A comparison of key assumptions and outcomes over four intergenerational reports

Parliament house flag post

A comparison of key assumptions and outcomes over four intergenerational reports

Posted 5/03/2015 by Kai Swoboda

The 2015 intergenerational report (IGR), released more than one month after the legislated timeframe in the Charter of Budget Honesty Act 1998, is the fourth such report. Previous IGRs have been published in May 2002, April 2007 and January 2010.
The basis for conducting such an analysis is the principle of intergenerational equity—that actions benefiting current generations should not compromise future generations.
The purpose of the IGR is to examine the impact of population ageing on the Commonwealth’s financial position while holding the expenditure policy settings unchanged over a 40-year timeframe. All of the analysis is largely on the expenditure side, with this IGR—as well as previous IGRs—assuming that revenue as a share of GDP remains constant over the period extending beyond the most recent budget forward estimates period.

Assumptions comparison
There are a number of important assumptions that form the basis for the modelled expenditure. The choice of appropriate values for these assumptions is an important part of the IGR. Each IGR has adopted different values for some of the key assumptions (table 1).

Table 1: Key assumptions included in each IGR

  IGR 1 (2002) IGR 2 (2007) IGR 3 (2010) IGR 4 (2015)

Period covered

2001-02 to
2041-42

2006-07 to
2046-47

2009-10 to
2049-50

2014-15 to
2054-55

Net migration (persons per year)

90,000

110,000

180,000

215,000

Fertility rate (births per woman)

1.6

1.7

1.9

1.9

Life expectancy at birth at end of period covered (years)
       

- Males

82.5

86.0

87.7

87.5

- Females

87.5

89.8

90.5

90.1

Participation rate 
       

- Persons aged 15 to 64 at end of period (%)

75%

78.1%

79.7%

79.3%

- Persons aged 15+ at end of period (%)

55.5%

57.1%

60.6%

62.4%

Average annual growth in labour productivity (%)

1.75%

1.75%

1.60%

1.50%

Unemployment rate (%)

5%

5%

5%

5%

Source: Intergenerational reports 2002, 2007, 2010 and 2015.

Each IGR has made a similar assumption on the revenue side that over the medium to long term revenue (or tax revenue) is fixed as a share of GDP. However, the headline numbers quoted for this assumption in each report vary in their composition. The 2002 IGR used a fixed revenue to GDP share of 22.4%, the 2007 IGR used a fixed revenue (excluding interest receipts) to GDP share of 22.1% and the 2010 IGR used a fixed tax to GDP share of 23.5%. The 2015 IGR assumes a fixed tax to GDP share of 23.9%.

Outcomes comparison

Each of the IGRs includes projections for a range of key demographic and economic indicators. The outcomes of each IGR have generally been similar, with each projecting considerable population growth and increasing expenditure as a share of GDP in certain areas and a significant negative budget position (‘fiscal gap’) at the end of the period covered (table 1).
The financial outcomes for the 2015 IGR included three separate scenarios—a ‘previous’ policy scenario based on estimates prior to the 2014 15 Budget, a ‘currently legislated’ scenario based on 2014 15 Budget measures that have been passed by the Parliament and a ‘proposed’ scenario that is based on the 2014 15 Budget measures being implemented in full. The financial outcomes included in Table 2 for the 2015 IGR relate to the ‘proposed’ policy scenario.

Table 2: Key outcome meausres included in each IGR

IGR 1 (2002)

IGR 2 (2007)

IGR 3 (2010)

IGR 4 (2015)

Period covered

2001-02 to
2041-42

2006-07 to
2046-47

2009-10 to
2049-50

2014-15 to
2054-55

Population at end of period (million)

25.3

28.5

35.9

39.7

Change in spending as % of GDP over period covered (percentage points)

 

- Health

+4.2

+3.5

+3.1

+1.3

- Aged care

+1.1

+1.2

+1.0

+0.8

- Social security payments

+0.5

+0.4

+0.4

-1.5

- Education

-0.2

-0.1

-0.7

-0.7

Fiscal gap at end of period covered (% GDP)

-5.0

-3.5

-2.7

0.0

Source: Intergenerational reports 2002, 2007, 2010 and 2015.

