www.issa.int/details?uuid=b653c50e-2a86-4736-a99f-ea5df2df9021">long list of governments</a> that have used <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201415/Indexation">indexation</a> to cut benefits by stealth. Between now and 2055, an indefinite price indexation policy could almost halve the safety net but only the fiscal outcome shows up in the Integenerational Report. The measure addresses the cost while turning a blind eye to adequacy; instead of future-proofing the system, it opens it up to future reform.</p>
<p>Second, the Government is seeking to delay pension receipt by raising the eligibility age to 70. This comes with some <a href="https://theconversation.com/the-pension-age-is-rising-to-70-a-case-of-one-size-fits-some-25537">inequities</a> given unequal life expectancies and job experiences. But the move makes sense given that even those who are worse off have seen improved longevity and work conditions.</p>
<p>Third, instead of increasing private means by raising the level of Superannuation savings to 12% of earnings, the Government is delaying the policy. This may help the economy in the short term but will result in lower retirement incomes in the long term. Either way, the effect on Age Pension expenditures will depend on the means test arrangements, the subject of the next two options.</p>
<p>Fourth is the option to increase the scope of the means test; in particular, including the family home beyond a certain (high) threshold. It would impact on wealthier households and contrary to some claims, it wouldn’t force pensioners out of their home. They could receive a pension via the existing <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/FlagPost/2015/February/The_Pension_Loans_Scheme">Pension Loan Scheme</a>, which is repaid when the home is sold or from the person’s estate.</p>
<p>Proponents of the measure make up a long list of analysts across the political spectrum, including the <a href="http://taxreview.treasury.gov.au/content/finalreport.aspx?doc=html/publications/papers/final_report_part_1/chapter_12.htm">Henry Review</a>, <a href="http://www.pc.gov.au/research/completed/ageing-australia">Productivity Commission</a>, <a href="http://www.tai.org.au/content/boosting-retirement-incomes-easy-way-0">Australia Institute</a>, <a href="http://grattan.edu.au/report/balancing-budgets-tough-choices-we-need/">Grattan Institute</a>and commentators such as <a href="http://www.abc.net.au/tv/qanda/txt/s4172769.htm">Alan Jones</a> and <a href="http://www.theaustralian.com.au/business/opinion/why-the-family-home-should-be-included-in-pension-assets-test/story-fnc2jivw-1227226051327">Adam Creighton</a>. </p>
<p>Yet the social services minister Scott Morrison has <a href="http://www.abc.net.au/news/2015-02-17/morrison-rules-out-family-home-in-assets-test-for-age-pension/6126090">dismissed the option</a> just as the debate on the Intergenerational Report kicks off. One alternative suggested by <a href="http://acoss.org.au/images/uploads/ACOSS_2104_Budget_Priorities_Statement.pdf">ACOSS</a> is to continue excluding the family home but lower the threshold on other assets of owner-occupied households beyond which the pension is withdrawn.</p>
<p>The fifth option is to make the means test more aggressive by increasing the rate at which the Pension is withdrawn (also recommended by the <a href="http://www.ncoa.gov.au/report/phase-one/part-b/7-1-age-pension.html">Commission of Audit</a>). Modelling done at <a href="http://cepar.edu.au/media/143307/kudrna__means_testing_in_australia.pdf">CEPAR</a> suggests that increasing the taper from 0.5 to 0.75 can reduce Age Pension costs by 10% and have a positive impact on labour supply and saving. </p>
<p>It would cut benefits to those with higher incomes not those with the lowest, as is being done via indexation (see figure 2). Current pension receipt extends high up the income distribution. According to the Intergenerational Report, despite increasing superannuation wealth, the proportion of self-funded retirees is projected to increase by only 3 percentage points to 33% by 2055.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/73781/original/image-20150304-15276-1o682u0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/73781/original/image-20150304-15276-1o682u0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/73781/original/image-20150304-15276-1o682u0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=291&fit=crop&dpr=1 600w, https://images.theconversation.com/files/73781/original/image-20150304-15276-1o682u0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=291&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/73781/original/image-20150304-15276-1o682u0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=291&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/73781/original/image-20150304-15276-1o682u0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=366&fit=crop&dpr=1 754w, https://images.theconversation.com/files/73781/original/image-20150304-15276-1o682u0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=366&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/73781/original/image-20150304-15276-1o682u0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=366&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The means test has three parts: the maximum benefit, the disregard (or free area), and the taper (or withdrawal) rate. Changing the maximum affects those worse off; changing the disregard and taper affects those better off. 2055 paramters assume indefinite indexation to prices, though IGR indicates this could be only until 2028, which would see max rate around $14,500 in wage terms.</span>
<span class="attribution"><span class="source">Author's compilation</span></span>
</figcaption>
</figure>
<h2>Where to now?</h2>
<p>The Financial System Inquiry looked at superannuation but had no remit to consider interactions with the Age Pension. The same is likely with the tax White Paper. And despite being the largest welfare payment of them all, the Pension was notably absent from the McClure report on welfare reform. </p>
