Australia’s Intergenerational Report
Considering future liabilities of Government in a fiscal context
22 April 2013
History• 1992 - Senate Select Committee on Superannuation
report.• 1992 - Retirement Income Modelling (RIM) Task
Force commenced operations. • 1996 - Commission of Audit report draws attention
to the demographic issue using RIM projections and proposed the Charter of Budget Honesty.
• 1998 - Charter of Budget Honesty Act 1998 passed.
The Charter
• The Charter of Budget Honesty Act 1998 requires the Treasurer to produce an intergenerational report (IGR) every 5 years.
• The report is intended to assess the sustainability of current Government policies over the next 40 years.
• The Government has released 3 IGRs: 2002, 2007, 2010.
2010 IGR: Themes/Conclusions• Ageing population, health and climate change
challenges for living standards and budget• Early action minimises adjustment costs and
economic and fiscal consequences in long run• Responding to these challenges
– Responsible economic management: productivity, participation
– Fiscal strategy: restraining expenditure growth – Health reform
4
How the IGR is put together
• IGR is a snapshot based on current policy• IGR model
– GDP projections based on 3Ps methodology– Constant tax-to-GDP ratio assumption (23.5%)– Model major demographic spending areas– Non-modelled held as constant share of GDP
The 3Ps framework for real GDPReal GDP
Population Participation Productivity
Demographics
Fertility
Mortality
Net migration
Population (15+)
Participation
Participation rate by age and gender
Unemployment rate
Average hours worked by age and
gender
Average hours worked per
working person (15+)
Productivity
Labour productivity
Average output per hour worked
Employment
Source: Australian Government, 2010, Intergenerational Report 2010, Canberra.
Population growth and combined dependency ratio
Source: ABS cat. no. 3105.0.65.001 (2008) and Treasury projections from 2010 Intergenerational Report.
Participation rates
Source: 2010 Intergenerational Report and ABS cat. no. 6291.0.55.001.Note: ◊ denotes recent participation figures published by the ABS for 2010-11.
Growth in real GDP per person based on the 3Ps
0.3 0.3
-0.1-0.4
1.8 1.9
0.1
-0.2
0.0 0.0
1.6 1.5
-1
0
1
2
3
4
Share ofpopulation 15+
Participationrate
Unemploymentrate
Averagehours w orked
Labourproductivity
Real GDP perperson
-1
0
1
2
3
4
Past 40 years Next 40 years
ProductivityParticipationPopulation
Percentage contribution Percentage contribution
Source: 2010 Intergenerational Report.
Fiscal Gap
Source: 2010 Intergenerational Report and 2012-13 Budget .
Note: Primary balance measure. For the 2012-13 Budget numbers, 2009-10 and 2010-11 are actuals, 2011-12 to 2013-14 are estimates and 2014-15 and 2015-16 are projections.
Projected path of net debt
Pension and superannuation expenditure
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Influence and the IGR• Provides an authoritative long term perspective on major
pressures affecting Australia’s future• Useful tool for influencing community opinion• Recognition of long-run fiscal pressures and steps taken to
manage spending pressures and liabilities• Productivity and Participation are now key considerations when
assessing policy• Significant policy change since IGR1
– Health– Pension age
• Modelling capability a key policy tool
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