Today, the treasurer, Jim Chalmers, will release the sixth intergenerational report and unless it deals predominately with climate change it will be irrelevant.
The impetus for the intergenerational report was mostly Peter Costello wanting reasons to say we need to reduce debt and keep the budget in surplus. The opening of the first report sets it out pretty clearly, noting it “provides a basis for considering the commonwealth’s fiscal outlook over the long term and identifying emerging issues associated with an ageing population”.
It was all about fiscal matters (ie government revenue and spending) and the fact that the baby boomer generation was nearing retirement. Twenty years on and the first decade of boomers have retired, and nothing about the estimates in any of the first five reports has really held up to scrutiny.
Take, for example, the predictions of net debt levels published in the 2021 report:
It’s all pretty wild and inconsequential. No one is monitoring intergenerational reports to worry about whether we are ahead or behind schedule.
If this sounds a bit cynical, remember the intergenerational report is not some holy document beyond political machinations. The desire to use it to bash the ALP about debt and preach the need for fiscal responsibility (ie budget cuts) was given steroids by Joe Hockey in 2015 when he ineptly dropped all pretense of it being apolitical by including some absurd projections (even by intergenerational report standards).
Mentions of climate change and debt highlight how the report is used:
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Already much of the report has been leaked, and as ever the big news has been on declining productivity.
Productivity always has a big focus in the reports because it affects most other estimates. Using the Parliamentary Budget Office’s “Build Your Own Budget” tool, we can calculate that with 1.2% annual productivity growth in 2033-34, gross debt will be 31.4% of GDP, but if instead productivity is 1.5%, debt falls to 25.8% of GDP.
Productivity growth is apparently what is needed if we are to maintain our standard of living – although, as I have noted previously, that is more theory than practice:
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Had real hourly income risen in line with productivity over the past decade, they would have risen 7%, not 0.1%.
The difference between 1.2% and 1.5% productivity growth is pertinent because 1.5% was the original long-term projection in the previous two reports, while 1.2% is the latest estimate:
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The era of the intergenerational report has, in effect, been the era of productivity failure. But the failure has a few parents, including – pointedly – the Productivity Commission.
The commission came into effect in 1998, the very year that the Charter of Budget Honesty also established the intergenerational report. The end of the 1990s was a great period of productivity growth – but the period since the commission has been issuing recommendations on how to improve labour productivity has been less so:
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The Productivity Commission also likes to talk about “multifactor productivity”, which is sort of (but not really) a measure of how well labour uses capital. The productivity commission values it so highly it gives it prominent position on its performance dashboard.
So how has multifactor productivity gone since the commission came into being?
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The intergenerational reports and productivity commission research have been used to drive an agenda that has delivered more “flexible” labour relations and weighted bargaining massively more in favour of employers than was in place prior to 1998. All done in the name of productivity.
And the net result is worse productivity.
It’s almost like for 25 years we have been pursuing the wrong things.
And so today’s report will again talk up the need to improve productivity and warn about debt, taxation and the ageing population. But if you are really worried about the next generation, the only thing that matters is climate change.
A failure to address climate change will make the estimates in today’s report look as silly as the fact that in 2002 Costello only thought the issue required two mentions.
Fortunately, we already know the path of the next 40 years, because climate scientists are much better at predicting the future than are economists. Both June and July this year were the hottest of those two months on record, and this year is set to be the hottest year on record, and we are on a path to 1.5C above pre-industrial levels within the next decade:
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As a result, the intergenerational report is only as good as it sets out what is needed to be done to reduce emissions to keep temperatures from rising 1.5C.
The Guardian’s emissions tracker shows how little time we have left. On our current trajectory, Australia will use up its share of emissions required to keep temperatures below 1.5C by the middle of 2028.
That does not mean we need to reach zero emissions in the next five years, but we urgently need to be on the steep path to net zero from now until the early 2030s.
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Failure to do that and you can talk about the ageing population, government debt and even productivity all you like, but it will be moot.
The only thing the current generation absolutely needs to do for the next generation is stop burning fossil fuels as quickly as possible. Everything else is secondary.
Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
