Worried about old age? Worried more after Monday’s pre-budget leak that
the Medicare Safety Net won’t take the strain. Worried even further by
yesterday’s Productivity Commission report and its forecast that tax
levels will need to rise by 20% over the next three decades unless
action is taken to plan for our rapidly greying population? Worried by
today’s news about cuts to pharmaceuticals funding? Worry on. There’s
more.

The March McKinsey Quarterly has a whole lot of reasons to be cheerful
– not. Things like immigration, later retirement and increased birth
rates aren’t going to help foot the bill that much, according to the
management guru in an article headed. The demographic deficit: How
aging will reduce global wealth (here).

It strikes a cheery note from the word go: “The world’s population is
aging, and as it gets even greyer, bank balances will stop growing and
living standards, which have improved steadily since the industrial
revolution, could stagnate. The reason is that the populations of
Japan, the US, and Western Europe, where the vast majority of the
world’s wealth is created and held, are aging rapidly… Since people
save less after they retire and younger generations in their prime
earning years are less frugal than their elders were, savings rates are
set to fall dramatically…”

The treasurer will be cheered to know that McKinsey says finding
solutions won’t be easy. “Raising the retirement age, easing
restrictions on immigration, or encouraging families to have more
children will have little impact. Boosting economic growth alone is not
a solution, nor is the next productivity revolution or technological
breakthrough. To fill the coming gap in global savings and financial
wealth, households and governments will need to increase their savings
rates and to earn higher returns on the assets they already have…”

Right then. So, for a starter, what do we do with negative gearing?

PS: Don’t get excited by today’s poll
in the Fairfax papers that Australians would prefer increased services
to tax cuts. They always say that. People like to look high-minded,
after all. Instead, focus on the fact that the number saying they’d
like more spending has fallen. You can only fake it for so long, after
all.

Peter Fray

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