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Federal Government must act now to address challenges laid out in the 2021 Intergenerational Report: CEDA

CEDA Media Release

The 2021 Intergenerational Report (IGR) shows Australia can’t afford another lost decade of policy reform, says CEDA Chief Executive Melinda Cilento.

We must tackle the costs of climate change, our reliance on income tax, boost productivity and digitisation and fund essential services like health and aged care if we are to manage well the impacts of our ageing population.

“The report rightly highlights the costs of these challenges, and points out that with a solid and growing economy, we are better placed than most other countries to meet them,” Ms Cilento said.

“Now is the time to take serious action to address these challenges.”

Population

The IGR highlights the generational challenges posed by a population that is expected to grow more slowly, and age more rapidly, than previously expected, due to the pandemic population squeeze and our closed borders.

It warns the most enduring economic effect of COVID-19 is likely to be this smaller population: while the 2015 IGR projected Australia’s population would hit almost 40 million by 2054-55, this IGR projects it will only reach 38.8 million in 2060-61.

This is the first time there has been a downward revision of the long-term population projections in an intergenerational report.

“With our ageing population, and the population freeze caused by our closed borders, our future growth will rely on productivity,” Ms Cilento said.

“CEDA has been calling for Australia to re-open its borders sooner than mid-2022.

“The Federal Government should ramp up the vaccination program now, to help us on this path.

“Australia must also recalibrate its skilled migration program to attract not only the best and brightest migrants, but also those with the right skills and experience for the jobs we need to fill – and we need to start now.

“Right now, governments around the world are fine-tuning their migration programs to respond to greater competition in a post-pandemic world. We will fall behind if we don’t do the same.”

Productivity

The report makes clear that Australia faces an enormous productivity challenge.

It assumes labour productivity will return to 1.5 per cent per year, our 30-year average to 2018-19. But our productivity growth in 2019-20 was roughly one-third of that and averaged just 0.8 per cent in the five years to 2019-20, with GDP growth largely driven by population growth in the lead up to the pandemic.

“Lifting annual productivity growth to 1.5 per cent over the next decade will require sharp policy focus and depend on more Australian businesses performing at or close to world’s best,” Ms Cilento said.

“We can’t underestimate how tough this will be.

“Research by Federal Treasury before the pandemic showed leading Australian firms were not keeping up with leading global firms on productivity.

“Australia had its worst result in 25 years in the recent IMD World Competitiveness Yearbook 2021, a global ranking of the competitiveness of 64 nations.

“Business efficiency led Australia’s slide, driven by poor performance on management practices, company agility and entrepreneurship.”

“Our rapid digitisation through the pandemic brought opportunities, but moves to establish domestic supply chains may reduce competition and scale and specialisation benefits.

“On trade, we have also heard that seizing new market opportunities and maintaining relationships are getting harder the longer borders remain closed.

“The growing share of services in our economy – particularly personal services, which have traditionally shown low levels of productivity – will also create headwinds.”

Climate change

The impacts of climate change and the transition to carbon neutrality must factor into our longer-term thinking and planning.

The recent NSW IGR found climate risks would have a material impact on the state’s long-term economic and fiscal outlook. We would have liked to see a concrete effort from the Federal Government also to model these scenarios.

Ratings agencies such as S&P are increasingly considering climate risks in their long-term risk assessments.

Meanwhile, 60 per cent of Australia’s major trading partners have committed to net-zero emissions by 2050.

“The Federal Government should commit Australia to net-zero by 2050, and it should announce more ambitious policies to get us there, to provide greater certainty to business and the broader community,” Ms Cilento said.

“More than nearly any other country, Australia is ideally placed to be a renewables superpower. This is our new energy advantage.

“We have the sun, the wind and the minerals needed to build and power new renewable technologies. If we don’t take advantage of this, we will miss out on enormous job opportunities along the way.”

Digitisation

The 2021 IGR highlights the opportunities Australia must leverage through digitisation to boost productivity across the economy.

“Our success in adopting new technologies will determine whether Australian business can compete with the best in the world,” Ms Cilento said.

“Making the most of data and digitisation is also essential to improving the quality and efficiency of care services, amid rising costs and service expectations.

“Australia really must become a leading digital nation if it is to meet the challenges outlined in this report.

“While there were important initiatives in the recent Federal Budget, including the $1.2 billion digital economy strategy, greater clarity is needed on what it will take to achieve the Government’s aspiration to be a leading digital nation.

“A good way to start is by appointing a Chief Technologist to guide the implementation of digital and tech services, and communicate the opportunities and risks of these technologies, as CEDA has previously recommended.”

Tax

With a shrinking working-age population, this report shows Australia’s tax mix will rely mostly on income tax.

“This is not a realistic assumption,” Ms Cilento said.

“Comprehensive tax reform must be put back on the table, with a renewed resolve to reshape the system to sustain a strong and dynamic economy and pay for the essential services so important to our communities.”

Federal-state relations

This report reinforces that both federal and state governments face growing budget gaps and can only close those gaps and boost the tax base by working together.

“Australia should move to a whole-of-federation intergenerational report for National Cabinet,” Ms Cilento said.

“We need an authoritative baseline to examine future spending and revenue trends.

“A combined report would also provide a fuller picture of the challenges we face in the decades to come. Having that picture would make the opportunities for reform in areas such as tax more clear.”

The Federal Government should also ask the Productivity Commission to kick off its next five-yearly productivity review, which should focus on how to drive business-led productivity.

It is now nearly four years since the PC delivered its previous review.

About CEDA

CEDA – the Committee for Economic Development of Australia – is an independent, membership-based think tank.

CEDA’s purpose is to identify policy issues that matter for Australia’s future and pursue solutions that deliver better economic and social outcomes for the greater good.

CEDA has almost 700 members including leading Australian businesses, community organisations, government departments and academic institutions. Our cross-sector membership spans every state and territory.

CEDA was founded in 1960 by leading economist Sir Douglas Copland. His legacy of applying economic analysis to practical problems to aid the development of Australia continues to drive our work today.

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6 comments

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  1. wam

    Medicare levy on gross income will ensure enough money for a real gold standard health system and make every one receiving money from any source pay their share for the health of Australians?

  2. Attuross

    “Federal Government must act now”
    This mob of rorting incompetents couldn’t act now, even in a school play.

  3. New England Cocky

    Perhaps the optimal solution to the CEDA Report is to remove all the tax concessions and government rebates to the foreign owned international mining corporations that presently receive more in government handback largess than they pay in Australian tax.

    These funds could then be invested in social housing, especially in country areas, thus providing building industry jobs for Australian tradespersons while keeping the money circulating within Australia.

  4. TuffGuy

    Make the rich and big business pay their fair share of tax.

  5. Andrew J. Smith

    On population it appears that the IGR report is using the working age cohort (15-64) based upon our raw or estimated population including ‘churn over’ which is presently lacking due to closed borders and negative NOM net overseas migration.

    However, this can then be used to attack super, by libertarians masquerading as right on centre informing journalists, and claim there is no point in a Super Contribution Guarantee increase because our projected (but inflated) population pyramid can support state pensions with more retirees, while also claiming super tax breaks will cost more into the future.

    Simple ‘libertarian’ solution, ditch super tax breaks for middle class/wealthy and also subsidies for fossil fuels and motor cars in white collar salary packages or ABN expenses.

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