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Australia’s Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

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Page 1: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

Australia’s Intergenerational Report

Considering future liabilities of Government in a fiscal context

22 April 2013

Page 2: Australias 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.

Page 3: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

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.

Page 4: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

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

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Page 5: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

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

Page 6: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

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.

Page 7: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

Population growth and combined dependency ratio

Source: ABS cat. no. 3105.0.65.001 (2008) and Treasury projections from 2010 Intergenerational Report.

Page 8: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

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.

Page 9: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

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.

Page 10: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

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.

Page 11: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

Projected path of net debt

Page 12: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

Pension and superannuation expenditure

Page 13: Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

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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