Tuesday, March 17, 2015

Hockey is right. Eating into super would get home ownership back on track

Can we give Joe Hockey a break?

He says he is prepared to consider allowing us to dip into our super to buy houses. What on earth could be wrong with that? A house is far more useful in retirement than superannuation. Just ask anyone who has tried to survive without one.

When the Harmer pension review examined the question some years ago it found only 3 per cent of home-owning single pensioners were in severe poverty compared up to one quarter of those who rented.

Rent eats income. It's why houses are important in retirement. They relieve us of the need to pay rent.

When renters attempt to earn that income they lose half of it in cuts to whatever pension they are on. Homeowners don't need to earn that income.

Labor is saying silly things about home ownership right now. Its deputy Tanya Plibersek says "you can't eat your family home, you can't pay your electricity bill with it". But you can do those things by saving on rent and you can do them by taking advantage of services that allow you to borrow against your home. Centrelink offers one. You can get up to the full pension fortnightly right up until the day you die taken out of the value of your home, and you'll never be kicked out. Private operators offer similar deals. The Financial Review had a feature on them on Saturday.

Australians are right to want to dip into their super to buy houses. Many do it the minute they can, telling their super fund trustee they've "retired" at the age of 55. They use the payout to pay down their mortgage and get back to work. You can't blame them. It sets them up for retirement better than would super...

It would set them up even better if they were able to use their super to pay down their mortgages earlier, before they grow.

They can't because the present system forces them to save year in, year out at 9.5 per cent even when they should be paying down debt. Like attempting to drive a car by pressing on both the brake and accelerator pedals at the same time, it is possible to save and be in debt simultaneously but wasteful.

That's how Young Labor saw it on the eve of Kevin Rudd's election in 2007. Yes, Young Labor. It proposed what Hockey is now proposing. Australians up to the age of 30 would be able to dip into their super for the deposit on a home.

"What good is having an extra $15,000 in super when you're 65 if you're still renting when you are 85?" asked its then national president Sam Crosby.

Labor's Wayne Swan responded. He came up with a plan for super-like savings accounts, especially to save for deposits.

The contributions and earnings would be taxed like super - at a flat rate of 15 per cent - up to a generous limit. After four or more years they could be withdrawn but only for the purpose of buying a first home.

The plan bombed partly because Swan made the mistake of making explicit the unfairness of the super tax concessions. Treasury told him to tax the accounts normally and achieve an effective tax rate of 15 per cent by making direct contributions, more for high earners, less for low earners.

Invited to submit comments on the treasury website, Australians were appalled.

"I am shocked and utterly disillusioned to find that under the current proposal, the government contribution is twice as much for those paying the highest rate of income tax," wrote one.

Swan modified the scheme somewhat and it died of lack of use.  

The main reason it bombed was that Australians didn't have the spare cash to put the accounts. Nine per cent of their income was going into super whether it was wise or not.

Compulsory super is a one-size-fits-all solution to a problem that hasn't been clearly defined.

It takes the same proportion of wages each year regardless of the calls on income that year and the size of the debt that would otherwise be paid down.

Canadians are able to withdraw up to $25,000 from their super funds to buy first homes on the proviso that after a year than begin paying it back in equal installments over 15 years. New Zealand and Singapore offer similar deals.

It's said that if it happened here it would push up the price of houses, but that's true of any measure that makes houses easier to buy. Denying someone access to their own money in order to deny them access to the housing market is a particularly cruel way to restrain prices.

The best way to hold down prices for first home buyers is to take out the competition. Second and third homebuyers (so called "investors") now almost outnumber owner occupiers at auctions. One out of every seven Australian taxpayers is a landlord.

It can be said in their defence that they provide rental accommodation, just as that used to be said for the far smaller number of foreign investors in real estate against whom the government has taken action. But by elbowing out of the way would-be owner occupiers those landlords are also creating a class of people to rent to, a class of Australians who may never be able to afford their own homes.

Eliminating negative gearing (while allowing it to stay for existing landlords) would remove the competition. Along with allowing Australians access to their own money to buy their own houses it would ensure that more of us had the kind of genuine security in retirement that only a home can give.

