Every time the government has produced an intergenerational report \u2013 this week\u2019s, released by Treasurer Jim Chalmers, was Australia\u2019s seventh \u2013 the fine print has contained an enormous get-out-of-jail card.<\/p>\n
No matter how dire the government\u2019s finances in 40 years\u2019 time, no matter how dire the circumstances facing the generations alive then, Australia will be much richer than it is today. The projections in the first intergenerational report, delivered by treasurer Peter Costello in 2002, revealed that even though government spending was on track to outstrip revenues, by 2042 Australians would be almost twice as rich. Real GDP per capita, or buying power, would be 90 per cent higher.<\/p>\n
Of course, it matters how you define rich, given the accelerating climate crisis.<\/p>\n
The first intergenerational report included only two mentions of climate change. Chalmers\u2019 first, in 2023, had a whole appendix on it.<\/p>\n
This one sprinkles them throughout the report, mainly in the chapter on energy.<\/p>\n
It says if global temperatures increase by 3 degrees Celsius on pre-industrial levels, instead of the 1.5 degrees targeted under the Paris Agreement \u2013 a threshold that is now being tested \u2013 the government\u2019s annual spending on disaster recovery will be 25\u00a0percentage points higher.<\/p>\n
\u201cGrowing disaster risk is driving higher insurance premiums and reduced insurance affordability and accessibility, particularly in high-risk areas. For example, one modelled outcome reported by the Insurance Council of Australia estimates only 23 per cent of the 242,000 households living in high flood risk areas have flood insurance,\u201d the report notes.<\/p>\n
By 2065\/66, the Treasury expects Australia\u2019s population of 39.3 million to have lived through more frequent and severe natural disasters. In order to provide what it said was only a \u201cpartial assessment\u201d of the costs of climate change, it examined four specific channels. It found that, combined, rising sea levels, higher temperatures, lower crop yields and the degradation of Australia\u2019s tourist attractions would be likely to wipe 1 percentage point off GDP if the Paris emissions targets weren\u2019t met.<\/p>\n
\u201cMore comprehensive, but generalised, top-down damage estimates are significantly higher, such as impacts explored by the Network for Greening the Financial System (NGFS) which showed global GDP could be 5 to 44 per cent lower under 3\u00b0C of warming by 2100,\u201d the report says.<\/p>\n
Another serious challenge for this government and its successors is that the financial bonus of rising incomes is shrinking.<\/p>\n
By then treasurer Josh Frydenberg\u2019s 2021 Covid-era intergenerational report, the expected growth in GDP per capita was 80 per cent. By Jim Chalmers\u2019 first report in 2023, it was a bit below 60 per cent, as it is in this one.<\/p>\n
Australians in the future will still be much better off financially, and still be much better able to afford more tax and whatever else they need, just not as much better off as they used to be \u2013 and the gains in income are unevenly dispersed.<\/p>\n
No matter how dire the government\u2019s finances in 40 years\u2019 time, no matter how dire the circumstances facing the generations alive then, Australia will be much richer than it is today … Of course, it matters how you define rich, given the accelerating climate crisis.<\/p>\n
So pronounced has been the change, and so hard is it hitting the generation born in the 1990s, that this week\u2019s report is the first to include a chapter specifically devoted to \u201cintergenerational equity\u201d as well as new chapters devoted to artificial intelligence, geopolitics and the energy transition.<\/p>\n
The intergenerational equity chapter includes a telling graph. Each generation from the one born in the 1940s right through to the one born in the 1980s has been better off financially over the course of its life than the one that preceded it. Except for the most recent one graphed, which is the one born in the 1990s.<\/p>\n
It\u2019s early days, these people are in their 30s, but the graph shows that so far their average real disposable income is merely tracking the real disposable income of the generation born in the 1980s, rather than exceeding it.<\/p>\n
Along with the generation born in the 1980s, they are much less likely to own homes. The report identifies this as a risk to democratic and social cohesion, noting that home ownership is associated with stronger social connectedness, improved mental health and better educational outcomes for children.<\/p>\n
They are also much more likely to pay tax than retirees. The report says that \u201ccompared to people who earn most of their incomes from salary and wages, people who earn a larger share of their income from non-wage sources (excluding benefits) generally pay significantly lower tax rates for the same level of gross income\u201d.<\/p>\n
In what reads as a hint about further tax changes targeting investors, a heading in the report says \u201cTax reform is needed to reduce the pressures on working age Australians\u201d.<\/p>\n