Fiscal gap

The ‘fiscal gap’ has been a key measure for each IGR—although the 2015 IGR does not use this term. The 2010 IGR notes that the fiscal gap (also referred to as the ‘primary balance’) is a measure of the difference between total Australian government receipts and total Australian government payments (excluding interest). In general, the fiscal gap, for the first three IGRs, expressed as a share of GDP, has tended to show an increasing gap over time for each IGR projection, although the size of the gap has narrowed with each IGR (figure 1). In contrast, under the ‘proposed’ policy scenario revenue exceeds expenditure for most of the projection period.

Figure 1: Projected fiscal gap (share of GDP)

Percent of GDP

Source: Intergenerational reports 2002, 2007, 2010 and 2015.

Focus on policy areas

While some elements of analysis are comparable across each IGR, each report has also included analysis that has not been replicated in later IGRs or has provided a basis for analysis in a later IGR. For example: 

  • The 2015 IGR includes, for the first time, an analysis of three separate policy scenarios (‘previous’, ‘currently legislated’ and ‘proposed’). The headline figure cited for the budget outcome in IGR 2015 uses the ‘proposed’ policy scenario and focuses on the ‘underlying cash balance’ rather than the ‘primary balance’ (also referred to as the ‘fiscal gap’). 
  • A summary of issues related to the impact of climate change, included for the first time in the 2010 report, has been retained in the 2015 report. However, these issues are included in the broad chapter of change (chapter 2) in the 2015 IGR whereas the discussion of climate change and sustainability were included in separate chapters in the 2010 IGR (chapters 5 and 6). 
  • A broad sensitivity analysis to allow for an understanding of changed assumptions for key variables, included in the 2002 report, has been retained in all reports.

Links to additional resources


Thank you for your comment. If it does not require moderation, it will appear shortly.
Facebook LinkedIn Twitter Add | Email Print

FlagPost

Flagpost is a blog on current issues of interest to members of the Australian Parliament