Home ownership was once a article of faith of the Coalition. Hockey has at least shown an interest in getting it back on track.

In The Age and Sydney Morning Herald


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Tuesday, March 10, 2015

TPP. We're negotiating for negotiators not for Australians

I get that ordinary Australians don't much like the Trans Pacific Partnership. But businesses?

The deal is being negotiated between the twelve Pacific-facing nations of Australia: the United States, Japan, Canada, New Zealand, Malaysia, Brunei, Singapore, Chile, Mexico, Peru and Vietnam. No-one outside the negotiating teams knows exactly what's in it because the text won't be made public until after it is sealed, quite possibly at a ministers' meeting in Hawaii next month.

Then it'll be too late for Australia to change. That's the way trade agreements work. Our parliament will be able to vote "yes" or "no" to the entire thing, all 20 chapters; but it won't be able to change a word.

Some of the leaks are alarming. They include what British medical journal The Lancet calls an "unprecedented expansion of intellectual property rights that would prolong monopolies on pharmaceuticals and reduce access to affordable and lifesaving generic medicines".

Australia's Pharmaceutical Benefits Scheme spends $1 billion a year on the 10 most expensive of the super-expensive so-called biologic drugs, manufactured from living organisms.

In addition to patent protection, the manufacturers get five years in which the makers of cheaper generics are unable to use their data to prove their alternatives are safe. The US wants to extend the period to eight years. Deborah Gleeson, from La Trobe University, says that would cost the Pharmaceutical Benefits Scheme $205 million a year.

It isn't to facilitate trade. It's a measure to restrict trade. And the TPP is full of them.

In one part buyers of pharmaceutical products (such as Australia's PBS) would be restricted in their ability to offer whatever price they wanted to their suppliers (mainly US-owned pharmaceutical companies), a restriction not normally thought of as advancing free trade. In another, even minor breaches of copyright (such as burning a copyrighted DVD for a friend), would become a criminal rather than a civil offence.

And outside tribunals would be able to adjudicate and impose penalties on Australian governments even after their laws had been found valid by Australia's courts...

It would open the way for alcohol manufacturers to take on Australia over laws requiring labelling, food manufacturers to take on Australia over anti-obesity campaigns and mining companies to sue Australia over environmental regulations, as happens in Canada under the provisions of the North American Free Trade Agreement.

Australian businesses ought to love the TPP. They would get the ability to take on 11 other governments in overseas tribunals, and to the extent that they export intellectual property (Australia is a net importer) they would benefit from the criminalisation of copyright breaches.

But would they actually be able to sell much more product.

It looks as if they wouldn't. The department of foreign affairs and trade said Australia's mega trade deal with the United States, signed 10 years ago, would boost Australia's gross domestic product by $5.7 billion. However, 10 years on, the Australian National University says it has not boosted trade at all. A US Department of Agriculture study says the agricultural component of the  TPP will not boost Australia's GDP at all.

None of which would matter much if agreements such as the TPP weren't so expensive to negotiate and didn't create so much red tape.

The Australian Chamber of Commerce and Industry wants the direct costs of negotiating each treaty reported to parliament. And it wants annual assessments of how they are turning out. Like government spending on roads and on events such as the Olympic Games, there are always plenty of forecasts of the benefits before the agreements are signed, but rarely any follow up.

It also wants the "noodle bowl" of overlapping and conflicting agreements cleaned up. Australia has 12 free trade agreements, each with its own compliance rules. Some involve the same countries, but the superseded agreements are never terminated.

Australia hasn't acceded to the international treaty which would require each of its agreements to be consistent with each of the others. The TPP is the latest which won't be.

An unpublished survey of ACCI members find most neither understand nor use Australia's free trade agreements.  

"In my experience, they have been a waste of time, particularly Thailand. The paperwork to qualify was so erroneous it wasn't worth the effort," said one member.

"I know we have one with the US and I know there is one now with Japan and Korea - is that correct?" said another.

Where they do try to comply, their goods are often stopped at the docks and on the other side charged the full rate of duty because the officials don't know about them. Australia doesn't collect information about how many of our goods get through.

