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Ageing Economics

This week the Productivity Commission released its draft research report ?Economic Implications of an Ageing Australia?. The report targets the year 2044-45 as the peak of this gradual trend with fiscal pressures building across State and Federal spending areas if no changes occur to current practice and policies. The main conclusions from the report are:

* Health care will cost an extra 5.0% of GDP

* Aged care will cost an extra 1.3% of GDP

* Education spending will fall by 1.1% of GDP

* Age pensions and other income support will rise by 1.6% of GDP

These add up to a net extra 6.8% of GDP with health a bigger factor than age pensions. In current dollars this would be $54 billion pa extra and would require an increase of 57% in federal personal income tax.

Whilst most of the talk about ageing is sheeted home to the baby boomers, the Productivity Commission?s report provides a more balanced analysis of the causes. Prime among them is living longer and lower fertility ? trends that have been apparent from demographic data from mid 1970?s onwards.

This report follows the ?Intergenerational Report? released 14 May 2002 by the federal government and also focusing on economic effects of ageing. There have been no specific policy responses from federal or state governments to these trends. The Federal Treasurer has spoken of the need for greater workforce participation, control of escalation of health spending and encouraging people to work longer with extra income support if this is part-time, from drawing on their superannuation before retirement. This latter suggestion sounds like drinking all the water on day 1 in the life raft hoping the QE2 will be pick you up on day 2!

The Productivity Commission concludes the most promising policy avenues are reforms to promote productivity and to enhance the cost-effectiveness of health care. The Productivity Commission is open for comments on the draft report prior to completing their final report in May 2005. The report and details of where submissions should be sent to, can be found at http://www.pc.gov.au/study/ageing/draftreport/index.html

Posted Sunday, 28 November 2004

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