What sort of future will Australia have in 40 years' time? The Australian Treasury last month painted a rather gloomy future in itsIntergenerational Report (IGR).
The first report, commissioned by then Treasurer Peter Costello, was published in 2002. The reports have continued at regular intervals: 2007, 2010, 2015, and now 2021 (it was delayed by a year because of COVID) All the reports can be accessed online.
It was intended that the reports should serve as a basis for long-term policy making. This was a welcome innovation because long-term policy making is rare in Australian politics.
The reports also serve as a reminder about the increasing cost of social welfare, not least aged care and healthcare.
Unfortunately, the reports are soon forgotten. Some may create a controversy for a few days, notably then Treasurer Joe Hockey hoped to make a big splash with the 2015 IGR but it omitted any reference to climate change and so that omission generated the publicity. Given the 24/7 media cycle, attention soon moves on to another story.
The main economic finding last month is that COVID is not a short-term economic matter. The IGR predicts no return to government surplus for the next 40 years. There will also be slower economic growth: in the past 30 years there was a 3.0% increase per year; in the next 40 years it will be down to 2.6%.
It is refreshing to have a Treasury document that is not obsessing over the level of government debt. The real economic issue (examined below) is productivity.
In terms of social changes, there is now a reduced predicted population growth. The 2015 IGR predicted 40 million people by 2054-55; now it will only be 38.8m by 2060-61. This the first time since the IGR process began that a downward revision has been made.
Meanwhile Australians are expected to live longer. A man born in 2020-21 has a life expectancy of 81.4 years, by 2060-61 a man born then could live to 86.8 years. A woman born in 2020-1 could live for 85.4 years, by 2060-1 a woman born then could expect 89.3 years.
Ominously there will be a decline in the proportion of working Australians (the number of people working to support school/ welfare recipients). In 2019-20 the ratio was 4 workers for every recipient; by 2060-1 there will only 2.7 workers for every recipient.
There are five implications to note. First, how to boost productivity, that is, how to increase the size of the pie? Here are some controversial ideas currently in circulation (though not much discussed by politicians because they are so controversial):
- there could be greater use of information technology and automation, for example the introduction of driverless cars and trucks; one by-product here could be reduced accidents (driverless vehicles don't have drivers who are drunk or asleep)
- greater use of genetically modified organisms (GMOs) to increase food production
- there could be a clampdown on real estate speculation (for example, the abolition of negative gearing, greater control of mortgage lending, introduction of some form of a central housing bank [that is, get the government back into the provision of social housing]; the reintroduction of death duties [Australia is the only developed country to abolish death duties]) all to force investment out of housing and into more productive parts of the economy. There has been the "financialization" of housing in recent decades, whereby housing is a form of investment and so money is simply churned through the housing industry, rather than being made available for agriculture or manufacturing.
- a UBI (Universal Basic Income) could be introduced to keep money circulating in the economy. All Australians when they turn 18 would get a UBI that would stay with them until they died. This would replace many of the means-tested government payments. It would help keep the economy afloat. Many people would be earning a salary and so the money would go back to the government in taxes. Some will (alas) use it (as with current welfare payments) for drugs etc. But others could, for example, work in their garage on creating the next leap forward in technology (as per the pioneering stories from Silicon Valley). As the Swiss asked in their UBI referendum: "What would you do if you knew your basic living expenses were taken care of?"
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