The Chamber's submission to the Senate inquiry into the treaty-making process is damning. It wants the secrecy by which the agreements are negotiated opened up so that community and business groups are taken into the confidence of the negotiators in real time, as happens in the United States.

It's how climate change negotiations are handled. It seems to do no harm.

Its most important recommendation is that the Productivity Commission assess the worth of the agreements as they are being negotiated in real time. It would put a stop to many of the agreements that are being negotiated in our name. It might even put a stop to the TPP.

In The Age and Sydney Morning Herald


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Sunday, March 08, 2015

Why are there so few female chief executives? Why are there so many named Peter?

Fewer big Australian companies are run by women than by men named Peter.

The shocking finding after decades of talk about breaking the glass ceiling comes from a count of the 200 biggest public companies that constitute the ASX200 index.

Thirteen of the top 200 are run by men named Peter; among them Westfield, Woodside Petroleum and Macquarie Roads. Twelve are run by women; among them Coca-Cola Amatil, Cochlear and Harvey Norman.

Companies run by a Peter, a Michael, a David or an Andrew outnumber those run by women four to one.

The idea for the survey isn't original. It comes from the US economist Justin Wolfers who wrote in the New York Times this week that fewer large American companies were run by women than by men named John.

Wolfers is an Australian by birth and a visiting professor at Sydney University, so he'd probably be disappointed to hear that things are just as bad back home. Whereas in the US four chief executives are named John, Robert, William or James for every one who is a woman ("including every woman's name, from Abby to Zara") in Australia there are four named Peter, Michael, Andrew or David for every one who is a woman.

It's unfortunate, not just for women who might want to run organisations, but also for the organisations themselves. That's because there's good evidence that organisations run by women are better run. Really.

The most compelling evidence is brand new. It's from a 15-year study of Luxembourg banks published in January. The researchers compared the representation of women in the senior management of the 264 banks with their quarter-by-quarter financial performance reported to the regulator.

They found a 10 per cent increase in the proportion of women in the senior management ranks of a bank lifted its financial performance by more than 3 per cent per annum.

There's more. The 15-year period included the years of the global financial crisis. During those years, from 2007 to 2009, the effect almost doubled.

Women managed the banks better in the lead-up to and in times of crisis...

It's easy to guess why. Women are less inclined to take stupid risks. It's one of the reasons women live longer than men. Fewer die in accidents.

The study quotes Neelie Kroes, the European Union commissioner for competition during the crisis.

"If Lehman Brothers had been 'Lehman Sisters', would the crisis have happened like it did?" she asks.

"No," she replies. "Generally, women have a better ear to listen, and they are less likely to pretend to know everything themselves. They are team players with less ego."

It's not only attitudes to risk that can make women better at the top, it's also attitudes to women.

Another study finds that the performance of firms with women at the top increases with the share of women workers. Women taking over male-managed firms with at least 20 per cent of women in the workforce lift sales per employee by about 14 per cent.

Women are better at dealing with women.

I am sure you are about to scream that this is a generalisation, not true in every case and perhaps not true of someone you know. But most things about gender are generalisations. Not all women fail to make it to the top. Some (almost as many as men named Peter) do. But taken together women are more likely to fail to make it to the top than men. And taken together women are more likely to run certain types of firms better than men. Taken together that seems to be because women are more cautious and better at dealing with women.

So how do we get more women to the top?

A team led by Dr Danielle Merrett, of the University of Sydney, has come up with the simplest of easy fixes: when selecting candidates for a job (any job) make sure the shortlist contains an equal number of men and women.

Its experiments suggest that doing no more than that can lift the proportion of women chosen to 60 per cent.

It opens up the possibility of a new type of quota - not one that insists on a certain proportion of women being appointed, but merely one that insists on there enough women available so that choosing a woman doesn't look unusual.

What if that's all it takes? What if instead of being chosen from a panel with names like Peter, Michael, Andrew and David the next head of BHP is chosen from a panel where half have names are like Peta, Michelle, Andrea and Davinia. What if it could lift BHP's performance?

