The Intergenerational Report released today, says that in 2055, Australians are going to live longer (women will live to 97) and be poorer (even though our average salary will be $117,300).
Intergenerational reports are released every five years. But what exactly is this report, and what should we take out of it? Ben Spies Butcher from Macquarie University explains.
Today, treasurer Joe Hockey will release the fourth Intergenerational Report. Like its predecessors, the government is likely to use the IGR to frame its economic and budget message. What past experience tells us is that behind the messaging, the numbers tell a consistent, and surprisingly optimistic, story. Whatever today’s headlines, remember to look at the numbers and ask one important question – will future generations be richer or poorer on average than today?
The IGRs are required to be produced at least every five years, and have become a normal part of Australian policy-making. This reflects a global trend, where policy makers have focused more attention on the implications of population ageing. The first report was released in 2002, however, the schedule was changed by the Rudd Government, which brought forward the last report to 2010.
The headline of each IGR tends to focus on the fiscal calamity that awaits us if urgent action is not taken to arrest a projected growth in government spending. That certainly seems to be the tone taken by Hockey, who has justified unpopular budget measures on the grounds of intergenerational equity. Yet, to date, there is surprisingly little evidence in these reports to suggest any significant problem.
We won’t be worse off in the future
It is important to differentiate between two issues often conflated in this debate – the impact of population ageing on our economy and average incomes, and its impact on the government and its budget. Our main interest as citizens is surely on the overall economic impact.
On that front, the news has been largely positive. None of the reports to date suggest the average Australian will be poorer in the future than they are now. That’s worth repeating: all the evidence is that material living standards will continue to rise. Indeed, the last report suggested the average person in 2050 would be 80% richer than the average person in 2010.
The one exception (included only in the last report) comes from climate change. This is a genuine economic and intergenerational challenge, with real potential to leave future generations worse off. However, it would be surprising if this issue led the discussion under the current government.
The most recent IGR suggests that the proportion of people of working age (those aged 15-64), will be about the same in 2040 as in 1970. And that sounds worse than it is, because the increase in the number of working women means more of us will likely be engaging in paid work in the future than in the past.
If we took the figure back even further to the 1950s or 1960s – when living standards were growing more rapidly than they are today – the comparison would be more favourable because war and depression had thinned the number of adults and a baby boom had substantially increased the proportion of dependent children. The gloomy predictions of large numbers of dependents tend only to focus on those aged over 65.
We’ll be working longer
Of course its not only how many people might be willing to work, but how long they work. And here is another surprising finding. According to the 2010 IGR (Chart 1.11), the average worker in 2049/50 will be working more hours per week than did their grandparents in the early 1980s. The long historic trend to enjoy the gains of productivity as time, rather than money, has been in reverse as hours increased over the past 30 years.