Lies, Damned Lies and the 2015 IGR · 80-84. 90-94. Population (millions) - 2015 . Males. Females. Analysis based on IGR & ABS . ... Lies, Damned Lies and the 2015 IGR 29 . What a
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This presentation has been prepared for the 2016 Financial Services Forum.
The Institute Council wishes it to be understood that opinions put forward
herein are not necessarily those of the Institute and the Council is not responsible for those opinions.
Intergenerational Report • Released at least once every 5 years
• 40-year projections: economic, demographic, fiscal outlook
• Intent: Assesses long-term sustainability of Government policies in the
context of economic & demographic challenges
• 4 reports released so far: 2002, 2007, 2010, 2015
Lies, Damned Lies and the 2015 IGR 2
Agenda • What a Great Idea!
• What can be learned from the 2015 IGR?
• What a Disappointment!
• Calling All Actuaries!
Lies, Damned Lies and the 2015 IGR 3
What a Great Idea! • Periodic review to assess long-term impact of current & proposed
Government policy
• Facilitates a national conversation – shapes how economy & society operate – NHS in UK (1948), Compulsory Superannuation in Australia (1992)
Lies, Damned Lies and the 2015 IGR 4
What a Great Idea! Legislation
Charter of Budget Honesty Act 1998 (Section 21)
An intergenerational report is to assess the long term sustainability of current Government policies over the 40 years following the release of the report, including by taking account of the financial implications of demographic change.
Lies, Damned Lies and the 2015 IGR 5
What a Great Idea! Legislation
Charter of Budget Honesty Act 1998 (Section 21)
An intergenerational report is to assess the long term sustainability of current Government policies over the 40 years following the release of the report, including by taking account of the financial implications of demographic change.
Lies, Damned Lies and the 2015 IGR 6
What a Great Idea! Legislation
Charter of Budget Honesty Act 1998 (Section 21)
An intergenerational report is to assess the long term sustainability of current Government policies over the 40 years following the release of the report, including by taking account of the financial implications of demographic change.
Lies, Damned Lies and the 2015 IGR 7
What a Great Idea! Legislation
Charter of Budget Honesty Act 1998 (Section 21)
An intergenerational report is to assess the long term sustainability of current Government policies over the 40 years following the release of the report, including by taking account of the financial implications of demographic change.
Lies, Damned Lies and the 2015 IGR 8
What a Great Idea! Legislation
Charter of Budget Honesty Act 1998 (Section 21)
An intergenerational report is to assess the long term sustainability of current Government policies over the 40 years following the release of the report, including by taking account of the financial implications of demographic change.
Lies, Damned Lies and the 2015 IGR 9
What a Great Idea! Legislation
Charter of Budget Honesty Act 1998 (Section 21)
An intergenerational report is to assess the long term sustainability of current Government policies over the 40 years following the release of the report, including by taking account of the financial implications of demographic change.
Lies, Damned Lies and the 2015 IGR 10
What can be Learned from the 2015 IGR?
Lies, Damned Lies and the 2015 IGR
11
What can be learned from the 2015 IGR?
Power of Productivity
Lies, Damned Lies and the 2015 IGR 12
What can be learned from the 2015 IGR?
Power of Productivity
Lies, Damned Lies and the 2015 IGR 13
What can be learned from the 2015 IGR?
Growing Output Gap
Lies, Damned Lies and the 2015 IGR 14
What can be learned from the 2015 IGR?
Demographic Outlook
Lies, Damned Lies and the 2015 IGR 15
1.5 1.0 0.5 0.0 0.5 1.0 1.5
0-4
10-14
20-24
30-34
40-44
50-54
60-64
70-74
80-84
90-94
Population (millions) - 2015 Males Females
Analysis based on IGR & ABS
What can be learned from the 2015 IGR?
Demographic Outlook
Lies, Damned Lies and the 2015 IGR 16
1.5 1.0 0.5 0.0 0.5 1.0 1.5
0-4
10-14
20-24
30-34
40-44
50-54
60-64
70-74
80-84
90-94
Population (millions) - 2020 Males Females
Analysis based on IGR & ABS
What can be learned from the 2015 IGR?
Demographic Outlook
Lies, Damned Lies and the 2015 IGR 17
1.5 1.0 0.5 0.0 0.5 1.0 1.5
0-4
10-14
20-24
30-34
40-44
50-54
60-64
70-74
80-84
90-94
Population (millions) - 2025 Males Females
Analysis based on IGR & ABS
What can be learned from the 2015 IGR?
Demographic Outlook
Lies, Damned Lies and the 2015 IGR 18
1.5 1.0 0.5 0.0 0.5 1.0 1.5
0-4
10-14
20-24
30-34
40-44
50-54
60-64
70-74
80-84
90-94
Population (millions) - 2030 Males Females
Analysis based on IGR & ABS
What can be learned from the 2015 IGR?
Demographic Outlook
Lies, Damned Lies and the 2015 IGR 19
1.5 1.0 0.5 0.0 0.5 1.0 1.5
0-4
10-14
20-24
30-34
40-44
50-54
60-64
70-74
80-84
90-94
Population (millions) - 2035 Males Females
Analysis based on IGR & ABS
What can be learned from the 2015 IGR?