In The Age and Sydney Morning Herald






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Saturday, March 07, 2015

Intergenerational report. The truth at its core, and how we'll cope

Beneath all the talk about finances, beneath the spin about which side of politics would handle Australia future better, this week’s intergenerational report contained a disturbing truth: the day is fast approaching when a much smaller proportion of the Australian population will be able to work than we’ve become accustomed to.

The starkest illustration of the change isn’t presented in the report itself but can be derived from the figures buried within it. At the moment there are 2.1 Australians of traditional working age to support each Australian of traditional dependent age - either too young to work or what used to be thought of as too old to work. By 2055 the ratio will have shrunk to 1.7.

The actual number of Australians available to work won’t have shrunk (the report says our population will almost double, to 40 million) but the number available to support each Australian traditionally regarded as needing support will have shrunk by one fifth.

The rise of the machines

We’ll cope in part by substituting machines for people, as we have done for years. Launching the report on Thursday treasurer Joe Hockey said 40 years ago it took 2 hours of work to make what takes 1 hour today. But the biggest fear among the treasury officials responsible for the intergenerational report is that that easy gain has been had. Once we remove the labour from an operation we can’t do it again. We automated telephone exchanges. We can’t automate them again. What we are left with are tasks such as caring for senior citizens in nursing homes, things that can’t be as easily automated.

But the treasurer is optimistic.

“I urge people to go and do an internet search of driverless cars,” he said on Thursday. “There is credible evidence that suggests that by 2040 three quarters of the cars on the road will be driverless.” It’s a future prophesied a half a century ago in the cartoon series the Jetsons, except that those cars were going to fly.

Hockey has a new Holden Commodore. He says he can press a button and it parks itself. If he is correct and three quarters of the cars on the road drive themselves we’ll soon be able to catch driverless taxis and busses, and we won’t need to drive ourselves - something that will help when an unprecedented 2 million of us are beyond age 85, the time of life at which the authorities traditionally make it hard to keep a driving licence.

By 2055 retailing will be mostly online. Corner shops won’t need to employ as many people because most will no longer exist. Newspapers will no longer be home delivered (and will almost certainly no longer be printed) Australia Post will have stopped delivering letters daily...

And yet the treasury believes productivity will only climb by 1.5 per cent per year, about its recent average. Its report doesn’t buy into the treasurer’s optimism.

Working longer, and longer

We’ll also need to keep working. The previous government began lifting the pension age from 65 to 67. This one wants to lift it to 70. A half a century ago men who retired at 65 could expect only another 12 years of life. Now they can expect 19. By 2055 they’ll expect 26. As work becomes easier (these days more of us work in offices than factories) and we find we’ve many more years on our hands it’s entirely reasonable to expect us to work for longer.

Some employers are begging for it. At Teachers Mutual Bank in Western Sydney one third of the workforce is over 50. Liz Dec is 66. She was hired to work there at the age of 58.

“I arrived and discovered everyone I met had been here for ten or more years, some 15, some 20,” she said. “No-one leaves.”

To keep staff and to keep its older staff healthy the bank runs workshops on diet and health.

Ms Dec says before she started work in the bank’s call centre she didn’t know how to read the labels on cans of food.

“And they offer aerobics classes and pilates classes. Last year when I turned 65 I told them I was thinking about retiring. They told me instead I could transition, maybe take off one day a week and then the next year two days. They value older people, and they told me it would be fine to apply for a promotion.”

More and more employers are going to go after older workers and fighting to retain them. The hardware chain Bunnings says one quarter of its workforce is aged over 50. Hockey says he met met a worker there in his mid-80s last week and made the mistake of asking him how many days a week he worked. The answer was five.

Working women

Four decades ago only 43 per cent of working age Australian women made themselves available for paid work. Many of those who left to have children never came back. Now 58 per cent of Australian women are available for paid work, but it’s still well short of the 62 per cent in Canada and New Zealand. Hockey says he has heard that in the Canadian province of Quebec childcare is available for just $5 a day. Getting support for childcare right (as he says the government is labour force.

Australia is also well behind New Zealand in the employment of men. There Hockey thinks the reason is compulsory superannuation. We have it, and New Zealanders don’t - so they have to work longer. While Hockey hasn’t talked about ending compulsory superannuation (although he has talked about taxing it more fully) he is keen to remove whatever remaining barriers prevent mothers and men or any age from turning up for work.

