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The Hon J. B. Hockey MP Treasurer. The IGR is a social compact between the generations Children, grandchildren, parents, grandparents and each other.

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Presentation on theme: "The Hon J. B. Hockey MP Treasurer. The IGR is a social compact between the generations Children, grandchildren, parents, grandparents and each other."— Presentation transcript:

1 The Hon J. B. Hockey MP Treasurer

2 The IGR is a social compact between the generations Children, grandchildren, parents, grandparents and each other

3 The IGR is required to be produced by the Government every 5 years under the Charter of Budget Honesty Act. It presents 40 year projections of the changing shape of Australia’s population and economy, and the Budget impacts of Commonwealth government policy settings. 3

4 How Australia is changing 1 – Population

5 Life expectancy is increasing Life expectancy will reach 88 yrs for men and 90.5 yrs for females. (80.7 and 84.8 now). It’s even higher if you take into account expected improvement in health and new technologies (95 yrs men and 97 yrs for women) Year Male life expectancy Female life expectancy

6 The Age Pension eligibility age should better reflect increases in life expectancy Note: chart shows life expectancy and Age pension eligibility age for males only. Figures for females would show a comparable story. Years Male life expectancy Age Pension eligibility age for males

7 The number of centenarians (100+) will grow rapidly ,000 10,000 15,000 20,000 25,000 30,000 35,000 40, ,000 10,000 15,000 20,000 25,000 30,000 35,000 40, Number

8 There will be fewer people aged relative to each person aged over 65 8

9 Migration as a share of population will fall Previous NOM assumptions in IGRs: 2002 was 90,000; 2007 was 110,000; 2010 was 180, Per cent Projections – net overseas migration of 215,000 per year Average: post war period ~ 1.0 per cent per annum ( ) Average: ~ 0.5 per cent per annum ( ) Average: recent period to end of forward estimates ~ 1.1 per cent per annum ( )

10 10 Population growth will be slightly slower over the next 40 years Note: growth rates are average annual growth rates. Reference years: past 40 years to next 40 years to past 40 yearsnext 40 years Per cent

11 11 Three contributors to per person growth – population makes a small contribution Share of population 15+ Participation rate Unemployment rate Average hours worked Labour productivity Real GDP per person Percentage contribution Past 40 yearsNext 40 years Population Reference years: past 40 years to next 40 years to Percentage contribution

12 How Australia is changing 2 – Participation

13 13 Participation rates will decline as a result of population ageing Per cent

14 Aged 65 and over Increase from 2003 due to strong economy and full employment. Continued rising through GFC partly as asset values of people close to retirement were hit. Also ongoing change in work options. Opportunity to achieve higher outcomes here Per cent

15 15 There is potential to lift participation Note: refers to total labour force participation (15+) in 2013 (ILO) MaleFemaleTotal Per cent Australia Canada New Zealand

16 Reference years: past 40 years to next 40 years to Three contributors to per person growth – participation will detract from growth Percentage contribution Past 40 yearsNext 40 years PopulationParticipation Percentage contribution Share of population 15+ Participation rate Unemployment rate Average hours worked Labour productivity Real GDP per person

17 How Australia is changing 3 – Productivity

18 18 Our productivity assumption is the big ‘if’ (30 year average) Per cent Average 1990s (2.2 per cent) Average 2000s (1.5 per cent) Average 1980s (1.3 per cent) IGR assumption (1.5 per cent)

19 Reference years: past 40 years to next 40 years to Three contributors to per person growth – productivity is the key Past 40 yearsNext 40 years PopulationParticipationProductivity Share of population 15+ Participation rate Unemployment rate Average hours worked Labour productivity Real GDP per person Percentage contribution Percentage contribution

20 Reference years: past 40 years to next 40 years to Projected economic growth will be lower than the growth we have had over the past 40 years Real GDPReal GDP per person Per cent Past 40 years Next 40 years

21 21 Key drivers of productivity 1.Investment in new capital and infrastructure 2.Innovation and technology 3.Entrepreneurship and competition 4.Skills and education

22 22 Building a stronger Australia We need to be able to afford our future. The IGR shows we have made considerable progress in putting the budget back on track. But more needs to be done.

