Intergenerational reports were of course an initiative of Peter Costello as Treasurer, and one of his better ones. Under the Charter of Budget Honesty, they’re supposed to be produced by Treasury every five years, and it was only April 2007 that we were treated to the last one.
So less than three years later, we have another report. By now you know all the key details, because they’ve been leaked ahead of time. In fact, Wayne Swan first began discussing the contents of this one – specifically, that the Australian population was going to be about 7 million larger in the late 2040s, at 35 million, than estimated previously.
And like its predecessor, which like today’s was also launched by the Treasurer at the National Press Club, this one is a highly political – though not partisan – document.
The 2007 report was an opportunity for the Howard Government – by then less than six months out from an election – to spruik its reform record. Peter Costello’s speech is an extended exercise in self-congratulation about how the Government’s fiscal restraint, Baby Bonus and welfare reforms had improved Australia’s fiscal position, lifted fertility and increased the participation rate.
And on productivity, Costello boasted of introducing Workchoices. Ah well. The Rudd Government’s skills and infrastructure focus at least has the virtue of not looking like purest political poison.
This report is every bit as much a political document in an election year, but with a key difference – this isn’t about what the Rudd Government has done – or only partly. It’s more about how it has a long-term economic reform agenda and how much of a threat the Coalition is to Australia.
To combat the pressures of an ageing population, the Report identifies fiscal restraint, higher productivity, higher participation and more nebulously commits to tax reform – via of course the unreleased Henry Review – and “important health reform”. That’s the guts of the Rudd Government agenda for this year, the story it will take to the election.
It also takes the opportunity to spruik the benefits of the CPRS. One of the parameter variations between this report and the last Costello report, apart from methodology refinements in Treasury’s modelling, is the inclusion of the impact of the CPRS, despite the chances of its passage looking decidedly grim for the moment.
The report makes much of the impact of higher health spending, which is estimated to double as a proportion of GDP over the next 40 years. As I’ve previously noted, there’s an element of learned helplessness in this repeated bemoaning of higher health expenditure. But there’s a useful graph in the Report appendices that gives the lie to this. In outlining the methodological variations made since 2007, Treasury notes that in November 2008, COAG agreed on a new Commonwealth funding model for health care. The impact of that agreement between Rudd and his state counterparts – partly driven by Labor’s incessant criticism of the Howard Government that it had cut hospital funding – is to push the line for projected hospital spending per GDP in 2020 from a very slowly rising line around 1% up, to a rapidly rising line heading north toward 1.3%.
There’s nothing inevitable about that increase. It’s purely political.
The report is also, and perhaps not intentionally, a corrective to the debt-and-deficit obsessives who continue to haunt economic debate on the conservative side. Despite the ravages of the GFC and the cost of the Government’s stimulus packages, the Budget is forecast to plunge into oldie-inspired deficit at pretty much exactly the same time as it was predicted to in 2007, when Peter Costello’s report showed it entering deficit in about 2023. In the current version, under current spending patterns, it will enter deficit at about the same time. In the event the Government meets its commitment to cap expenditure at 2% real growth, it won’t enter deficit until 2030.
The report makes much of that fiscal restraint, explaining that the Budget deficit will be a full percentage point per GDP lower in 2050 than it would otherwise have been if the Government sticks to its fiscal guns.
This will be a major theme this year. You can forget about a traditional pre-election Budget. This is a Government determined to give the impression of fiscal rectitude. That’s why the Government is making so much of the private health insurance rebate rollback, which the report says is the fastest growing item in the health budget – growing at 9% a year (and achieving precisely no health outcomes except making its middle-class recipients feel richer).
At least on the PHI rebate the Government has understood from the get-go that it needs to sell this important attack on middle-class welfare. This is one double-dissolution trigger the Government doesn’t intend to bugger up, like it has so successfully buggered up the CPRS.
For an Opposition determined to run populist scare campaigns at the slightest provocation, there’s plenty of material here. Bronwyn Bishop is already shrilling that the elderly are being demonised (it’s just you that’s being demonised, Bronwyn, not anyone else). And Barnaby Joyce is trying to dress up attempts to lift the participation rate as Labor forcing people to “work till they drop”.
Oddly, lifting the participation rate among older workers was the policy of the Howard Government as well. Peter Costello spent quite a bit of time in his 2007 speech explaining how well the Howard Government had done in getting older workers to stay in employment.
Then again, that’s only one of many areas where this Coalition is a rather poor imitation of the mob who won four elections in a row.
Smart Company is the leading online publication in Australia for free news, information and resources catering to Australia’s entrepreneurs, small and medium business owners and business managers.
Comments