Making Australia bigger

Traditionally we’ve solved labour shortages by bringing in more workers. It’s how we built the Snowy Hydro scheme, how we filled our schools with teachers in the 1970s and how we built mines in remote parts of Australia at the start of the 21st century. Yet curiously, for such a forward thinking document, Hockey’s intergenerational report assumes no increase in immigration whatsoever. It remains stuck at 215,000 per year, each year for the next 40 years during what we are assured will be a time of growing labour shortages. It’s a lower immigration rate than we have today.

“I think palatability has played a part,” says demographer Martin Bell at the University of Queensland. “To remain constant as a share of the population the immigration total has to climb each year, but a steady number looks less alarming.

By factoring in a low and steady rate of immigration in the report Hockey also acted to head off a renewed debate about a big Australia.

Bell says it wasn’t long ago the former prime minister Kevin Rudd courted controversy by speaking out in favour of an Australia of 40 million. At the time most projections were for around 28 million. Yet 40 million is what Hockey’s intergenerational report forecasts. Higher immigration assumptions would have pushed the total even higher.

Yet Bell thinks 215,000 per year might be a reasonable guess. he is more optimistic than many our ability to fill labour shortages ourselves by getting more people into work and eating into the ranks of the unemployed.

Framing Labor

The intergenerational report presents two “sliding doors” scenarios. Had Labor’s policies been continued it says the budget deficit would have hit $534 billion by 2055, around 12 per cent of gross domestic product. It says under those of its policies already passed by the Senate the projected deficit has been wound back to half that. It says if they had all been passed it would be eliminated.

Many of the assumptions behind those conclusions are unreasonable, among them that Labor would have kept to its promise to keep increasing foreign aid each year into the future, that Labor would have never lifted taxes to fund its commitments to schools and hospitals, that the Coalition would continue to underfund hospitals by more each year for four decades, and that either side would remain in power until 2055.

The future is hard enough to predict when you feed in reasonable guesses about what's likely to happen. When you ensure that you don't, the predictions become silly. Many of the predictions in the intergenerational report are silly.

In The Age and Sydney Morning Herald


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Friday, March 06, 2015

Intergenerational report. Why the future will be nothing like as bleak as it suggests



The biggest economic challenge facing Australia in 40 years' time will be a shortage of workers. The finances aren't nearly as challenging.

It's true that we will probably have to pay more of our income in tax, but we'll earn a lot more. Adjusted for inflation we'll earn will earn three times as much as we do today. We'll be able to find whatever extra tax is needed.

What we won't be able to find - as easily - is more workers. The intergenerational report says instead of the present 4.5 people of traditional working age for each older Australian we'll have 2.7. It's a dramatic slide, but it overstates the problem.

As we getting older, we will also get less young. That means that as well as having more Australians over 65 to support we'll also have fewer Australians under 16. Putting the two together, the figures in the intergenerational report suggest that whereas at the moment there are two Australians of traditional working age available to support each Australian of traditional dependent age, by 2055 there will be just 1.7.

It isn't a problem we can wish away. But the report overstates it by assuming that the automatic mechanisms for solving it work badly.

As we run short of workers we'll want to import more of them. Yet the report assumes that our immigration intake will remain stuck at 215,000 each year for 40 years without climbing. The implicit assumption is that this government and each of its successors will resist what by then would become a deafening call from employers and consumers of services such as home care to bring in more workers.

It's hard to escape the conclusion the assumption was added either to make the Australian population look less alarmingly big than it will be in 2055 (the report says it will be about 40 million) or to make the budget problem look worse. Migrants pay tax and the more migrants we have the better the budget looks.

The other automatic mechanism that will call forth more workers is higher wages. Whenever there's a shortage of anything its price goes up and more people start supplying it. It's how markets work. Yet the report assumes that most older Australians won't answer the call. By 2035 the pension won't be available until the age of 70 if the government gets its way. Yet the report assumes that only 52 per cent of the men aged 65 to 69 will be available for work, and only 37 per cent of the women.

