Australias Intergenerational Report Considering future liabilities of Government in a fiscal context 22 April 2013

History Senate Select Committee on Superannuation report Retirement Income Modelling (RIM) Task Force commenced operations Commission of Audit report draws attention to the demographic issue using RIM projections and proposed the Charter of Budget Honesty Charter of Budget Honesty Act 1998 passed.

The Charter The Charter of Budget Honesty Act 1998 requires the Treasurer to produce an intergenerational report (IGR) every 5 years. The report is intended to assess the sustainability of current Government policies over the next 40 years. The Government has released 3 IGRs: 2002, 2007, 2010.

2010 IGR: Themes/Conclusions Ageing population, health and climate change challenges for living standards and budget Early action minimises adjustment costs and economic and fiscal consequences in long run Responding to these challenges –Responsible economic management: productivity, participation –Fiscal strategy: restraining expenditure growth –Health reform 4

How the IGR is put together IGR is a snapshot based on current policy IGR model –GDP projections based on 3Ps methodology –Constant tax-to-GDP ratio assumption (23.5%) –Model major demographic spending areas –Non-modelled held as constant share of GDP

The 3Ps framework for real GDP Source: Australian Government, 2010, Intergenerational Report 2010, Canberra.

Population growth and combined dependency ratio Source: ABS cat. no (2008) and Treasury projections from 2010 Intergenerational Report.

Participation rates Source: 2010 Intergenerational Report and ABS cat. no Note: denotes recent participation figures published by the ABS for

Growth in real GDP per person based on the 3Ps Source: 2010 Intergenerational Report.

Fiscal Gap Source: 2010 Intergenerational Report and Budget. Note: Primary balance measure. For the Budget numbers, and are actuals, to are estimates and and are projections.

Projected path of net debt

Pension and superannuation expenditure

13 Influence and the IGR Provides an authoritative long term perspective on major pressures affecting Australias future Useful tool for influencing community opinion Recognition of long-run fiscal pressures and steps taken to manage spending pressures and liabilities Productivity and Participation are now key considerations when assessing policy Significant policy change since IGR1 –Health –Pension age Modelling capability a key policy tool