23 Per cent of GDP Previous policies 23 We inherited an unsustainable budget… Underlying cash balance Note: Fiscal projections assume a further 40 years of uninterrupted economic growth. Deficit would have reached 11.7% of GDP or $533 billion in today’s dollars.

24 …but we have made considerable progress in reducing the deficit… Per cent of GDP Previous policies plus implemented measures Currently legislated 24 Underlying cash balance Note: Fiscal projections assume a further 40 years of uninterrupted economic growth. The deficit has halved to around 5.8% of GDP in 2055 or $267 billion in today’s dollars.

25 Proposed policies Previous policies plus implemented measures plus measures yet to be implemented 25 Underlying cash balance …all our policies would get the budget on track, but the remaining task is challenging. Note: Fiscal projections assume a further 40 years of uninterrupted economic growth.

26 Per cent of GDP Previous policies Receipts/GDPhistorical high = 26.2% (1986) Payments rising from 25.9% of GDP in to 37% in 2055 or $1.7 trillion in today’s dollars. Previous high was 27.6% in Growth in payments was exploding… Note: Fiscal projections assume a further 40 years of uninterrupted economic growth.

27 Per cent of GDP Previous policies plusimplemented measures Currentlylegislated 27 …we have made progress in reining in the growth in payments… Note: Fiscal projections assume a further 40 years of uninterrupted economic growth. Payments to GDP down to 31.2% in 2055 or $1.4 trillion in today’s dollars Receipts/GDPhistorical high = 26.2% (1986)

28 Proposedpolicies Per cent of GDP Previous policies plusimplemented measures plusremaining measures yet to be implemented 28 …our proposed policies would keep payments relatively constant Note: Fiscal projections assume a further 40 years of uninterrupted economic growth. Receipts/GDPhistorical high = 26.2% (1986)

29 Australia Proposed policy (a) Australia (a) New Zealand Netherlands Korea Canada Germany Australia Currently legislated (a) Spain United States United Kingdom France Italy Australia Previous policy (a) Japan Greece Per cent of GDP International net debt comparison Note: (a) Commonwealth general government net debt only; does not include net debt of states and territories. Source: Treasury projections for Australia, IMF World Economic Outlook (October 2014) estimates for 2013 for all other countries.

30 Per cent of GDP Previous policies 30 Note: Fiscal projections assume a further 40 years of uninterrupted economic growth. 122% of GDP or $5.6 trillion in today’s dollars Net debt was heading towards unsustainable levels…

31 Per cent of GDP Currently legislated Previous policies plus implemented measures 31 …our considerable progress to date will almost halve net debt… Note: Fiscal projections assume a further 40 years of uninterrupted economic growth. Net debt would reduce to 57.2% of GDP in 2055 or $2.6 trillion in today’s dollars

32 Proposed policies Plus measures yet to be implemented Per cent of GDP Previous policies Plus implemented measures 32 …our proposed policies would see net debt eliminated by Note: Fiscal projections assume a further 40 years of uninterrupted economic growth.

33 Per cent of GDP Previous policy Currently legislated Government policy 33 Our Budget measures will help to rein in the explosion in health costs

34 ,200 1,600 2, ,200 1,600 2, Total Education Real dollars per person Rising spending and lending on education per person Real dollars per person

35 How can we pay for our future? 35 1.Participation Grey Army Female workforce participation 2.Productivity (increasing output per hour) Investment in new capital and infrastructure Innovation and technology Entrepreneurship and competition Skills and education

36 How can Government help? 36 Enable consumers. Facilitating change rather than controlling change. Living within our means.

37 Next - the conversation 37 We must continue to make the changes that unlock the vast potential of Australia’s future. This is a conversation the nation wants to have.

38 The Hon J. B. Hockey MP Treasurer


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