The figures sound too low to me. I don't know a lot about central planning, but do I know that markets work. If there's a shortage of workers their price will go up and we'll find more of them, whether from overseas or from the ranks of Australians presently not working. The report reads as if it was written by Soviet-era bureaucrats who don't believe in markets. The future won't be as bleak as they think.


In The Age and Sydney Morning Herald


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Intergenerational Report: How Labor was framed

How much worse under Labor? The Intergenerational Report tells us that had Labor's programs continued uninterrupted, the deficit would have hit $534 billion by 2055. The figure is expressed in today's dollars. It would amount to be 11.7 per cent of gross domestic product.

It's an extraordinary projection. The previous Intergenerational Report, in 2010, predicted a deficit of less than 3 per cent of GDP.

Fortunately the Coalition came to office and turned things around, the report suggests. The measures so far passed by the Senate would have cut the projected deficit to around 6 per cent of GDP and the measures not yet passed (some of which the Coalition has since abandoned) would have abolished it altogether.

As the Treasurer Joe Hockey said: "Last year's budget was a budget that tried to do 40 years of work in one year and it did bite off too much."

How it did it is buried in the fine print of the Intergenerational Report. The biggest change was the decision to stop lifting spending on hospitals in line with the costs of running them. Beyond 2017-18 Commonwealth grants to states for hospitals will increase only in line with the population and the consumer price index. But the cost of running hospitals is continuing to climb. Not meeting that cost is unrealistic (unless the states meet it by doing something such as lifting the goods and services tax) but it holds back the projected deficit.

The other big change was the decision to freeze Australia's foreign aid budget in real terms. Under Labor it was to climb to meet the United Nations target and then keep climbing with gross domestic product from then on. The budget measure passed by the Senate has it climbing by just only consumer price index for the next 40 years.

Neither position sounds realistic... It is likely Labor would have imposed a further pause on its program of lifting foreign aid (it's imposed plenty in the past) and it's likely that the Coalition would have relented, but when compounded over 40 years the difference between the two policies gets very big.

Of the measures not yet through the Senate, the biggest are the Coalition's approach to pensions and Gonski.

The Coalition wants to index pensions only to the consumer price index rather than to wages until the budget is back in substantial surplus. Labor wants pensions to continue to climb with male earnings. The Coalition wants to lift the pension age to 70. Labor had only announced an increase to 67.

On the Gonski education reforms, Labor had committed to an expensive formula that would have supported schools on the basis of need. The Coalition guaranteed that funding only for a few years. Again, over 40 years the difference is huge.

Those measures are about all it takes to eliminate Labor's looming deficit according to the report - those measures, plus the lower interest payments on debt that would result.

It's an implausibly big effect in part because Labor would most likely never have spent as much as the Coalition is suggesting and because the Coalition would never have spent as little.

In The Age and Sydney Morning Herald


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Thursday, March 05, 2015

The Intergenerational Report to be right message, wrong time

The economy hasn't had a run as weak as this year's, yet after three straight quarters of exceedingly weak economic growth we are about to be told we've got to tighten our belts.

It's the right message. In order to buy all of the extra health care and aged care and all the other things we'll want over the next 40 years we are going to have to either pay more tax, pay more out of own pockets or scale back what we want.

But it's exactly the wrong time to be saying it. In the past three quarters economic growth averaged an embarrassing 0.47 per cent. If it continued like that for 12 months it would give us an annual growth rate of 1.9 per cent. It's not too far above the 1.7 per cent we endured during the global financial crisis, and well below our potential growth rate of around 3 per cent.

Cutting back on spending now, or raising taxes now, as Thursday's Intergenerational Report will suggest we should, would depress the economy further and smother the "green shoots" of recovery the Treasurer Joe Hockey occasionally tells us are emerging.

The intergenerational report is required by law every five years.

If it had been required a year ago soon after the Coalition took office, its message would have been timely with the economy growing at an annualised pace of 3.8 per cent.

We would have been in a good position to accept the need to lose tax deductions or wind back benefits or to pay more for education and health. We would have felt better about the budget.

