Intergenerational report: 35 years of budget surpluses ahead

JOE Hockey’s intergenerational report delivers 35 years of continuous budget surpluses beginning in 2019-20.

JOE Hockey’s intergenerational report delivers 35 years of continuous budget surpluses beginning in 2019-20 thanks to the assumed passage of savings measures currently stalled in the Senate.

Every previous intergenerational report has found the ability of the economy to deliver budget surpluses would evaporate some time between 2020 and 2030 as the cost of an ageing population surpassed the revenue returned by the existing taxation system.

Savings measures, like the changes to the indexation of pensions and the proposed freeze on commonwealth payments for state schools and hospitals, not only get the budget out of the hole it has been in since the financial crisis of 2009-10, but are also sufficient to wipe out the fiscal challenge of an ageing population.

In an effort to make a political point, the government has contrasted the fiscal outlook based on last year’s budget measures with what the budget would have looked like if the policies of the former Labor government had been pursued — in other words if nothing had been done.

The difference by the end of the 40 year time horizon is a gigantic 12.2 per cent of GDP, or almost $200 billion in today’s dollars.

Every government presents its own story in the best light, but even comparing the outlook in this intergenerational report with the one told by Wayne Swan in 2010, the change in the long-term outlook is dramatic.

The 2010 report envisaged that rising health and aged care costs would be delivering a deficits from 2030 onwards climbing to reach 4 per cent of GDP by 2049-50, equivalent to around $60bn at current values.

The message is that the measures proposed in last year’s budget, particularly changing the indexation of the aged pension, pushing out the retirement age to 70 and cutting commonwealth payments to schools and hospitals completely transforms the long-term outlook. It is because the long term change is so large that the political resistance is so great.