OK, don’t fall off your seat Ed, but I am actually going to write my first post in about 300 blog years.

The Federal Treasury’s second Intergenerational Report (which we groovers like to call “IGR2″) was released this week and social policy nerds like me were, I’ll say it, excited. The IGR2 is a 40 year projection of Australia’s future economic and demographic position based on current economic growth, government spending and population trends. It’s also something which all portfolios of government rely on for what I believe are socially narrow policies and public spending cutting and is therefore well worth reading so you know where the other side is coming from. It makes a couple more pointed policy references than the IGR1 (eg it refers to the future need for market-based mechanisms, indicating a government position rather than a statistically demonstrated necessity), making me a little more wary of the IGR2 as an ideological weapon rather than a policy-making tool.

Go here IGR2 to have a read.

KEY POINTS of the IGR2:

1. CLIMATE CHANGE:

It’s important to note that the IGR2 does not statistically incorporate the possible effects of climate change on the economy but notes that a policy of government paying for carbon abatement (as opposed to private industry) would cost in the range of at least an additional 1.25 percentage points of GDP which would mean more pressure on public spending.

2. AGEING AND THE PUBLIC PURSE:

- Over the next 40 years, the ageing of the population is projected to slow economic growth with real GDP per person rising more slowly than in the past 40 years.

- Spending pressures in areas such as health, age pensions and aged care are projected to rise. Real Australian Government spending per person will increase by around 4.75 percentage points of GDP by 2046-47.

- Net debt will therefore re-emerge around mid-2030s and increase rapidly, rising to c.30% of GDP by 2046-47.

3. AGEING AUSTRALIANS (THAT INCLUDES YOU):

- The fastest rates of growth will be in the number of people aged 65 and over. About 25% of the population is projected to be 65 and over by 2047. The rate of ageing will quicken after 2010. Fertility rates are still significantly lower than the replacement rate.

- The proportion of the population of traditional working age (15-64 years) will decline by around 8% to 60% (This should mean that there will be low unemployment ie high participation rates).

- The fastest growing group of traditional working age is the group aged 55-64, rising by nearly 50% over the next 40 years.

4. GOVERNMENT RESPONSE

- Government will focus on the “potential role of market-based mechanisms in managing spending pressures.” I take this to mean focus on competition policies including in areas traditionally excluded from competitive approaches due to “public good” exemptions (such as some areas of health spending). The social policy maker inside me is scared by this kind of rhetoric, and gets the feeling that the IGR2 is nothing more than a fancy piece of statistical propaganda which will be used to thump chests about public funding cuts for the public good over the next 200 terms of the Howard government.

- The number one spending pressure will be in health, followed by aged pensions and aged care. The Government congratulates itself in IGR2 on the reforms to the Pharmaceutical Benefits Scheme which will help reduce this as a spending pressure point. My cynical mind says that reforms have amounted essentially to less government money despite rising costs of new drugs.

5. WHAT DOES IT ALL MEAN?

It means that we are still getting older as a population and there are going to be fewer people to drive the economy and pay taxes in the future, up against a need for more public money to spend on health and aged pensions.

The IGR2 is designed as a report which a government should respond to so we don’t end up in a right mess in the year 2046-47. What this Government will probably do is the usual: limit eligibility for pensions, cut spending on other areas like education, harp on about superannuation and so on. What it would be nicer to see is: investment in high yield industries and employment training, support for family-friendly work practices so more people can afford to have kids, corporate responsibility for environmental damage (eg government-private sector shared carbon abatement policies), and basically a less narrow view of the drivers of productivity.

OK my fellow ageing Australians: any thoughts? What are your views of the IGR2 and its findings? How do you think the Government should respond?