The five-yearly Intergenerational Reports assess how current Government policies will work over the next four decades. The latest report lays out the challenge facing Australia (and other developed nations including New Zealand) as the proportions of older retired people increases.
It’s grim.
The economy and real incomes will grow more slowly; productivity improvements will decline; and the nation will be more indebted and spend more on social services.
The slower growth over the next 40 years “will place pressure on the tax base at a time of rising costs, creating a long-term fiscal challenge”, the report states.
In other words, there won’t be enough money and workers will have to shoulder more of the burden of funding the aging population.
This is because the proportion of workers will continue to fall. In 1982, there were 6.6 workers for every person aged over 65. By the early 2060s, there will be just 2.7 workers per older Australian.
And further damaging the bottom line will be the end of petrol excise as cars go electric and of tobacco tax as smoking rates fall further.
All up, this means that higher income taxes will have to make up the balance. Every worker will have more money taken out of their pay.
The generation of Australians who will be in jobs as we near 2060 will probably be renters for life because they can’t afford to buy a home and will have to contend with the increasingly costly ramifications of climate change, and now we’re condemning them to do so with less money.
It is a terrible legacy to leave.
Laying down a challenge
Of course, the Intergenerational Report sets out its prediction for the future if nothing changes.
In this regard, it is essentially laying down a challenge to the government of the day to get on with economic reform.
But so far, Prime Minister Anthony Albanese and Treasurer Jim Chalmers have shown no appetite for reform.
Tax policy is where the need for reform is greatest and most urgent, but Chalmers has signaled that he’ll stick with the policies we’ve got.
The most obvious way of more fairly sharing the tax burden would be to increase the rate of goods and services tax from 10 per cent at the moment, well below the OECD average, which is closer to 20 per cent. And in Australia food, education and healthcare aren’t subject to GST, further reducing its effectiveness as a revenue source.
A higher GST rate would see older Australians make more of a contribution to the cost of their pensions, aged care and health care, and relieve some of the burden on workers. And if workers know they will keep more of their pay packets, they’re likely to work more or delay their retirement to keep working for a few extra years.
Even raising the prospect of tax reform has become poison for Australian politicians. Merely suggesting we need to rethink the way we do things usually results in howls of outrage from anyone who might possibly be worse off and politicians quickly kill off the idea, long before they’ve had a chance to consider options or come up with an alternative policy.
The last significant economic reform in Australia was the introduction of the goods and services tax by then Prime Minister John Howard in 2000 and since then governments haven’t done much more than tinker with the country’s economic settings.
This isn’t the first time governments have been warned of the problem. In fact this is the sixth intergenerational Report since 2002, but the problem grows more urgent every five years.
The Government needs to open up the Paul Keating playbook.
It needs to seize on the warning in this latest report and use it to drive a national debate about policy reform, and then enact the new policies.It would require leaders who can stare down a scare campaign and persuade Australians that without the short-term pain of reform things will only get worse in the future.
Christopher Niesche is a Sydney-based business writer. His former roles include NZ Herald business editor and Australian Financial Review deputy editor (national).
