Mar 12, 2015

Grim reality of when the baby boom goes bust | The Australian

I WAS really excited when the first Intergenerational Report was released in 2002. At last some long-term thinking by government. At last the community would be made aware of the issues surrounding the ageing of the population generally and of the worker base specifically. Finally there would be policy responses implemented so as to avert financial and social disaster at some point in the future.
Surely a community that is fixated with climate change policy would subscribe to the same principal when applied to proven impending demographic calamity. The science is settled; there’s not enough workers to fund the likely number of retirees. Or at least not to the level that today’s retirees believe they are entitled.
The Greens would be right on to this, wouldn’t they? They are all over the sustainability argument, aren’t they? Surely to accept pain now so as to deliver a debt-free and sustainable future is a good thing, right? Surely a society that is concerned about intergenerational bastardry when it comes to climate would see a striking parallel with the issue of a demography-induced debt?
I mean it’s not as if the ageing issue is a matter of faith: academic demographers in peer-reviewed journals concur on the facts. The post-war baby boom that delivered decades of tax and productivity dividends is lurching towards a 2020s demographic-liability baby bust. And those who pretend there is no intergenerational fiscal sustainability risk are demographic deniers, right?
And yet here we are 13 years after the first report that had me so excited and I’m fatigued by the seeming futility of it all. The same figures, the same charts (tarted up a bit); even the same key ratios are trotted out. Different treasurer of course, but fundamentally it’s the same story. Some of the assumptions shuffle between reports, but the purpose of the whole exercise remains pretty much the same.
The official purpose of the Intergenerational Report is to enable the government to better understand future demographic risks. Actually, we know the risks and have done so for some time. The real purpose of the Intergenerational Report is to scare the punters into accepting tax and entitlement pain now so as to avert even greater calamity later. It’s a little bit like the IPCC’s report on climate: every five years or so there’s a new edition; the charts are scarier; the rhetoric is sweatier; and, hey presto, the funding becomes just that little bit easier.
Hey that gives me an idea. How about demographers submit ambit claims for research funding to look at ways of averting demography-induced fiscal calamity. It’s not too late; make me a Commissioner for Structural Ageing on a few hundred thou’ on top of my day job; give me control of a government-funded research budget.
Let’s go the whole hog and set up an entire government department. I’d pop up at fashionable inner-city cocktail events wearing my “Intergenerational Demographic Justice Now” T-shirt. I’d get a regular spot on the ABC’s Q&A; the audience would clap and cheer my every pronouncement admonishing baby boomers for their sinful, selfish, wastrel ways. Wicked baby boomers!
You do realise why it’s necessary to scare the punters, don’t you? Because today’s Australians aren’t that concerned about the welfare and the standard of living of future generations. Not the kinds of national trait you wanna brag about. But you can sort of see the point of today’s Australians. If I make a sacrifice now how do I know that it will make a difference to future fiscal sustainability? And besides, how do I know that I’m not the only mug punter making the sacrifice?
There is a delicate balance that must be struck with ‘‘bogeyman reports’’. They must scare the punters into accepting restraint, but they must not be so scary that they dampen consumer confidence. Hence the Treasurer might say on the one hand that this is an extremely confronting report, but he must go on to say something like “the future is just so exciting”.
The same logic applies to IPCC reports. The future is scarier than we had previously imagined but there’s still time to fix everything if there is universal acceptance of pain now. Oh, and part of that pain is more funding. Scary but hopeful, that’s the message. Scary but hopeful.
The grim reality is that in the 2020s and beyond, Middle Australia will be most likely mired amid the tax burden needed to maintain the lifestyle of the non-producing population. But a Treasurer who is also this nation’s chief salesperson cannot actually say that; there must be hope amid the realisation that only glacial movement on this issue will be tolerated by the electorate.
Clearly the Australian people aren’t ready in 2015 to accept the kind of pain required to address the issues that flow from the baby bust and that are scoped by the latest incarnation of the intergenerational report.
Such pain can be postponed from year to year, from administration to administration, by deeper borrowings but eventually it will be foisted upon the Australian people by, say, 2023 or with a bit of luck maybe we can push it out to 2028.
It’s all about striking the right balance between addressing the structural issues presented by ageing, reading the pain threshold of the Australian people (now set to zero following the Queensland election), and raw political courage.
Let me explain the concept of raw political courage: it involves making a decision for the good of the country but which could well get you unelected.
I suspect that issues surrounding entitlements and debt need to fester and ferment among the general population until at least the end of the decade before the electorate’s pain threshold shifts to the level needed to accommodate corrective policy measures. This administration is officially off the hook; but there will be progressively fewer degrees of freedom for successive administrations. Until then, by all means let us delude ourselves that the medium-term future will deliver the kind of peace and prosperity that we so enjoyed during the long boom of the dreamy, easy, uncomplicated demographic-dividend years.
Bernard Salt is a KPMG Partner and an adjunct professor at Curtin University Business School.

No comments: