“Today’s Intergenerational Report (IGR) reinforces the magnitude of the task of putting the budget on a sustainable and equitable footing for future generations,” BCA President Catherine Livingstone said.
“Importantly, however, the report does show that timely policy action can claw back future deficits.” Ms Livingstone said.
“The IGR projects that real spending growth will average 3.1 per cent a year through to 2055 on current settings, underlining there is no escaping the need for a sustained effort to bring spending growth under control and that action must start now.
“The Business Council believes that a 10-year budget plan is needed to lock in a slower spending trajectory.
“Australia is undergoing profound demographic change which will redefine our economy: by 2055 almost a quarter of the population will be 65 years of age or over, including 40,000 people aged over 100.”
Ms Livingstone said the IGR shows we must confront the challenge before our nation. Without further action to rein in spending, it projects that by 2055:
• Commonwealth Government net debt will be almost 60 per cent of GDP or $2.6 trillion in today’s dollars.
• Commonwealth Government spending will reach 31 per cent or almost one-third of GDP.
• Health spending will be 5.7 per cent of GDP by 2055 or around $6,600 per person compared with $2,800 today.
• Aged pension spending will reach 3.6 per cent of GDP.
“Discounting the IGR as painting a distant future that may not happen would be short-sighted and irresponsible,” Ms Livingstone said.
“The IGR confirms the reality that we have been spending beyond our means for some time, and that spending pressures will inevitably and steadily ramp up. Without action, the outlook is for deficits for decades to come.
“Worsening deficits are not just book keeping entries - they will inevitably impact on community well being.
“As the Business Council highlighted in its pre-Budget submission this week, inaction will mean ever-rising debt and interest payments that crowd out essential spending, heightened vulnerability to economic shocks and no scope to offer taxpayers relief from bracket creep.
“Over the next four years 1.7 million Australians will move into a higher tax bracket. This is an immediate not a future problem.”
This is why the Business Council has called for bipartisan support for a 10-year budget plan to achieve four goals:
• preserving Australia's AAA credit rating
• progressively returning the budget to surplus
• ensuring the sustainability of services and an adequate safety net
• investing in productivity-enhancing infrastructure.
“The 10-year horizon is not an excuse to defer the hard decisions. Quite the opposite. It is about adopting a strategy that will commit successive governments to making policy changes that are sustainable and consistent.
“The history of reform in Australia demonstrates that it requires transparent, inclusive and evidence–based processes, together with incremental transitions that limit unintended effects, avoid undue hardship and minimise the risk of policy reversal.
“We have a 10-year window to strengthen the budget by redesigning major spending programs so they are fit for Australia’s new demographic and economic reality. This means making policy changes progressively from today that complete the transition in 10 years time. We have no choice but to get this right - we’ve run out of time for false starts.
“The IGR reinforces that we must step up efforts to meet the challenge of a growing population. A population of 39.7 million by 2055 will require purposeful planning, especially around the delivery of new infrastructure.
“The challenge set out in the IGR is whether we have the determination that will preserve the living standards we have now and for future generations,” Ms Livingstone said.