The Inside Word
The Future is Yours – 2023 Inter-Generational Report
American President Abraham Lincoln understood something about the challenges that lay ahead for his country and said that “The most reliable way to predict the future is to create it. And so it should still be today for the Federal Government through its Treasury generated Inter-Generational Report (IGR).
Started by Peter Costello under the Howard government and continued every five years through consecutive governments the IGR has found a new lease of life and relevance with Treasurer Jim Chalmers asking Treasury to report every 3 years.
It’s historically reassuring that President Lincoln saw fit to create the future rather than engage in futile crystal ball policy for his evolving nation, even if he didn’t have the sophisticated resources available today to help guide him – much simpler time perhaps.
Today’s more complex world with so many competing priorities requires as much good guidance to the future as it does in creating it. This should be beyond any one election cycle and any one government. The IGR does both very well.
This report looks at what Australia might look like in 40 years. It’s not a perfect science of course as it’s a very long time to be making assumptions about the future, but without some examination and policy reflection then it’s equivalent to asking the same question to two economists and getting three answers.
My own experience of the IGR since its creation is that it makes insightful and fascinating reading, can be very frightening in some places, and creates a credible focal point on specific issues of national importance. Not that we need another report to tell us of the housing crisis that has been brewing for over a decade or that cost of living pressures feature more than in the past. What the IGR can do differently is form a non-partisan body of research that is acceptable across party lines.
So what can we expect as assumptions in the year 2062-2063, if you subscribe to the theory? Apparently we will all be older, no, not the obvious older by 40 years, but older as a nation and also not getting younger at the other end. So as a nation the two parts, if in sync, should mean no differential in burden of youth or old age to some extent.
The economy is projected to be around two and a half times larger and real incomes around 50 per cent higher by 2062–63. The economy is projected to grow at a slower rate, which should be no surprise as productivity continues to be an issue that will persist.
We are expected to live longer and in better health. This is very important as the cost of health care continues to outweigh spending and expectations we have for ourselves. Population is projected to grow more slowly at an average of 1.1 per cent a year compared to 1.4 per cent over the past 40 years and projected to reach 40.5 million.
Migration will continue to contribute to population growth but is projected to fall as a share of the population. The number of Australians aged 65 and over will more than double and the number aged 85 and over will more than triple. The number of centenarians is expected to increase six-fold which means a lot more letters from the King for the lucky many that reach their 100s.
More people are participating in paid work than ever before (read we work longer) but as the population continues to age, the overall participation rate is projected to decline gradually from 66.6 per cent to 63.8 per cent in 2062–63. Average hours worked is also expected to decline slightly.
Productivity growth is assumed to grow at 1.2 per cent a year, around the average of the past 20 years although I think this is a very fungible figure and will depend on factors that may not yet be considered. The future path of productivity is not a foregone conclusion and will be influenced by decisions taken by governments, businesses, and investors, and the big shifts underway in the global and domestic economy.
The ageing population, adoption of new technologies, net zero transformation, growing demand for care and support services, and geopolitical uncertainty are changing the composition of our economy.
The net zero transformation will see global demand for some exports decline, while creating new markets and opportunities for our industries. Critical minerals could become key exports for Australia as the world transitions to net zero.
The five main spending pressures of health, aged care, the National Disability Insurance Scheme, defence, and debt interest payments are projected to rise from around one-third to around one-half of all government spending. Something we probably need to consider further for federal budgets and spending.
Consistent with past IGRs, total income support and education payments are projected to continue to grow in real terms per person but decline as a share of GDP as the population ages.
Decarbonisation of the transport industry and changing consumer preferences are expected to erode revenue from fuel and tobacco excise. Global demand for emissions-intensive commodities, and reliance on them as a source of revenue, is also likely to decline.
The government of the day and governments of the future while not having a crystal ball can take some comfort from the work of Treasury to provide a base from which to draw as indicators for policy development that looks beyond an election cycle. This is good news for all Australians.
We can’t predict the future, but the Inter-Generational Report is better than just looking in the rear vision mirror and hoping for the best akin to the famous saying from writer Lewis Carroll that “if you don’t know where you are going then any road will do”.