A critique of the intergenerational reports
Sol Encel
Social Policy Research Centre, UNSW
Contact Email:   s.encelunsw.edu.au

The Federal Treasurer, Peter Costello, has now produced two 'Intergenerational Reports' (2002 and 2007). The first report was clearly influenced by the 'crisis' school of thought which has dominated much public discussion about the impact of an ageing population, and made much of a 'fiscal gap', estimated at 5 per cent of GDP, that would develop by 2041. The gap would be the result of increased government spending on health care, aged care services, and age pensions. The term 'fiscal sustainability', which in plain language means no new taxes, recurs throughout the report.

The language of crisis is less evident in the second report, which revises the projected fiscal gap from 5 per cent to 3.5 per cent of GDP. The report concedes that 'while an ageing population is projected to contribute to an increase in spending over the next 40 years, roughly two-thirds of the projected increase in real spending per person is driven by factors other than ageing'. It also acknowledges the point, made in an OECD report in 2005, that labour force participation rates for people over 55 are well below the OECD average. It does not, however, suggest how they can be raised.

Although the two reports contain much statistical detail, they do not advance the argument significantly beyond the analysis made in a paper by Clare and Tulpule in 1995 ('Australia’s Ageing Society'), which also calculated the costs of health care, pensions etc, and concluded that as GDP continued to grow, a modest rise in taxation (not more than 2 per cent) would meet the cost increases. Talk of tax increases is political poison, but governments will have grasp this nettle sooner or later.

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