1. D EPARTMENT OF THE T REASURY Transport policy in context Ken Henry Secretary to the Treasury Canberra, 3 October 2002

2. D EPARTMENT OF THE T REASURY 2 Drivers of fiscal and economic performance

3. D EPARTMENT OF THE T REASURY 3 population size age composition demography DRIVERS physical location ELEMENTS

4. D EPARTMENT OF THE T REASURY 4 financial scientific demography technology DRIVERS industrial ELEMENTS

5. D EPARTMENT OF THE T REASURY 5 trade demography international integration technology DRIVERS investment people ideas disease ELEMENTS

6. D EPARTMENT OF THE T REASURY 6 resource depletion demography international integration technology environmental degradation DRIVERS physical amenity salinity climate change ELEMENTS

7. D EPARTMENT OF THE T REASURY 7 Population growth rate 0.0 0.5 1.0 1.5 2.0 2.5 60-6163-6466-6769-7072-7375-7678-7981-8284-8587-8890-9193-9496-9799-00 0.0 0.5 1.0 1.5 2.0 2.5 Per cent

8. D EPARTMENT OF THE T REASURY 8 Fertility rate 1.6 1.8 2.0 2.2 2.4 2.6 2.8 19721976198019841988199219962000 1.6 1.8 2.0 2.2 2.4 2.6 2.8 Replacement rate Total fertility rate

9. D EPARTMENT OF THE T REASURY 9 Net migration 0 20 40 60 80 100 120 140 160 180 200 1954195919641969197419791984198919941999 0 20 40 60 80 100 120 140 160 180 200 Persons ('000)

10. D EPARTMENT OF THE T REASURY 10 Population growth rate projections 0.0 0.5 1.0 1.5 2.0 2.5 60-6167-6874-7581-8288-8995-9602-0309-1016-1723-2430-3137-38 0.0 0.5 1.0 1.5 2.0 2.5 Per cent IGR projections

11. D EPARTMENT OF THE T REASURY 11 Population ageing 0 50 100 150 200 250 300 350 400 450 0 to 1415 to 5455 to 6465 to 8485+Total 0 50 100 150 200 250 300 350 400 450 2002 20222042 Index value (2002 base=100)

12. D EPARTMENT OF THE T REASURY 12 Annual GDP growth (Intergenerational Report projections) 0 1 2 3 4 5 6 1990/911998/992006/072014/152022/232030/312038/39 0 1 2 3 4 5 6 Per cent Forecasts Medium Term Projections Average of next 40 years

13. D EPARTMENT OF THE T REASURY 13 Components of GDP growth Productivity Participation Population Employment (hours) GDP Total population Share of population 15+ Participation rate Unemployment rate Average hours worked Capital deepening Multifactor productivity

14. D EPARTMENT OF THE T REASURY 14 The three ‘Ps’ in Australia - past and future 0 1 2 3 4 0 1 2 3 4 PastFuture Percentage contribution PopulationParticipation Productivity 2 7/87/8 - 1 / 4 - 3 / 8 2 1 3 / 4 3 3 / 4 2 1 / 4

15. D EPARTMENT OF THE T REASURY 15 Growth rates of GDP per capita - Australia past and future 0 1 2 3 4 0 1 2 3 4 PastFuture Percentage contribution Population growth 11/2 11/2 3/43/4 3 3 / 4 2 1 / 4 GDP growth 2 1 / 4 11/2 11/2 GDP per capita growth lessequals Over 40 years, 3/4 percentage points a year compounds to a third.

16. D EPARTMENT OF THE T REASURY 16 Major components of budget cost Drivers Demography Average cost of programmes +4¼% GDP Impacts in 40 years Health 1/4 ? 3/4 ?

