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The 2015 Intergenerational Report – An Overview

The 2015 Intergenerational Report – An Overview

The 2015 Intergenerational Report is the fourth in a series that began in 2002. Its stated aim is to identify long-term economic challenges to Australian society between now and 2054/55 and to highlight the need for policy adjustments to meet these these challenges.

The potential value of an IGR is the focus it places on issues such as the aging of the population, workforce participation and economic growth as well as the likely economic impact of climate change (which it deals with in a most cursory manner). These are all important issues that have to be addressed, and preferably sooner rather than later.

The fundamental problems with the 2015 IGR, however, are the assumptions on which it is based and the crude politically partisan flavour of its policy prescriptions.

Arbitrary assumptions concerning workforce participation, productivity growth and tax rates form the basis of three alternative budget scenarios covering the 40 year period to 2054/55.

The first is the‘previous policy’ scenario based on projections associated with the former Labor government’s budget policies as set out in the 2013-14 mid-year economic and financial outlook. Under this scenario, the federal budget would deteriorate dramatically and by 2054/55 there would be a budget deficit of 11.7% of GDP and a net debt of 122% of GDP.

The second is the ‘currently legislated’option and is based on the Coalition’s 2014/15 budget provisions passed by Parliament. Under this approach, the budget deficit would be.6% of GDP with a net debt 60% of GDP by 2054/55.

The third scenario, ‘proposed policy’, indicates what would happen if the all of the Coalition’s first budget measures, or equivalent alternatives, were implemented. In this approach, the budget deficit would be replaced with a surplus of 0.5% GDP in 2054/55. Similarly, net debt would be eliminated and replaced with a projected surplus of 15% of GDP.

The Achilles heel of all three scenarios is that they are premissed on a ‘business as usual’ model in which policy settings remain unchanged over a 40 year period. An assumption of this type is totally unrealistic. This is acknowledged, albeit in an understated manner, by theauthors of the IGR who admit that:“

The projections in this report are very unlikely to unfold over the next 40 years exactly as outlined. Things will happen that are not anticipated in the report’s assumptions, and government policy will change.

A further difficulty with the IGR is that the analysis is confined within the same ideological straightjacket which underpinned the Abbot government’s austerity driven 2014-15 budget agenda.

This agenda is characterised by cuts in public spending on education, health and welfare as well as a renewed emphasis on privatisation, deregulation, outsourcing of public services to private providers and a restructuring of the federal government’s financial relations with the states and territories.

In the IGR this agenda is particularly evident as regards taxation, which in the Coalition’s preferred option is limited to an arbirary tax rate of no more than 23.9% of GDP. This is despite the fact that Australia is a low taxing nation by international standards.

According to the OECD Australia’s total tax take was the fifth lowest of the 34 countries surveyed. This is significantlly lower than in the UK (35.7%), Germany (36.9%), Sweden (44.2%), Canada (30.4%) and New Zealand (31.5%).

It also overlooks the continuing srtength of Australia’s public finances, which aree among the best in the world. In 2013, Australia was only one of 15 countries with a AAA rating from credit agencies Moody’s and Standards & Poors.

The IGR also failed to consider measures to wind back tax loopholes and concessions that disprportionately benefit the rich at the expense of the general public.

By contrast, the Australian Council of Social Services recently identified net taxation and saving measure worth worth $7.2B in 2015/16 and $10.5B the following year. Apart from contributing to the process of budget ‘repair’,many of these proposals – including restsrictions on negative gearing, capital gains concessions, and superannuation concessions – would deliver economic efficiency gains as well as reductions in inequality.

In summary, despite some cogent insights concerning Australia’s aging population and workforce participation rates, the latest IGR report is an analytically unreliable and ideologically driven document that presents a one dimensional view of what needs to be done deal with the social and economic issues that will need to be tackled over the next 40 years.

 

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