Parliamentary Library Logo showing Information Analysis & Advice

Archive

Syndication

Tagcloud

refugees asylum immigration Australian foreign policy Parliament elections climate change social security women welfare reform taxation Indigenous Australians Australian Defence Force welfare policy school education higher education private health insurance health financing emissions trading Middle East Senate Australian Bureau of Statistics employment people trafficking Asia statistics illicit drugs gambling health reform federal election 2010 Australian Public Service income management Medicare disability Sport United Nations environment industrial relations constitution transport politics criminal law Afghanistan health forced labour food public service reform aged care aid Australian Sports Anti-Doping Agency World Anti-Doping Agency United States federal budget Carbon Pricing Mechanism dental health international relations governance regulation Fair Work Act voting law enforcement electoral reform OECD Australian Electoral Commission WADA child protection poker machines Australia in the Asian Century steroids National Disability Insurance Scheme detention 43rd Parliament slavery health system leadership domestic violence parliamentary procedure International Women's Day accountability defence capability multiculturalism ASADA Australian Federal Police labour force people smuggling debt New Zealand Australian Crime Commission pharmaceutical benefits scheme political parties coal seam gas Human rights crime China Census election results UK Parliament Papua New Guinea banking corruption pensions children's health Aviation federal election 2013 foreign debt gross debt net debt Senators and Members ALP Newstart Parenting Payment Youth Allowance sea farers United Kingdom energy food labelling Australian economy violence against women vocational education and training military history by-election High Court skilled migration mental health Federal Court terrorist groups science social media Higher Education Loan Program HECS federal state relations youth paid parental leave same sex relationships customs planning doping health risks Gonski Review of Funding for Schooling sex slavery Special Rapporteur Northern Territory Emergency Response social policy ANZUS Rural and regional trade unions Foreign affairs election timetable Indigenous royal commission Productivity firearms public policy Population ADRV terrorism transparency research and development welfare ASIO intelligence community Australian Security Intelligence Organisation carbon tax mining employer employee renewable energy regional unemployment fishing European Union family assistance United Nations Security Council forestry Drugs welfare systems Indonesia children Constitutional reform local government codes of conduct terrorist financing homelessness Parliamentary remuneration money laundering Trafficking in Persons Report social inclusion paternalism environmental law US presidential election nutrition ODA Defence sitting days electoral divisions Southeast Asia administrative law universities TAFE Ireland citizenship asylum seekers early childhood education Canada Financial sector national security fuel disability employment Tasmania integrity standards NATO Australian Secret Intelligence Service sexual abuse World Trade Organization Australia public health housing affordability bulk billing water health policy Governor-General US economy export liquefied natural gas foreign bribery question time speaker superannuation public housing expertise climate Intergovernmental Panel on Climate Change Department of Agriculture Fisheries and Forestry Pacific Islands reserved seats new psychoactive substances synthetic drugs UNODC carbon markets animal health middle class welfare constitutional recognition of local government referendum consumer laws PISA competition policy US politics language education baby bonus Leaders of the Opposition citizen engagement policymaking Australia Greens servitude Trafficking Protocol forced marriage alcohol entitlements ministries Hung Parliament social citizenship maritime Iran regional students school chaplains federal budget 2011-12 salary Medicare Locals primary care Building the Education Revolution Turkey Syria marine pollution sustainability prisons police deaths in custody electoral margins electoral pendulum electoral redistribution redistribution NSW redistribution WA redistribution ACT electoral boundaries ASEAN Sustainable Development Goals Double dissolution Senators safety vehicles MYEFO Pathology tertiary education Taiwan Xi Ma meeting family violence government financial advisers financial planners Financial System Inquiry Murray Inquiry China; Economic policy; Southeast Asia; Africa housing Speaker; House of Representatives; Parliament High Court; Indigenous; Indigenous Australians; Native Title ACT Indigenous education Norfolk Island External Territories emissions reduction fund; climate change child care funding refugees immigration asylum procurement Indigenous health e-voting internet voting nsw state elections 44th Parliament 2015 ABS Age Pension Death penalty capital punishment execution Bali nine Bali bombings Trade EU China soft power education Fiji India Disability Support Pension Antarctica Diplomacy by-elections state and territories Bills anti-corruption fraud bribery corporate ownership whistleblower G20 economic reform innovation Members of Parliament Scottish referendum Middle East; national security; terrorism social services Criminal Code Amendment (Misrepresentation of Age to a Minor) Bill 2013 online grooming sexual assault of minors ACT Assembly smoking plain packaging tobacco cigarettes Asia; Japan; international relations Work Health and Safety Migration; asylum seekers; regional processing China; United States; international relations fiscal policy Racial Discrimination Act; social policy; human rights; indigenous Australians Foreign policy Israel Palestine asylum refugees immigration political finance donations foreign aid Economics efficiency human rights; Racial Discrimination Act employment law bullying Animal law; food copyright Australian Law Reform Commission industry peace keeping contracts workplace policies same-sex marriage disorderly conduct retirement Parliament House standing orders prime ministers First speech defence budget submarines workers Somalia GDP world heritage political engagement leave loading Trade; tariffs; safeguards; Anti-dumping public interest disclosure whistleblowing Productivity Commission limitation period cancer gene patents genetic testing suspension of standing and sessional orders live exports infant mortality honorary citizen railways disciplinary tribunals standard of proof World Health Organisation arts international students skilled graduate visas temporary employment visas apologies roads Italy national heritage NHMRC anti-dumping Rent Assistance obesity evidence law sacrament of confession international days DFAT UN General Assembly deregulation Regulation Impact Statements small business Breaker Morant regional engagement social determinants of health abortion Members suspension workplace health and safety marine reserves hearing Victoria astronomy resources sector YMCA youth parliament Korea rebate Australian Greens presidential nomination Racial Discrimination Act political parties preselection solar hot water Financial Action Taskforce Horn of Africa peacekeeping piracy Great Barrier Reef Stronger futures political financing political education Social Inclusion Board early childhood National Quality Framework for Early Childhood Education and Care Murray-Darling Basin sanctions Norway hospitals republic President Barack Obama Presidential visits qantas counselling Korean peninsula Work Choices biosecurity hendra federalism federation preselection therapeutic goods Therapeutic Goods Administration plebiscites computer games pests suicide nuclear COAG Ministerial Councils floods ADHD stimulant medication advertising electricity extradition conscience votes poverty preventative health rural health coastal erosion Parliamentary Budget Office work-life balance

Show all
Show less
Back to top