The Intergenerational Report is not about intergenerational equity, but about fiscal sustainability

But if that delayed echo is at least in part a product of policy, then the Report is dealing with a problem that is partly the product of intergenerational inequities beginning in the 1960s and 1970s. When the Inter-war Generation failed to fulfil its part in the welfare state contract, it triggered long-term repercussions, some demographic, some economic. By taking much more than its fair share, it has set its two successor generations against each other, and both have a reasonable case to plead.

The Intergenerational Report in fact has little claim to that title, since nowhere does it analyse public policies in cohort terms. It therefore completely misses the existence of inequities right here and now. It is also unable to answer the question: Has the Baby-boom Generation paid its way sufficiently to be entitled to the age-related health and pensions benefits that the Report presents as problematic?

My short answer to that question is that there is no clearly right answer to it. If Baby-boomers are entitled to the same benefits as are enjoyed by their predecessors, then the answer is yes. By comparison with the Inter-war Generation, the Baby-boomers (the so-called ‘me generation’) have been exceedingly fair and responsible. But if the benefits enjoyed by the Inter-war Generation are unsustainable – as they so strikingly are – then to take out the same benefits, even after having paid far higher lifetime taxes, is merely to add to the debts being passed on to successors. Equitability between generations cuts, irreconcilably, in two directions.

There are those who think the idea of intergenerational equity is a red herring, since – they imagine – each generation passes on its gains, ill-gotten or not, at death to its children. So whatever goes wrong in the public policy arena will be corrected via inheritance. This is a nice idea, but a very unconvincing one. Redistribution at death shifts resources from the very old to the middle aged, not to those who are most in need: young families with children, mortgages and relatively low incomes. It thus reinforces the inequities of the Elder State. And, more importantly, there is no guarantee that the gains will be passed on at all. It is perfectly possible that they are or will be consumed. It may well be true that ‘I’m spending my children’s inheritance’, as the bumper sticker proclaims.

We need a system that is equitable between and sustainable for all generations. But when one generation breaks the implicit contract much else goes awry. There is one somewhat bright aspect to this gloomy story. For whatever reason, Australia has always favoured a lean and mean approach to the welfare state. This frugality has – quite unintentionally – minimised the risk of intergenerational catastrophe. The word might seem exaggerated, but it is not. Australia’s problems are serious. Those of the larger, especially the European, welfare states are catastrophic.