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April 3, 2007
Though I was in Canberra on Monday I did not attend Treasurer Peter Costello's National Press Club speech on the Intergenerational Report 2007. Costello looks less and less impressive these days in terms of being a reformer, and more and more like a political hack.
This is someone who opposed the National Reform Agenda pushed by the states and is now claiming it as his own! The commonwealth government had to be dragged into the room to endorse the agenda worked up by the Bracks Government in Victoria. Costello was busy shooting bullets at the states.
The second Intergenerational Report (IGR2) shows that the Australian Government's long-term fiscal sustainability has improved since IGR1. The good news is that Australia now faces the future from sound foundations as a result of strong policy frameworks, robust economic growth and a strong fiscal position.
However, it is argued in IGR2, that projections show that over the next 40 years:
# the population will continue to increase in size but with a higher proportion of older people;
# economic growth per person will slow as the proportion of the population of traditional working age falls; and
# substantial fiscal pressures will emerge due to projected increases in spending, particularly in the areas of health, age pensions and aged care.
Notice what is missing--the elephant in the room: the economic costs of the effect of global warming on Australia over the next 40 years. Isn't that an intergenerational issue: ‑ isn't there a need for a policies to address the benefits and costs for current and future generations with respect to global warming? What are the fiscal implications?
See what I mean about Costello looking less and less impressive? His economic credibility has been undermined.
What is offered by Treasury in the Overview is some wishy washy stuff:
Reforms are underway to improve human capital, reduce unnecessary regulation, boost competition in energy, transport and infrastructure and increase the sustainability of our water resources. Progress from these reforms will help improve economic growth prospects and better manage spending pressures. But the reform task remains ongoing....Further steps taken early will reduce the need for large adjustments later. Our policies also will need to help us manage and adjust to other long-term trends, including pressures on our natural resources, global climate change, international security issues and globalisation.
It's motherhood policy statement since global warming is going to have a big impact on population, participation and productivity. It is argued that:
Health, age pensions and aged care are projected to account for most of the increase. These areas are sensitive to demographic change. Factors other than ageing, such as technological change, also are projected to increase costs.
Eventually we come to environmental sustainability, where it is stated that:
Maintaining the environment and its capacity to contribute to growth is a significant challenge. Concerns include land degradation, salinity, and the issues of water and global climate change. Improved knowledge of environmental issues has led to a greater capacity to address the problems. However, there is no single policy solution to the diverse range of environmental issues. Policy approaches include market-based mechanisms as well as budget funding to deliver sustainable outcomes. While addressing environmental issues can affect economic growth, in many cases it will act to safeguard future economic growth potential. In other cases, such action may provide for both improved environmental and economic outcomes.
That says nothing much at all. And that's it! Where's the economic modelling? So much for long term governance.
What Treasury needed to do was to engage with the Stern Review on the the Economics of Climate Change, and its case for action to reduce the risks of climate change.
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