Buried in Treasury’s fantasia of fiscal fatuity

Unadulterated and utterly useless garbage, otherwise known as the Intergenerational Report from Treasury, was released midweek by Josh Frydenberg.

Treasurer Josh Frydenberg holds a copy of the 2021 Intergenerational Report this week. Its projections assume that China will continue to play fiscal Santa Claus every year for 40 years. Picture: AFP

Why do we keep producing this unadulterated and utterly useless garbage?

I’m referring to the so-called Intergenerational Report from Treasury – released midweek by Treasurer Josh Frydenberg, with a curious mix of portentous fanfare and embarrassed understatement.

“Today we are releasing the fifth Intergenerational Report, a document that comes out every five years and projects 40 years forward,” he opened.

Gee, that’s certainly selling it right upfront from the get-go as a must and persuasive read, an absolutely riveting page-turner. Not.

Indeed, if that wasn’t “persuasive enough to despatch it straight to the digital version of a dusty archive, Frydenberg immediately stressed: “It’s not a guarantee of what will be.”

Ah, gee, I’m shattered. Surely, Treasury can tell us exactly, exactly, what will happen in every year out to 2061 and so exactly what will be the shape and detail of Australia in that year?

Just like Treasury tells us precisely, in detail and with such unerring accuracy what will happen to the budget and the economy in not just the coming year but the coming four years?

This is the fifth of these fantasias of fiscal fatuity. As noted, they emerge every five years; the previous one was in 2015.

It forecast the budget back into surplus this last fiscal year – the actual result was a deficit of maybe $150bn; we’ll get the exact figure next month.

It also forecast substantial budget surpluses every year, every decade, out to the mid-2050s after that. The current IGR says: small amendment, they’ll actually be substantial, actually humungous, deficits every year, every decade, out to 2060-61.

I know you’ve jumped ahead of me, but indulge me to have a little fun. So 2021 minus 2015 is actually six years: I wonder why it was delayed a year?

Hmm: just a little pandemic and a global hysteria which on the basis of the events of this last week shows no sign of abating anytime soon.

So, Treasury might inject, we could hardly incorporate in our 2015 IGR the 2020 pandemic and even more the government – all governments (and all central banks) – response of ordering the worst recession since the 1930s Great Depression and simultaneously embarking on massive fiscal and monetary stimulus.

The, as I’ve described it, simultaneous slamming on the brakes and gunning the accelerator.

But that is precisely my overarching point of the uselessness of these exercises: they assume the present continues uninterrupted by pesky realities and “events” into the future, modified only by a semi-trailer load of “Treasury can-openers”.

Yes, Treasury couldn’t in 2015 see the pandemic coming in 2020 which has up-ended all those 2015 forecasts. But still it assumes not only there won’t be another similar trauma – more likely, traumas, plural – over the next 40 years, but there won’t even be common or garden disrupting “events”.

No, everything and I do mean everything, just keeps running seamlessly year after year for 40 years. Plus we get all the “can-openers” we need.

Now, that used to be just an insider economist joke. An economist, an accountant and a journalist are washed up on a desert island with thousands of cans of food of the old pre-ring pull variety type (shows you how old it is).

How do we get at the food? The economist’s solution: assume a can-opener.

Never did I imagine this would become the primary modus operandi of Treasury. In its Canberra ivory tower, suitably isolated from the distractions of reality, Treasury assumes can-openers by the dozen.

If you are silly enough to read any of the IGR you will see them “assumed” on page after page. Let me just note two rather, ahem, breathtakingly unknowing, ones.

This IGR assumes net overseas migration of 235,000 a year – exactly that unchanging 235k every year without interruption. Further, the very different 2060 Australia that comes out of it still operates in exactly the same way, in depth and breadth, as the Australia of 2020.

Then, secondly, productivity – output per worker – will leap back to 1.5 per cent a year and stay there, every year out to 2060.

Why will this happen? Just because we, in Treasury, want it.

What’s going to drive it? Any number of can-openers.

This is the same Treasury and the same modelling that purported to tell us, at the peak of boy-PM Kevin Rudd’s greatest moral challenge frenzy, that we could abandon coal-fired power and drive any CO2-emitting industry out of the country and the economy wouldn’t miss a beat.

That by 2050 it would be just only the very slightest bit smaller than it would have been if we’d stayed rational. Actually, I’ve added the “rational” bit. Our 21st century Treasury and rationality do not exist in the same universe.

This rationality-averse Treasury can’t even begin to understand that the entire advance of industrial economies since the 18th century has been driven by ever cheaper, ever more reliable and evermore plentiful power.

Now it takes as read that we can replace that with the fantasy of so-called renewables on the basis of “we wish”; we assume another can-opener and indeed openers, plural.

These projections also assume that China will not only not pose any challenge far less threat to Australia, but that it will continue indeed to play fiscal Santa Claus, every year for 40 years.

Hmm. Just like a similar Treasury exercise in the 1930s would have painted a future out to 1975 of unending growth, not interrupted by anything so crass as a statistically unpredictable little war.

Indeed, even Adolf and Tojo aside, a 2021 Treasury transplanted to 1935 would have based all its modelling on a continuation of the very low birth rate and minimal migration of the 1930s.

It would not have, ahem, anticipated any of the dramatic post-war shifts – a doubling of the birthrate (up to the pill), an explosion of migration, and huge shifts in production and productivity and the birth of the minerals boom.

To finish where I started: when are we going to stop producing this garbage.