DEPARTMENT OF THE TREASURY AUSTRALIAN POLICY APPROACH TO INTERGENERATIONAL ISSUES Presentation for NDRC & Australian Treasury Bilateral Seminar Program 22 December 2008 Phil Gallagher, PSM Manager, Retirement and Intergenerational Modelling Unit Tax Analysis Division, AUSTRALIAN TREASURY •Phone +61 2 6263 3945 • email phil.gallagher@ treasury.gov.au •websites www.budget.gov.au • http://rim.treasury.gov.au Views expressed in this presentation are those of the author and are not necessarily those of any Commonwealth Agency or of the Government
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Phil Gallagher, PSM Manager, Retirement and Intergenerational Modelling Unit
AUSTRALIAN POLICY APPROACH TO INTERGENERATIONAL ISSUES Presentation for NDRC & Australian Treasury Bilateral Seminar Program 22 December 2008. Phil Gallagher, PSM Manager, Retirement and Intergenerational Modelling Unit Tax Analysis Division, AUSTRALIAN TREASURY Phone +61 2 6263 3945 - PowerPoint PPT Presentation
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DEPARTMENT OF THE TREASURY
AUSTRALIAN POLICY APPROACH TOINTERGENERATIONAL ISSUESPresentation for NDRC & Australian Treasury Bilateral Seminar Program 22 December 2008
Phil Gallagher, PSMManager,
Retirement and Intergenerational Modelling UnitTax Analysis Division, AUSTRALIAN TREASURY
Views expressed in this presentation are those of the author and are not necessarily those of any Commonwealth Agency or of the Government
DEPARTMENT OF THE TREASURY
Objective of the presentation
• To show how policy reports such as the Australian Intergenerational Report have been used to identify sustainability issues for:– Labour force growth and economic growth– Government spending
• To introduce the policy framework used by the Australian Treasury to respond to these issues
DEPARTMENT OF THE TREASURY
Outline
Part 1 – Identifying the problem
• Origins of the IGR• Treasury long term modelling• Drivers of Intergenerational change -
Demography, Labour Force, Productivity
• Economic projections • Fiscal projections
Part 2: Policy responses
DEPARTMENT OF THE TREASURY
Origins of the IGR1996 Commission of Audit Report recommended a
Charter of Budget Honesty
Section 20(1) requires the Treasurer to publicly release and table intergenerational reports
Section 21 outlines contents of intergenerational reports
• Required 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
Two reports so far – 2002 and 2007
DEPARTMENT OF THE TREASURY
Treasury long term modelling
• The aim of Treasury long term modelling is not to predict the future
• The aim is to assess risks associated with current trends and current policies
• The aim is also to model the effects of policy change and the threats to sustainability
• Policies and trends will change
DEPARTMENT OF THE TREASURY
Drivers of intergenerational change
DEMOGRAPHY
DEPARTMENT OF THE TREASURY
Treasury fertility projectionsTotal fertility per woman
Projected population and proportions of total IGR2Age range 2007 2017 2027 2037 20470 to 14 19.1% 17.7% 16.7% 15.7% 15.0%15 to 64 67.4% 65.6% 62.7% 60.7% 59.7%65 to 84 11.7% 14.5% 17.8% 19.4% 19.7%85 and over 1.7% 2.2% 2.7% 4.2% 5.6%Total persons (millions) 20.9 23.2 25.3 27.1 28.5
Projected population and proportions of total IGR1Age range 2007 2017 2027 2037 20470 to 14 18.9% 16.9% 15.6% 15.0% 14.3%15 to 64 68.0% 67.8% 64.0% 61.3% 60.4%65 to 84 11.5% 19.4% 20.7% 19.9% 20.3%85 and over 1.7% 2.7% 4.0% 3.9% 5.1%Total persons (millions) 20.6 22.4 23.9 25.0 25.6
Ageing and non-ageing factorsaffect health spending
• Non-demographic growth is the key driver of health spending in the past two decades
• In the projections, ageing contributes only around ¼ of the increase in spending
DEPARTMENT OF THE TREASURY
Summary of Australian Government spending differences
Spending Area 2006-07 2046-47 Difference
Health 3.8 7.3 3.5
Aged Care 0.8 2.0 1.2
Payments to individuals 6.7 7.1 0.4
Education 1.8 1.8 0
Total 13.1 18.2 5.1
DEPARTMENT OF THE TREASURY
Summary of Part 1• The Australian population will age - largely because of a
decline in fertility from 1961
• Although labour force participation of women and the population aged 15-64 is projected to rise, total labour force participation for all persons 15 and over declines
• GDP per capita continues to rise over the whole projection period, and does not slow to the same extent as GDP growth. Productivity has an important effect on both projections
• On current trends and policies, Commonwealth demographic expenditure could grow by 4.75 percentage points of GDP by 2046-47