Pearls and Irritations

The Albanese government is tiptoeing as if it has all the time in the world.

Intergenerational reports make for great politics, but hardly ever great policy. Modern governments are bipartisan in not being big on the vision thing, long-term thinking, or even the planning thing. Reports and forecasts are good for several days of pontifications and use by anyone, including federal Treasurers, with a ho-hum short-term political point to make, but only if they can then be put aside. Likewise, with lazy ripostes from shadow Treasurers, who will ask where the money is coming from and announce that they have detected a secret government plan for new taxes. And inside players, including the lobbies, know this perfectly well but relish the opportunity to restate their fixed views, in the hope that journalists and the public will be impressed by the fact that, as ever, politicians must make choices about how to divide the cake and the size of the cake to be baked.

The reports themselves rarely bring fresh information to light: it is not news, for example, that the population is ageing, and that Australia lives, partly by its own fault, in an increasingly difficult and insecure part of the world. In any event, the predictions of a world 40 years hence lack even superficial validity. They are based on presumptions of no changes of policy over 40 years, and on assumptions about growth, changing costs of providing services and even the impact of climate change that are adjusted to suit the purpose either of the Treasurer (mostly) or the permanent agenda of the Treasury. Make slightly different assumptions, feed them into the machine, and one can “prove” the exact opposite of the point being made.

This year, the newish feature is rather more attention to the potential impact on the economy of climate change. Labor, for some funny reason, has given a lot more attention to this issue than past coalition regimes in earlier intergenerational statements. It is good that it is being considered; a few commentators have already remarked that if the only effect of the report was to focus attention on the need for action on climate change, the report might have been worthwhile. The report itself makes the hardly original comment that the cost of inaction must be put in the calculations as much as the cost of any actions. But that there is hardly any useful information in the report can be gauged from the report’s apparent assumption that this government now is taking some sort of decisive action, impliedly about as much as the polity could take. The measures could work to keep temperatures from rising beyond 1.5 degrees, but then again, they might not, and in that case, some parts of Australia might be hotter. That might make work in the open air more stressful, and thus affect productivity, and it might affect crop volumes. We have already seen that existing climate change has been associated with a good deal more extreme weather: bushfires, floods, droughts, cyclones and so on. These are costs to the economy – and in terms of the budget through natural disaster relief, measurable ones. Mild, if conservative, stabs at estimating extra costs to the fiscus are given the appearance of being scientifically derived but are little more than speculations. They are not of themselves much use in determining appropriate policy.

On the other hand, climate change represents an opportunity, this report, as so many before it, intones. The changes imposed on us, whether by different weather patterns or efforts the nation must make to reach global net zero commitments, will force change in Australia’s economic structures, including around our exports of raw materials, such as iron and coal. But it will also create growth opportunities in some occupations and could lead to the creation of new industries and jobs. Australia has large reserves of critical minerals, such as lithium, cobalt, rare earths and bauxite, which will be key inputs for clean energy technologies. And our geographic situation, with abundant wind, sun and open spaces has the potential to generate green energy more cheaply than many countries. Although these are statements of the bleeding obvious, they are repeated without conspicuous enthusiasm, either as if the writers are not fully convinced of what they are saying, or because they have little real faith in the entrepreneurialism of Australian business or the commitment of politicians to the transformation of the economy.

Health, aged care, the NDIS, defence and interest on government debt are costing more as a proportion of GDP. Slower growth (based on the guesstimates fed into the machine) will put pressure on the tax base, creating a long-term fiscal challenge.

“Australia’s ability to meet challenges while seizing future opportunities depends on choices today,” the report says. “The government is repairing the budget, while also making the critical investments and productivity reforms necessary to grow the economy. This will position Australia to take maximum advantage of emerging technologies and the transformation to net zero. The government is also investing in people, sustainably providing essential care and support services, expanding opportunity and addressing disadvantage, and continuing to position the nation’s diplomatic and defence capability for regional security. ‘’Well, it would say that, of course, though one must wonder why, if all is now in train, it is putting the report out.

The report focuses on the impact of the population ageing, on rising demand for care and support services, climate change and the net zero transformation, technological and digital transformation, and the geopolitical risks. It is not, as is emphasised, a plan for what government intends over the next 40 years. Nor a statement of the resources government expects to be able to devote to any function of government, or the basis for reasonable speculation about changes in the tax base, now or in the long term.

It’s just as well. Could one imagine the practical use, for planning purposes, of a 1960 intergenerational report on the Australian economy in the year 2000?

