How the government justifies capped spending on pensions and healthcare Intergenerational Reports are designed to make Australians feel poor and afraid, writes The Australia Institute senior economist Matt Grudnoff.
T
he fifth Intergenerational Report (IGR) is out. This is the report, which usually comes out every five years, that projects the economy and the Australian government’s budget for the next 40 years. This could be the moment when our political leaders finally focus on the long-term future of Australia and do the kind of big-picture planning many of us wish they would do.
would put pressure on the budget and give him an answer to the calls to spend more. Now one IGR wasn’t enough, so about every five years we get another IGR, which all seem to show doom and gloom. It is our five-yearly reminder that it would be reckless for the government to spend more on the things we want more of – or need.
This year’s report didn’t disappoint. Or it did, depending on who you ask. The main headlines out of it were declining population growth (because of COVID) and the predictions of budget deficits for the next 40 By international years. How can we have more spending on healthcare, or a standards, Australia is higher Age Pension, if we face a rich, low tax 40 years of deficits and an ageing population?
But that’s not what this IGR does. Instead, it’s designed to make Australians feel poor and afraid. People who are worried about the future are less likely to demand more spending on healthcare. They’re less likely to demand less spending on government services or an increase in the Age Pension. And that is exactly what the IGR is designed to do. To understand why we have an IGR, we must go back to 2002 when the first report came out. Back then, Peter Costello, treasurer in the Howard government, had a problem. He had too much money.
country. If the federal government wanted to spend more on pensioners, it could.
This might not seem like a problem until you understand that Mr Costello was in coalition with the National Party and it, along with some of his Liberal colleagues, were keen to spend that extra money – spend it on all sorts of things, such as health, education and increasing the Age Pension. Mr Costello didn’t like the idea of expanding the role of government. His solution to this was to produce a report that looked 40 years into the future. It was designed to show the problems of an ageing population. It was designed to show health cost blowouts and declining productivity. All these things 8
But let’s have a little dig into the assumptions behind these headlines. Are they really as bad as they look?
First the population decline. Or more accurately a decline in the expected future rate of population growth. To be clear, the population continues to increase each year. The IGR predicts it will almost reach 40 million by 2061. But the report claims that the population will be lower than it was previously forecast to be because of COVID. This should immediately strike you as strange. The growth in population is a factor of how many people are born minus those who die. But it is also determined by how many people come to Australia minus how many leave. The drop in the population is entirely because we have shut our borders to try to keep COVID out, which has dramatically reduced the number of migrants coming in.
YourLifeChoices Retirement Affordability Index™ August 2021