We would have been presented with the case for restraint. As it was we were presented with the restraint without the case. It's arriving too late. The government will have to build a case for long-term cutbacks without cutting back right now.

In The Age and Sydney Morning Herald


Intergenerational Report to show Labor's spending was growing out of control

Australia would have needed to lift its tax take by almost 50 per cent to meet Labor's long-term spending promises, Thursday's Intergenerational Report will show.

To be released in the wake of very weak economic growth figures showing income per head barely rising, the report will say that Labor's commitments to hospitals, schools and the national disability insurance scheme would have lifted Commonwealth government spending to an unprecedented 37 per cent of GDP by 2055. It is presently 26 per cent, slightly above government revenue of 23.6 per cent.

On Wednesday, the Abbott government was already signalling it will use the report to ramp up its political attack on Labor while also using the findings to frame the political and economic debate about its next budget.

Prime Minister Tony Abbott told question time debt had been set to "soar" under Labor's policies and in contrast, if the government had been able to get all of the measures in its last budget past a hostile Senate, a surplus would have quickly been delivered "and stayed there for 35 years".

Mr Abbott said the report will show that, even with only some of its controversial budget measures passed, the Coalition's plan "does in fact get close to surplus and ongoing deficits are halved".

Graphs in the report show that the budget measures passed by the Senate have cut the expected spending bill in 2055 to 31.2 per cent of GDP. If they had all been passed, including those now withdrawn, spending would amount to only 24.6 per cent of GDP, allowing a tax take roughly in line with the long-term trend.

"Not only is this government serious about economic reform but we have very significantly and substantially delivered the budget repair that we pledged to deliver," Mr Abbott told Parliament. 

Labor's settings would have resulted in a budget deficit of 12 per cent of GDP by 2055. The measures passed by the Senate have halved that to 6 per cent. If all the measures had been passed the deficit would have been eliminated and the budget would be in a slight surplus.

The report includes a special chapter on what Labor's policy settings would have delivered, the first time such calculations have been included in an Intergenerational Report. It will be used to build the case for further spending cuts in the May budget on top of those introduced as a result of the last budget.

Treasurer Joe Hockey said it would kick-start debate in town halls and on street corners. "We will get the information out but we are not doing it in a way that would be typical for governments to buy those rather droll ads that try and convince people to come this way," he said.

The report assumes an economic growth rate of 2.8 per cent over the next 40 years, down from 3.1 per cent over the past 40 years.

The December national accounts released by the Bureau of Statistics show the economy grew by 0.5 per cent in the quarter, the third consecutive quarter of weak growth. Over the past nine months the economy has grown at an annualised pace of just 1.9 per cent. The annual growth rate, including the higher growth before the May budget, was 2.5 per cent.

Economic growth per person was just 0.2 per cent in the December quarter and just 0.1 per cent in each of the two quarters before that.   

The good news in the accounts was a jump in consumer spending of 0.9 per cent largely funded by running down savings, and a 5.3 per cent jump in spending on home building. Business investment slid a further 0.7 per cent.

The projections in the report are sensitive to the assumptions used. Thursday's report will assume Australia's immigration intake stays constant at 215,000 per year for the next 40 years, resulting in a decline in the immigration rate as the population climbs. A higher rate would have resulted in a better budget outlook. Migration typically boosts the size of the economy and the tax take.

The report assumes population growth of 1.3 per cent per year, down from 1.4 per cent per year in the past 40 years.

It says that by 2055 there will be only 2.7 Australians of traditional working age to support each Australian aged 65 or over. At present there are 4.5. The life expectancy women will climb to 90.5 years and the life expectancy for men to 88.

Although the proportion of the population in work will shrink as the population ages, the proportion of both the working age population in work and the senior population in work will continue to climb.

The release of the report comes more than two months before the federal budget is released, and ahead of major new policy announcements including a families package and others targeting small business and infrastructure.

Labor Treasury spokesman Chris Bowen said the report, which is a month overdue, was being used by Mr Hockey "as a prop to help his flailing campaign to sell his unfair budget".

Australian Greens senator Richard Di Natale has signalled his intention to hold a Senate inquiry into the report.

In The Age and Sydney Morning Herald


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