 A 1980, report on Australia in the year 2020? Would one even get any sort of practical guide to the sort of population increase one could expect, the defence and security outlook, or the outlook with technology and communications? We do know of some of the challenges – including climate change. But the capacity of our economic forecasters to make educated guesses about growth, about technological advance, or about the size of the immigration intake is very limited. Neither Treasury nor the Reserve Bank have greatly distinguished themselves even with short or medium-term forecasts of economic activity. In one sense intergenerational forecasts may not matter much for long-term planning purposes. But anyone being invited to use the latest report – or any of its predecessors – as a basis for long-term advice would have to be aware of the capacity of a slightly different forecast to magnify itself as it goes into the exponential mix. Just as dangerous would be using estimates at the edge – the fact, for example, that the number of aged Australians will grow far faster than the population to panic about dependency ratios. Most of the nations of Europe have been living for 60 years with population structures like the one Australia will have in 2063. They seem to be managing.

But the very fact of singling out some areas of activity as needing some concentrated attention runs the risk of having other areas neglected as being of lower priority. Education, for example, gets no particular attention, other than in the ritual, and largely meaningless rhetoric about having a workforce fit for purpose. That is, it seems, because education costs are expected to increase in real terms at a rate faster than growth, but not as a proportion of GDP. By contrast, the care industries and defence are expected to become significantly greater proportions of GDP over the next 40 years. To the point where we will need to raise taxes to pay for them, or to cut expenditure in other areas – education, perhaps – to pay for it.

Yet it may prove that education is the key to the whole conundrum. Even in managing the impact of climate change. The report is over-enthusiastic about the word “resilient”, but in the sense I think it means it — of being able to adapt to change – the nation’s ability to see and exploit the opportunities provided by climate change measures and effects, or of being able to put new computer and communications technology to use, depends on our education system. That includes adapting to new health technology, new caring technology, new mining techniques and, probably, though it is scarcely mentioned, new agricultural challenges. It will not be achieved merely by making workers and students conversant with new machines or computer programs, but in having them understand how and why they work so that they can develop their knowledge and capacity.

Yet the Australian education system, whether at primary, secondary, vocational and university levels, has scarcely been re-thought over the past 50 years. The NSW and Victorian systems, and the once advanced ACT systems, were essentially devised in the 1960s and 1970s, and then with expectations about retention rates and the numbers who would progress to higher education far lower than in the modern day. School architecture, and the general isolation of schools from the community is out of touch with modern needs. Worthy aims – about foundations in maths and science, about foreign languages, and groundings in history have had to suffer from ever-increasing demands for more material in curriculums. The modern classroom – even in universities – was conceived before the computer. Teachers are better trained and rewarded, but significant numbers of students appear to be struggling with basic skills, such as reading, writing and numeracy. International evidence and comparisons indicate that the Australian system is falling behind.

Covid provided serious challenges to these institutions which saw them having to adapt. Many of the responses are likely to stay. But more than bandages are necessary; the system needs fundamental review for a modern era – the more so given that dealing with climate changes and some of the other challenges to the state and the economy are so serious. Of course, one needs something more than economic and demographic projections to see the size or the importance of the task – and the mere statement of the problems tells us nothing about possible solutions, or the impact that change will have on the system. (Although, then again, it is not to be assumed that no answer to the problem will be acceptable if it costs more.) But our capacity to deal with the special problems requires attention to education. It must be if we are to think our way through the re-structure of society and the economy caused by an increasing proportion of aged people, and of aged people in need of care, or making judgments about health technology, or computer and communications technology, or an improved environment.

The long-term housing conundrum: not sexy enough for this committee.

One might think too that a treasury committee could devote a moment or two to an economy- wide problem that is getting worse, and which is unlikely to be solved by 2062. The problem is that of being able to house the population to minimum and affordable standards. No doubt the government’s latest measures will achieve something – at least if the states co-operate – but fundamental problems of supply of land, costs of building, and building logistics and efficiency will persist. Although costs are increasing at a rate faster than inflation, there are indications that quality standards and tradesmanship have seriously slipped. I suspect that politicians’ and economists’ enthusiasm for privatising trades education is one of the major causes. At stake is a significant proportion of GDP, particularly at the lower and poorer end of the market. It may not be as glamorous a long-term challenge as climate change or the caring economy, but it is a vital one. Again, one does not expect that an intergenerational report can by itself resolve the problems to which it has pointed, but if it neglects general structural weaknesses, it will be missing the point of having such reports.

John Maynard Keynes said, 100 years ago this year, “The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.’’

He did not mean that only the short, or the medium term mattered. He was questioning the assumption that when there was economic turmoil, one should do nothing because in due course, economies will come back into balance or equilibrium again. Provided government did not interfere. Indeed, his general theory, developed over the next 15 years, was based on the argument that sometimes government must intervene in markets. As even the coalition government did in 2020 in response to the Covid pandemic. As even, to alleged Treasury horror, with the current government’s intention of strengthening competition policy. Treasury belief in pure markets has its limits. Sometimes, even in intergenerational statements, one sees treasury ideology and dogma still at play, not least in its tacit assumption that taxes would be too high if they reached 28 per cent of the GDP, and that 24 per cent or so was about ideal. Who says? And why is it so, in one of the most lightly taxed nations in the OECD?

Even with these priority targets the Albanese government is tiptoeing as if it has all the time in the world.

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