Demographic Outlook
Lies, Damned Lies and the 2015 IGR 20
1.5 1.0 0.5 0.0 0.5 1.0 1.5
0-4
10-14
20-24
30-34
40-44
50-54
60-64
70-74
80-84
90-94
Population (millions) - 2040 Males Females
Analysis based on IGR & ABS
What can be learned from the 2015 IGR?
Demographic Outlook
Lies, Damned Lies and the 2015 IGR 21
1.5 1.0 0.5 0.0 0.5 1.0 1.5
0-4
10-14
20-24
30-34
40-44
50-54
60-64
70-74
80-84
90-94
Population (millions) - 2045 Males Females
Analysis based on IGR & ABS
What can be learned from the 2015 IGR?
Demographic Outlook
Lies, Damned Lies and the 2015 IGR 22
1.5 1.0 0.5 0.0 0.5 1.0 1.5
0-4
10-14
20-24
30-34
40-44
50-54
60-64
70-74
80-84
90-94
Population (millions) - 2050 Males Females
Analysis based on IGR & ABS
What can be learned from the 2015 IGR?
Demographic Outlook
Lies, Damned Lies and the 2015 IGR 23
1.5 1.0 0.5 0.0 0.5 1.0 1.5
0-4
10-14
20-24
30-34
40-44
50-54
60-64
70-74
80-84
90-94
Population (millions) - 2055 Males Females
Analysis based on IGR & ABS
What can be learned from the 2015 IGR?
Demographic Outlook
Lies, Damned Lies and the 2015 IGR 24
1.5 1.0 0.5 0.0 0.5 1.0 1.5
0-410-1420-2430-3440-4450-5460-6470-7480-8490-94
Population (millions) - 2055 Males Females
Analysis based on IGR & ABS
1.5 1.0 0.5 0.0 0.5 1.0 1.5
0-410-1420-2430-3440-4450-5460-6470-7480-8490-94
Population (millions) - 2015 Males Females
Analysis based on IGR &
What can be learned from the 2015 IGR?
Demographic Outlook
Migration
Lies, Damned Lies and the 2015 IGR 25
What can be learned from the 2015 IGR?
Participation Rates
Lies, Damned Lies and the 2015 IGR 26
What can be learned from the 2015 IGR?
Health Spending
Lies, Damned Lies and the 2015 IGR 27
What a Disappointment! • Unsustainable “sustainability”
• Narrow thinking
• Invisible intergenerational equity
• Household-style budgeting
• Where is the rest of the economy?
Lies, Damned Lies and the 2015 IGR 28
What a Disappointment! Unsustainable “sustainability”
2010 Intergenerational Report (Chapter 6)
Sustainability requires that at least the current level of wellbeing be maintained for future generations. The Government’s policies seek to do more than this. The Government’s goal is to improve the wellbeing of current and future generations. Wellbeing and sustainability are multi-dimensional concepts that go beyond material living standards. In this report wellbeing and sustainability are assessed through the prism of the stock of economic, environmental, human and social resources. [emphasis added]
Lies, Damned Lies and the 2015 IGR 29
What a Disappointment! Unsustainable “sustainability”
2015 IGR Overview (p. 17)
The first two scenarios show a very significant deterioration in the Budget. The third scenario shows that the Government’s current set of policies would bring the Budget back to a sustainable path over the medium to long term. [emphasis added]
Lies, Damned Lies and the 2015 IGR 30
What a Disappointment! Narrow thinking
• Simple, deterministic projection model
• Limited sensitivity analyses
• No feedback loops (formal or informal)
• No scenario testing
Lies, Damned Lies and the 2015 IGR 31
What a Disappointment! Invisible intergenerational equity
• GDP based on hours worked, with no distinction by value – Can’t measure contribution to economy by generation
• Tax revenue a flat percentage of GDP
– Can’t measure contribution to revenue by generation
• “Success” measured by overall budget surplus – Can’t see the position by generation
What a Disappointment! Where is the rest of the economy?
Lies, Damned Lies and the 2015 IGR
Source: AIHW: 25 years of health expenditure in Australia 1989-90 to 2013-14
34
Calling all Actuaries! • The public good
• Build a better mousetrap
• Measure and assess intergenerational equity
• Apply scenario testing
• Get involved
Lies, Damned Lies and the 2015 IGR 35
Calling all Actuaries! The public good
• We helped … to provide for widows, orphans, the sick and the retired
• Profession now engulfed in scandals (e.g. pensions mis-selling and The Equitable in the UK; current major issues in Australia)
• Feeble political debate about Australia’s future Perhaps there has never been a better time for us to remember our
commitment to the public good and to seek to honour it?
Lies, Damned Lies and the 2015 IGR 36
Calling all Actuaries! Build a better mousetrap
• Many opportunities to improve the IGR model, including: – track revenue and expenditure for cohorts – build feedback loops – test with economic cycles – extend to steady state – expand to include other governments and private sector – allow for distribution of income within cohorts
• Very actuarial
Lies, Damned Lies and the 2015 IGR 37
Calling all Actuaries! Measure and assess intergenerational equity
Lies, Damned Lies and the 2015 IGR
Source: http://www.theguardian.com/world/ng-interactive/2016/mar/07/whos-winning-find-out-how-your-income-compares-with-every-other-generation Based on data from Luxembourg Income Study from 1985 to 2010
Disposable income follows a clear trend over a lifetime