17. D EPARTMENT OF THE T REASURY 17 Major components of budget cost Aged care Drivers Demography Average cost of programmes Impacts in 40 years +4¼% GDP +1% GDP Health

18. D EPARTMENT OF THE T REASURY 18 Major components of budget cost Payments to individuals Drivers Demography Average cost of programmes Impacts in 40 years Health Aged care +4¼% GDP +1 GDP + ½ % GDP

19. D EPARTMENT OF THE T REASURY 19 Major components of budget cost Education etc Health Aged care +4¼% GDP +1 GDP + ½% GDP -½% GDP Drivers Demography Average cost of programmes Payments to Individuals Impacts in 40 years

20. D EPARTMENT OF THE T REASURY 20 Major components of budget cost Health Aged care +4¼% GDP +1 GDP + ½% GDP -½% GDP Drivers Demography Average cost of programmes Impacts in 40 years Payments to individuals Education etc Total+5¼% GDP Fiscal adjustment

21. D EPARTMENT OF THE T REASURY 21 Policy choices Faster GDP growth Lower cost budget programmesBudget balance falls and debt increases 1 Tax:GDP ratio increases 2 Policy response 3 Pass the problem to future generations

22. D EPARTMENT OF THE T REASURY 22 Tax to GDP ratio required -2 0 1 2 3 4 5 6 2002-032041-42 -2 0 1 2 3 4 5 6 Per cent of GDP

23. D EPARTMENT OF THE T REASURY 23 Immigration policy Fertility policy ? Workforce participation Unemployment Sound macro policy frameworks Further micro reform Policies to grow GDP faster Population Participation Productivity

24. D EPARTMENT OF THE T REASURY 24 Productivity growth is crucial 0 0.5 1 1.5 2 2.5 3 3.5 1960s1970s1980s1990s2000s2010s 0 0.5 1 1.5 2 2.5 3 3.5 Multi-factor productivityCapital deepeningLabour productivity Per cent IGR projections 1/21/2 1/21/2

25. D EPARTMENT OF THE T REASURY 25 Another look at the framework Age composition Physical location Total size ParticipationProductivityPopulationGDP

26. D EPARTMENT OF THE T REASURY 26 A framework for transport policy Age composition Physical location Total size ParticipationProductivityPopulationGDP Transport and other policy Transport services need (demand) Transport services delivery

27. D EPARTMENT OF THE T REASURY 27 Roads

28. D EPARTMENT OF THE T REASURY 28 Truck traffic Non-bulk freight Main Drivers Bulk Freight Domestic supply Export demand Impact Exponential growth Inter-modal competition GDP Physical location

29. D EPARTMENT OF THE T REASURY 29 Persons Passenger traffic saturation Main Drivers Cars per person Avge distance travelled Impact steady Population slowing growth Slowing growth

30. D EPARTMENT OF THE T REASURY 30 Exponential growth Implies growth of 50% over 15 years Truck kms to grow 2.7% pa Interstate to grow 75% over 15 years Truck traffic BTRE projections 2000-15 Non-bulk freight Main Drivers GDP Bulk Freight Inter-modal Competition Domestic Supply Overseas growth Impact 3.25% pa

31. D EPARTMENT OF THE T REASURY 31 Passenger traffic BTRE projections 2000-15 Main DriversImpact Slowing growth Exponential growth Implies growth of 20% over 15 years Urban car kms to grow 1.2% pa 23% including commercial traffic Persons saturation Cars per person Avge distance travelled steady Population slowing growth

32. D EPARTMENT OF THE T REASURY 32 Policy choice Regulatory change Higher VFM budget programmesUrban congestion 1 Degraded highways 2 Policy response 4 Pass the problem to future generations ? Greenhouse ? 3 Higher productivity

33. D EPARTMENT OF THE T REASURY 33 Some dimensions of possible regulatory change Modifying price signals confronting users (demand) Congestion pricing in urban areas? Scope for moving user prices closer to social marginal cost? Cost recovery regimes for heavy vehicles? Improving systems for funding and managing new transport infrastructure (supply) Income tax: s51AD, Div 16D Part IIIA of the TPA Competition provisions of the TPA Scope for private provision? Improved performance in inter- governmental provision Better intermodal links Transparency and accountability in SPPs AusLink Private Financing Principles

34. D EPARTMENT OF THE T REASURY Transport policy in context Ken Henry Secretary to the Treasury Canberra, 3 October 2002