The main mathematical reason the promise of improved living standards is shrinking is the assumption about productivity growth.<\/p>\n
Whereas the first intergenerational report in 2002 assumed labour productivity growth of 1.75 per cent per year, the 2021 Frydenberg report assumed 1.5 per cent, and the 2023 Chalmers report 1.2 per cent.<\/p>\n
This one continues to use 1.2 per cent, in the face of criticism from economists such as Chris Richardson, who argue it should be cut further, given that over the past decade labour productivity growth has been close to zero. Richardson said if Chalmers had used the average of the past 20 years (as he did in 2023), he would have had to plug in 0.5 per cent.<\/p>\n
To counter this, ahead of unveiling this week\u2019s report, Chalmers took the unusual step of releasing a memo from the head of Treasury\u2019s macroeconomics group, Angela Grant, specifically recommending 1.2 per cent and describing it as \u201cTreasury\u2019s view\u201d.<\/p>\n
The memo said the explosion in the power and spread of artificial intelligence supported \u201cTreasury\u2019s confidence\u201d that the assumption was achievable.<\/p>\n
The report says that assumption is within the range of those in other advanced economies. The United States is using 1.3 to 1.4 per cent, the United Kingdom 1.5 per\u00a0
cent, New Zealand 1 per cent and Canada 0.9\u00a0per cent.<\/p>\n
The Treasury estimate allows for only \u201chistoric rates\u201d of the diffusion of new technologies. But, it says, Australia is adopting AI quickly, being among the world\u2019s leading adopters of the AI assistant Claude, with usage six times greater than its share of population suggests.<\/p>\n
If AI accelerates \u201cthe production of ideas itself\u201d, the productivity gains are likely to compound and reinforce each other, expanding productivity by 1.5 to 2 per cent per year, according to the report. Even the downside scenario shows productivity rising from close to zero over the past decade to 0.8 per cent a year \u2013 a change the Treasury expects to happen over the next five years.<\/p>\n
Treasury says the jobs most at risk from AI are white-collar ones, although at the moment most of them bundle together the tasks that AI can perform with those only humans can do. The speed at which AI can supercharge productivity by replacing workers will depend on the speed at which those tasks can be \u201cunbundled\u201d.<\/p>\n
It nevertheless expects the unemployment rate to remain roughly where it is for the next 40 years, at 4.25 per cent \u2013 a level loosely defined as \u201cfull employment\u201d, at which the Reserve Bank of Australia is not worried about too strong a job market stoking inflation. Treasury says the more widely AI is used, the more it is expected to support lower prices and higher consumer demand.<\/p>\n
Like all intergenerational reports before it, this one predicts a decline in the number of Australians of traditional working age available to support each Australian of traditional retirement age. In this report, the number is expected to fall from 3.6 to 2.5. Treasury expects AI to make that task easier, and it also expects far more women and older Australians to work than it did in earlier reports.<\/p>\n
Essential reading in this report, as the immigration debate flares around the country, is how central immigration is to this country\u2019s future \u2013 even if only considered from an economic perspective. The number of Australians aged 85 and over is projected to triple. Spending on public hospitals will double as a proportion of GDP.<\/p>\n
Australia\u2019s total fertility rate is expected to fall to a record low 1.34 babies per woman by 2066, with deaths outnumbering births. The report says immigration will soften the blow by bolstering the proportion of the population of working age. It says the median age of each new migrant is just 26, compared with 38 for the entire population.<\/p>\n
It adopts what it says is the \u201ctechnical assumption\u201d that net overseas migration averages 235,000 a year over the next four decades, the same number used in the past two intergenerational reports. That\u2019s in the ballpark of the targets of 245,000 and 225,000 that Minister for Immigration Tony Burke has adopted for this financial year and the next. The projection implies a shrinking intake as a share of the population \u2013 something subsequent reports, and ministers, might need to revisit.<\/p>\n
As ever, the numbers stand in for a\u00a0much larger story.<\/p>\n","protected":false},"excerpt":{"rendered":"Every time the government has produced an intergenerational report \u2013 this week\u2019s, released by Treasurer Jim Chalmers, was…\n","protected":false},"author":2,"featured_media":905695,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":["post-905694","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/905694","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=905694"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/905694\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/905695"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=905694"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=905694"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=905694"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}