The fourth intergenerational report, unveiled by Treasurer Joe Hockey today, predicts a 40 million-strong Australian population in 2055 who will have never seen a budget surplus. Australia is on course for a net government debt of 60% unless the government is given its way by the Senate, says Hockey.
For the first time, the report models three scenarios: one reflecting the government’s version of the fiscal situation inherited from Labor, its current budget settings, and a “proposed policy” that would result if the Senate abandoned any effort to amend or block the government’s legislation.
According to what the report demurely calls “previous policy” — “fiscal projections associated with the set of policies in place prior to the 2014-15 Budget”, which reflect Hockey’s own 2013 Mid-Year Economic and Fiscal Outlook rather than Labor’s fiscal settings as confirmed by the 2013 Pre-Election Economic and Fiscal Outlook — the budget deficit will reach $533 billion in 2055, or 11.7% of GDP, and net debt will reach $5.6 trillion (while the word “Labor” isn’t used, expect this to be the figure hurled at the opposition as the government tries to reinvigorate its debt and deficits campaign). Under current settings, the deficit will steadily worsen to $267 billion in 2055.
Escape from these nightmare scenarios, the report shows, lies with the government’s “proposed policy” restoring Australia to surplus in 2020 and running a surplus through to the end of the forecast period, with net debt repaid by 2032. That reflects a setting in which the government’s 2014-15 budget was passed intact by the Senate.
Some other features of the report:
- In 2054-55, life expectancy for men is projected to be 95.1 years for men and 96.6 years for women. By then there’ll be around 40,000 centenarians;
- The feared fiddling with net overseas migration has not happened: the assumption for NOM is 215,000 a year compared to 180,000 a year in the 2010 IGR;
- Health spending is currently scheduled to rise from 4.2% of GDP to 5.7% of GDP in 2055 — although that reflects policies like the GP co-payment that have already been abandoned by the government. The government’s “preferred policy” would only reduce that growth to 5.5% of GDP in 2055;
- There is a chapter on the environment and a sub-section on climate change, which notes that “some economic effects may be beneficial — where regions become warmer or wetter this may allow for increased agricultural output — while others may be harmful.” The government’s “Direct Action” plan will enable Australia to reach its 2020 emissions target — but “will also achieve other direct environmental and economic benefits, beyond its role in reducing greenhouse gas emissions”; and
- There’s no discussion of potential sources of increased revenue such as reducing superannuation tax concessions or improving multinational corporation tax compliance.
The report also assumes annual GDP growth of 2.8% — slightly up from 2.7% in the 2010 IGR. Coming a day after we learned the economy managed just 0.5% growth in the December quarter, it reinforces the tension at the heart of the government’s fiscal stance. The government will be pumping tens of billions of dollars into the economy over the next three years and still expects below-trend growth for much of that period. Its remorseless insistence that it has inherited a budget disaster and that we are heading for a multitrillion-dollar debt under “Labor settings” is contradicted by its macroeconomically necessary deficit spending.
Hockey was at pains in the report lock-up to emphasise his desire for a sensible debate about the long-term fiscal challenges the report discusses. Fair enough. That could start with greater clarity and honesty around the government’s current rhetoric about the budget.