Intergenerational report: Everyone remain seated – it’s not very scary

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There are currently 4.5 people aged 15-64 for every person aged over 65. By 2055 there will be 2.7. Photograph: Peter Byrne/PA

Sorry, Joe but I’m still on my chair. This intergenerational report is not very scary.

It shows our living standards, our wealth, will continue to rise over the next 40 years – faster for the next 30 and then a little more slowly. (Growth in gross national income per person is projected to be 0.8% in 2015 and then increase to 1.3% by 2025, 1.5% by 2035 and then fall off to 1.3% again in 2055.)

It shows the population is ageing, which is a big challenge, but that more women and over 65s will be in the workforce, which is a good thing. (By 2055, 70% of women are projected to be in the workforce.) There are currently 4.5 people aged between 15 and 64 for every person aged over 65. By 2055 there will be 2.7. But given that by then everyone will be expected to work at least until they are 70, this may not be the most relevant comparison.

And it shows that in some important areas government spending is already being constrained.

Total government payments to individuals (unemployment benefits, disability support pensions child care benefits and parenting payments) are falling under existing policy settings. (from 4.5% of GDP now to 3.4% in 2055). Spending is increasing on health (4.2% of GDP now, 5.7% in 2055) and old age pensions (2.9% now, 3.6% in 2055).

The overall scenario is an obvious public policy challenge – the same public policy challenge the last three treasury secretaries have warned about, but nothing to cause chair-falling injuries. Hockey is right when he says that “doing nothing” is not an option.

The graphs showing the budget situation as policy stands now, as it would be if the senate waved through all of last year’s budget and as things would have been under Labor, could possibly be scary until you think about them for five minutes.

The “current legislation” scenario shows deficits all the way out to the 2055 horizon, deteriorating to 6% of GDP by 2055, with net debt growing to 60% of GDP. Looks bad until you consider that it is based on the ridiculous assumption that no government would seek to do anything about the situation or propose new or different savings or revenue measures for the next 40 years.

The “previous (ie Labor) policy” situation looks even scarier (deficit of 11.7% of GDP by 2055, net debt of 112% of GDP). However, this is not only based on the idea that governments would sit on their hands for four decades, but also starts not from the former government’s final budget position as revealed by treasury and finance in the pre-election economic forecast, but on the new Coalition government’s first mini-budget at the end of 2013. Those decisons made the deficit much worse – it was 1.9% of GDP but grew to 3% of GDP when the new government gave a big cash injection to the Reserve Bank, abandoned some of Labor’s proposed savings and took into account the abolition of the carbon and mining taxes.

As for climate change – which could have a significant effect on Australia’s economic wellbeing over the next 40 years because of its effects and the costs of doing something about it – the document mentions the “direct action” policy in passing, but says this is not really its focus because “government spending on the environment is not directly linked with demographic factors”.

That’s a pretty big change from the last report – in 2010 – which said “climate change is the largest and most significant challenge to Australia’s environment. If climate change is not addressed, the consequences for the economy, water availability and Australia’s unique environment will be severe”.

The senate-rolls-over-and-passes everything scenario does show a return to surplus in 2040 and net debt being paid off by 2032. As the document says this could be achieved by those policies not yet legislated “or measures of equivalent value”.

Since the government has abandoned some of those measures and others have been firmly rejected by the community, the real message from this intergenerational report is not specific “scary” projections 40 years hence. As it says “the projections in this report are very unlikely to unfold over the next 40 years exactly as outlined … the projections are not intended to be a prediction of the future as it will actually be, rather they are designed to capture some of the fundamental trends that will influence economic and budgetary outcomes should policies remain similar to current settings”.

The sensible response to the very real challenges of an ageing population would seem to be for the government, and the parliament, to remain firmly in their chairs and find sensible ways to cut spending or raise revenue for which they can win the support of the Australian people.

The treasurer says that’s exactly what he wants to do with it. If that’s really the case, this exercise may be not scary, but useful.