An aging population, an aging federation, an aging government and an
aging – but fit and certainly agile – prime minister all mesh together
to dominate the news today. Yesterday’s
bit of budget pre-softening warned of cuts to health and aged funding.
Any restriction of access to the Medicare safety net – only introduced
last March as part of the pre-poll splurge – would break an election
commitment. The scheme, however, estimated to cost $440 million over
four years has already swallowed up $649 million and there are fears it
could end up costing $1 billion or more.

That’s a great backdrop to the Productivity Commission’s report
called the Economic Implications of an Aging Australia. Australia needs
wide-ranging productivity reforms sooner rather than later to avoid a
21% tax increase to pay for an aging population, it warns.

Commission chairman Gary Banks says, however, we shouldn’t be afraid.
“The very fact that aging brings us longer, healthier lives shows why
we shouldn’t just see it as a problem,” he says. He talks about three
Ps – population, productivity and participation in the workforce. The
last two seem to hold the key. Tim Colebatch comments in The Age this morning that we need a practical policy road map for them.

Increased participation in the workforce, particularly by workers in
the 55 to 64 age group and older, is important. New Zealand has shown
that incentives such as increasing the eligibility age for the pension
from 60 to 65 can increase participation dramatically… Increased
productivity is the most important potential contributor to higher
future growth and incomes, and the best way to minimise the tax burden
on current generations. But this will need tough decisions on economic
reform, an area in which talk is more in evidence than action.

Oh dear. Reform. The Medicare static show us the danger of the
government’s strategy since 2001 of buying itself back into office –
particularly with expenditure on the oldies that will blow out and is
politically suicidal to claw back. It desperately needs new ideas.

Federalism may be the big one – but not the current GST squabble. What
seems to be unsayable at the moment is that the taxes the Commonwealth
and the states are fighting over, were left in place in case the GST
failed to raise the expected revenue. It has – by the bucketful. Those
taxes should go – and the Commonwealth and the states should negotiate
a new federalism.

The prime minister said in his speech
to the Menzies Research Centre yesterday: “If we had our time again, we
might have organised ourselves differently”. There’s always time to
re-organise federalism. We should always be on the look out for why we
need to do it and how.

The Australianeditorialises today:

“We have state-based hospital systems, despite the fact
that health policy and funding is controlled from Canberra… Ending the
present porridge of state and federal responsibilities is essential if
we are to kick-start the flagging reform process. This does not mean
surrendering all power to the national government. But it does require
Canberra and the states to stop squabbling and decide which government
services can best be provided at what tier of government – and for the
other to butt out. Last night the prime minister made the case for a
national approach in water management, industrial relations, and for
incremental reforms involving Canberra and the states in health and
vocational education. It was a positive speech – as far as it went –
and should not frighten any premier not looking for an unnecessary
fight… But last year the Productivity Commission identified
infrastructure and health services as key reform areas and they are the
ones which the federal Government should vigorously pursue.”

Good idea. That would help productivity – getting the money – and
ensure we get the best value for it when we spend it on community needs
like our aging population. With the latter, the states need to accept
that their role is coordinating, not administering. They can free up
some money by thinning their top-heavy health and human services
bureaucracies and concentrating on knowing and meeting their
on-the-ground requirements.

And as part of supporting productivity – and the participation in the
workforce that will support it – the Commonwealth needs to look at tax
reforms of the sort the Business Council of Australia suggested
yesterday. Do that, Mr Treasurer, and more people might think you’ll be
a better PM than The Sydney Morning Heraldpoll suggests this morning.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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