A chance to open up the debate we really have to have

THERE is only one way to interpret the Intergenerational Report — it is a relentless argument for new spending saves to achieve the overall impact of the 2014 budget measures. Treasurer Joe Hockey was emphatic on this point yesterday.

This is the report that Tony Abbott and Hockey needed a year ago. It explains the problem their deeply unpopular budget tried to solve.

It shows the May 2014 budget savings are essential for long-run fiscal integrity, yet it is the harshness of these savings that has triggered Abbott’s famous policy retreat and recasting.

In this sense the IGR reveals the contradiction at the heart of the Abbott government.

INTERACTIVE: The InterGenerational Report

It is trapped between its political imperative to retreat and its financial imperative to stand firm.

This is the dilemma that now sits on the cabinet table. It is the dilemma that faces the nation. It haunts the Expenditure Review Committee. It worries every cabinet minister. The May 2015 budget, as Abbott has signalled, cannot repeat the 2014 “nasties” yet it must offer a credible savings agenda to return to surplus.

An ageing population demands tough decisions and the report is specific — the savings proposed from the 2014 budget must still be obtained to secure a sustainable surplus and a viable response to an ageing population.

The politics are unmistakable. Hockey is giving a message to his colleagues, the Labor Party, the Senate and the public — if you don’t like all our savings measures then we need to find some alternatives. What do you suggest? But don’t pretend the status quo is tenable.

The tabloid snaps in the IGR publicise a changing demographic that a rational public can hardly ignore. By mid-century male life expectancy will be 95 years. There will be 40,000 people aged 100 and over. The working age versus retirement age ratio will fall from 7.3 in 1975 to 2.7 by mid-century.

Lives and society will be very different. Hockey hailed the IGR as the start of “a conversation with the Australian people” over the social compact to deliver generation equity.

Yet this is the most political IGR document so far. It is based upon three scenarios — the previous Labor government policy, the “currently legislated” measures from the 2014 budget and the 2014 budget with its full fiscal gains and political horrors.

Note the conclusions: the Labor trajectory is a disaster, the legislated 2014 gains have made significant progress but the solution lies in the 2014 budget or its savings equivalent. This theme is hammered for 145 pages.

The government is picking a slower road to budget repair. But that cannot answer the dilemma thrown up by this report. Just consider the savings measures in the 2014 budget factored into the preferred IGR scenario — unpopular changes to pension indexation, welfare, education and family payments.

Does the Abbott cabinet stand by these measures and fight the 2016 election on them? Or does it replace them, somehow, some way, with other measures, more acceptable, that generate the same structural savings? Or does it retreat on the savings task, thereby mocking this report?

To this point the cabinet and the ERC has no answer. They constitute the biggest policy dilemma of Abbott’s recast prime ministership.

Hockey was contrite yet unyielding yesterday. He conceded the 2014 budget “did bite off too much”. But he doesn’t concede any macro mistake. “It tried to do 40 years of work in one year,” he said of the most unpopular budget in a generation.

The key message was: “We must maintain momentum to a credible surplus.” But how, pray, will Abbott and his cabinet implement this task?