Labor should take Intergenerational Equity seriously

The Howard Government’s 2002/2003 Budget was interpreted as one that, to quote the Democrats’ Natasha Stott Despoya, taxed the poor to pay for war. It set new conditions upon access to the Disabilities Services Pension (DSP) and increased user costs on drugs listed under the Pharmaceutical Benefits Scheme (PBS), while increasing expenditure on defence, national security and border protection by about $2.5 billion.

If this was all there was to say about the Howard/Costello Budget, then the Australian Labor Party would be right to block it. Perhaps anticipating this, Treasury chose to release its Intergenerational Report (IGR) as Budget Paper No. 5, which presented in graphic terms the need to act now in order to avoid unsustainable growth in the DSP and PBS, as the ratio of wage and salary earners declines relative to those receiving government assistance, so that growth in demand for these benefits would be unsustainable over a 40-year period as the Australian population ages.

Whatever the opportunism surrounding the IGR’s release, Labor should take its findings very seriously. Labor’s ability to respond to the issues raised in this Report will be a litmus test of its capacity to govern in the 21^st century.

The reasons to take intergenerational equity seriously are both economic and political. Economically, the IGR tells a story that is familiar throughout the OECD. It is a story of declining birth rates, people living longer, and aging populations. As knowledge-based economies are increasingly based upon public investment in the generation of new ideas, a problem exists in all OECD countries that essentially passive or demand-driven growth in social security and health spending acts as a barrier to targeted expenditure in areas that are able to deliver medium-term growth such as education.

While not necessarily a zero-sum, the pattern of decline in education spending coinciding with growth in benefits and health spending is consistent throughout the OECD economies. It is in sharp contrast to the ‘new growth economies’ of the Asian region, such as Singapore and Malaysia, where increases in education spending are linked to their ambitions to become knowledge-based economies and hubs of the global information economy.

If Labor is serious about pursuing the ‘Knowledge Nation’ agenda of the Beazley period, then it will need to look at where the funding comes from to finance increased investment in education, and contrast this to the zero-sum logic of education (investments in the sector need to be compensated by equivalent cost savings) that continues to be the implicit logic of the current Coalition government.

Concerns about the dramatic growth in the Disabilities Services Pension have long been observed by Labor, most notably by Mark Latham, who has questioned the scheme for some time as a way of ‘quarantining’ older male workers from unemployment benefits. In contrast to the Democrats and other minor parties, Labor needs to frame its responses to the DSP and the PBS in terms of a medium-term strategy of government.

Taking intergenerational equity seriously presents some serious challenges for Labor, as it does for the Coalition. The Coalition has faced the frequent complaint that it has unduly taxed Australians in the workforce, whether as wage earners or self-employed, in order to offer generous benefits to retirees, who have been solidly in the pantheon of ‘Howard’s Australia’.

Labor’s problem is that the section of the waged workforce that will retire over the next ten years is ‘Generation Gough’. These are the people who formed their political identities in the period from 1965 to 1975, as anti-Vietnam War protestors and supporters of Gough Whitlam’s Labor Party. They are the demographic that has remained most solidly pro-Labor since 1996, and who most provided majority support for Australia becoming a republic in the 1999 referendum.

With the decline over time of Labor’s ‘natural’ base in the industrial working class, ‘Generation Gough’ have established themselves as the de facto conscience of the Labor Party. They are at their most influential when Labor is in opposition, as they can point to the failure to hear their voices as the reason why Labor is not in government, and occasionally threaten to join the Democrats or the Greens.

‘Generation Gough’ are about to retire in large numbers. While Labor has been a leader in intergenerational equity in recent years, most notably with its reforms to pensions and superannuation in the late 1980s, the challenge to defend intergenerational equity will be harder when it next occupies government. Making changes to health care and nursing homes that may affect World War II veterans will look very minor compared to measures that may affect Philip Adams, Bob Ellis and Anne Summers. This is the community that established media advocacy as central to political campaigning, and will be very keen to use it if they perceive their material interests to be in any way threatened.

For both economic and political reasons, Labor should champion intergenerational equity, even if it is on terms set by their political opponents. Economically, it has to concede that Costello and Treasury are right about the unsustainability of the DSP and PBS over the medium-term, and the need to take action now. To avoid this would not only expose a future Labor government to bloated expenditure on health and social security (passive welfare), but render it incapable of engaging in new social justice initiatives in areas such as education or urban and regional development. As social democratic thinkers such as Hugh Stretton have observed, Labor governments, and the Left more generally, have a greater interest in economizing on unnecessary public expenditure than the conservatives, as the urgency of the reforms they seek to undertake are greater.