Sunday, April 01, 2007

Monday is intergenerational day!

Australia's second intergenerational report to be released today will warn of “significant strains” on the nation’s finances in the lead up to 2047.

The 40 year look-ahead is required at least every 5 years as part of the Charter of Budget Honesty Act.

The first, released by the Treasurer Peter Costello as part of the 2003 budget, painted a grim picture of rapidly rising government spending unsupported by Australia’s present tax base...

Mr Costello used it to justify increasing consumer co-payments for medicines and setting up the Future Fund to provide for the public servants superannuation payouts.

The report warned that without action over the next 40 years the aging of Australia’s population and increased medical spending would blow out the budget deficit by 5 per cent of GDP.

However itnoted that Australia’s wealth would have doubled by that time and concluded that Australia was “well placed” to meet the challenges of an aging population.

The document to be released today is expected to be less apocalyptic. Peter Costello said on Sunday that while it will show that “in 40 years time there are going to be significant strains” on the budget it would also show that “we are making progress, although not out of the woods.”

Several of the projections in the 2002 report now appear overly pessimistic. The report projected a drop in Australia’s fertility rate from 1.75 babies per woman to 1.55. Since then the fertility rate has climbed to 1.83.

It also forecast a decline in the participation rate, the proportion of the working-age population making itself available for work. Instead the participation rate has continued to climb to new record highs.

The Treasurer will use today’s report, to be launched at the press club as a means of outlining the challenges he will attempt to deal with in the budget in one month’s time.

The report is not expected to examine the impact of climate change even though the Charter of Budget Honesty Act appears to require such a consideration.

It says that intergenerational reports should assess the sustainability of current government policies over a 40 years time period, a period in which the effects of climate change and of action to restrain it are expected to become evident.

The 2002 intergenerational report concentrated heavily on what it saw as an inexorable rise in Commonwealth spending on health, most of which it conceded was unrelated to aging, but flowed from new technology.