<p>The Intergenerational Report looks at fiscal projections but ignores retirement outcomes. A holistic view of sustainability and adequacy is needed for future-proofing the system, in which we play to the system’s strengths by ensuring the means test does the job it is supposed to do.</p><img src="https://counter.theconversation.com/content/38056/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rafal Chomik works for the ARC Centre of Excellence in Population Ageing Research which receives funding from the Australian Research Council.</span></em></p>Nobody denies spending on the Age Pension is growing, but the Intergenerational Report concentrates on fiscal projections and ignores retirement outcomes.Rafal Chomik, Senior Research Fellow, ARC Centre of Excellence in Population Ageing Research, UNSW, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/384362015-03-05T02:36:06Z2015-03-05T02:36:06ZIntergenerational Report: Joe Hockey and the deathly budget hallows<p>The <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">Intergenerational Report</a> aims to provide a long-term picture of future Australian prosperity, and the sustainability of government budgets. It should be a serious report. But this year it resembles a Harry Potter movie.</p>
<p>Like a Harry Potter tale, the report starts with prosaic reality. Future prosperity is most affected by productivity growth. Highly productive scenarios could make Australians 8% better off in 2055 than they would be otherwise. Participation makes some difference. If we see large increases in the proportion of older people who work, Australians could be 2% better off in 2055.</p>
<p>But most of the report is about the sustainability or otherwise of the Commonwealth Budget. And that is primarily a story about the magic of compound interest. If the Commonwealth doesn’t get its deficit under control over the next few years, and it’s allowed to compound, then the interest bill will be 7% of GDP – almost a third of Commonwealth outlays – by 2055. It sounds like the scary bits of a Harry Potter movie – and has about as much connection with reality. Any projection of a short-term deficit that is allowed to compound will lead to very ugly numbers over 50 years.</p>
<p>The long-term projections do highlight the most important part of the May 2014 Commonwealth budget. The Commonwealth abandoned its previous agreement to contribute to the long-term growth in hospital costs paid by the States. This saves the Commonwealth about 1.4% of GDP by 2055. It is far and away the largest single long-term reduction in Commonwealth spending. And of course, it simply transfers the deficit problem to State governments to solve.</p>
<h2>The nasty monster of ‘previous policy’</h2>
<p>Most of the other long-term projections are like the non-scary bits of a Harry Potter movie. Firstly, they don’t seem to add. The report claims that the measures held up in the Senate are worth about 1.3% of GDP by 2025. The Parliamentary Budget office’s estimate, released a few days ago, was only 0.7%. The difference might not sound like much, but the magic of compound interest has a big impact by 2055. </p>
<p>The report casts previous Labor government budgets as the nasty monster of “previous policy”. They seem very bad – although like Hagrid, they’re less horrible than they look. The “previous policy” conveniently includes all of the Labor government’s spending measures, but excludes the revenue from its carbon and mining taxes.</p>
<p>The report also has some assumptions about spending that turn out as well as the ending of a Harry Potter movie. The Commonwealth Government is planning to limit how much it spends on supporting home care programs for seniors – but these “savings” may well lead to more people moving into much more expensive aged care facilities and hospitals. The report assumes that the higher education reforms lead to big savings. Requiring students to pay a larger percentage of the cost of their degree should save money – the report assumes over 1% of GDP by 2055. But it remains to be seen whether the proposed uncapped university fees lead to big increases in debt that ultimately goes unpaid.</p>
<h2>Real, long-term problems</h2>
<p>Perhaps the most worrying issue is that the report glosses over the long-term problems of the real world. Health costs are assumed to grow much more slowly over the next 10 years as a result of specific measures taken by governments. Previous Intergenerational Reports have all made the same assumption, and they’ve all been wrong. Health costs have generally continued to spiral upwards, consuming an increasing share of government budgets.</p>
<p>The other big concern is the growth in the Age Pension. In accordance with the May 2014 proposals, the report assumes that Age Pension spending will grow at inflation – not average weekly earnings – for 12 years, and then only grow in proportion with weekly earnings. Indeed it forecasts that Age Pension spending will fall as a percentage of GDP over the next decade. That implies a big change in government behaviour – governments of all stripes have made decisions on three separate occasions over the last decade to increase the Age Pension over and above average weekly earnings, and to broaden eligibility.</p>
<p>The Harry Potter story ultimately distracts us from the important question that faces us in the short term: what is the best way to repair our substantial and recurrent budget deficits? Australian governments have run deficits at 2 to 3% of GDP for the last six years in a row, and at the current rate will continue for the next three years. Future taxpayers will be responsible for paying back these deficits, and they are entitled to real-world answers now.</p><img src="https://counter.theconversation.com/content/38436/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and Grattan uses the income to pursue its activities.</span></em></p>By bringing previous government policy into the Intergenerational Report, Treasurer Joe Hockey has overlooked many questions Australians want answers to now.John Daley, Chief Executive Officer , Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.