Wednesday, 4 March 2015
Statements by Senators
It is good to see Minister Nash here in the chamber, because Minister Nash thinks I am a little bit of a nerd at times, particularly sitting down here with the National Party. She probably thinks I have spent more time with a protractor than a set of pliers in my time. I am going to speak today about something a little bit nerdy. I am going to confirm to Minister Nash that I have in fact been a bit of a nerd for some time, because the very first public speech I can remember making was in 1992, when I was 12 years old. I was competing in the Lions Club Youth of the Year award in Beenleigh. The topic I chose for my speech was 'the threat to Australia of an ageing population', which was a pretty nerdy topic for a 12-year-old. I will be very proud if in two years' time my son does the same. I spoke about it then and I am going to talk about it now, 23 years down the track. I do not have a copy of the speech I gave back then and I cannot remember what figures I quoted or what I relied on, but it was certainly a topical issue at the time. We knew it was a coming threat. We had a population that was ageing and it was going to mean that certain costs were going to be imposed on, particularly, our public sector, and it was going to be a threat to our fiscal sustainability as a nation.
About 10 years after that I was a graduate at the Productivity Commission. While I was there they did a report on the cost of an ageing population. They found that if we did nothing in the next 40 or 50 years we would end up with a debt of more than $4 trillion and a debt-to-GDP ratio approaching 200 per cent.
During that time we have had other intergenerational reports and another one is to be released tomorrow. Of course, I do not have any knowledge about that, but I want to continue to hammer on about what I think is the greatest challenge facing our nation right now. At the moment we are struggling to have our revenue match our expenses. It is the greatest challenge for most households in this country. I'm fine, I have enough money, but when I was starting out after university it was the greatest challenge my wife and I faced, having kids and balancing our budget, making sure the rent and mortgage we paid matched up with the money I got every couple of weeks in my pay cheque.
But as a nation we are not doing that. Parliament House is failing to do that and we have consistently failed to do that for years now. I went back and had a look at the historical tables in the budget papers. The figures I have are not actually MYEFO. They are from last year's budget papers, so they are slightly worse, but they are in the order. We had two recessions in the last 30 years. We have not had a recession for going on 25 years this year. That is a pretty amazing outcome. It is actually the second longest period in world history. In the first recession that we had in the early 1980s we ran five years of deficits. They totalled a cumulative amount of 10.5 per cent of GDP. In the second recession that we had—'the recession we had to have' in the early 1990s—we ran seven years of deficits and they added up to 17.2 per cent of GDP. We did not have a recession but we did have an economic downturn as a result of the global financial crisis. Right now we are on track to run, under current projections, 10 years of deficits in a row. There could possibly be even more beyond that unless we take action, but 10 deficits in a row, baked in the cake. They would add up to a total cumulative deficit of 20.5 per cent of GDP.
We have not had a recession in the last few years. Our economic growth in last decade has been just below trend, and we have racked up a fifth of our GDP in debt. That has left us, or will leave us soon, in a much more vulnerable position to face the challenges of this ageing population. Because we are going to have fewer workers per dependant, that ratio is going to drop to the low ones. We will have about 1.2 to 1.4 people in the working population to support both the elderly and anyone below 15.
As I said, new figures will come out tomorrow, but we already have some pretty recent figures that show the scale of the task. In late 2013, the Productivity Commission released an update on the ageing population report. They had a look at the difference between our revenues and expenses over the next 50-odd years through to 2060, based on some pretty conservative assumptions, I thought. That fiscal gap would add up to $3.1 trillion in that period. That is just a raw gap each year. We would have to find $3.1 trillion to 2060. All of these figures are in today's dollars. Of course, we would have to borrow to fund that gap, and we would have to borrow at a positive interest rate to fund that gap, so the debt would actually grow to something above $7 trillion by 2060. That would be one and a half times our GDP, and that would put us in the league of Japan, Greece and other nations that are in great fiscal difficulty.
We do not have a reason to panic. There is no reason to get despondent about this, because we have time to fix it. Even though we have time, I just want to draw one comparison which I think is instructive. Often in this place we talk about Commonwealth debt, but I am a senator for Queensland and we also have $80 billion of debt there. There are 4½ million Queenslanders, or thereabouts, so $80 billion in debt translates to around $17,000 per person. In Australia, at the Commonwealth level, last week we had $356 billion in debt and we have 23-odd million people. That translates to about $16,000 person. For Queenslanders, that adds up to owing both the state and federal governments, on average, around $33,000 per person right now. If you look at Greece, right now they owe a gross debt of 328 billion euros. They have 11 million people. Their gross debt is 30,000 euros per person. In Australian dollar terms it is about $43,000 per person. It is only $10,000 per person more than a Queenslander owes right now.
There is a big difference between Australia and Greece; I accept that. We are not in the situation of Greece, but what is the difference? It is not those absolute debt numbers, because there is not much difference there. The difference is that we have a strong economy. The difference is that we create economic wealth per person around 50 per cent to 60 per cent higher than Greece, so we can afford to carry more debt. The difference is that people are still buying our exports at the moment. But those things might change. As I said, we have not had a recession for nearly 25 years—for nearly a quarter of a century. My generation in the workforce does not understand what a recession is like. If we were to have one, then we may not have the wealth into the next decade to sustain the kind of things and spending initiatives that we expect. We must change.
I heard in estimates last week, 'All these figures are based on assumptions about the net overseas migration, and it does not matter, because we are going to have assumptions in this report tomorrow that make that difference'. That is rubbish. Over the years, the Intergenerational reports and the different Productivity Commission reports have had different assumptions about net overseas migration, and those assumptions make very little difference to the end result. If the end result is 'we are fiscally dead', it does not matter how dead you are, you are still dead. I asked the Treasury last week at estimates about whether there would be a difference if we had some different demographic assumptions. Mr Harris said:
… we have done our own assessment of what we think would be a likely level of migration … but whether it could ever offset an ageing demographic situation of the kind we face is a reasonably improbable prospect.
That is about as strong language as you are going to get from a Treasury official. That is not our problem.
Similarly, our problem is not our taxes, because the fiscal gap in 40 or 50 years time will be about four per cent of our GDP. It will be bigger than our deficit right now. Right now, four per cent of our GDP equates to around $70 billion. That is the gap that we have to fund every year. There are some out there who say, 'All we need to do is tax multinational companies and corporates and we'll be able to fill that gap'. Well, we will not, because right now our company tax only collects around $70 billion a year. We would have to double our company tax, and we are not going to do that from a few multinationals. We have to, as a nation, get serious about this problem. We have an obligation here, right now, not to kick the can down the road like we have for the last 10 years. Because, if we do that, in the next 10 years we will face a serious threat, and we will face a serious crisis. I do not know if I will still be here in 10 years time, but I sure hope that I will not have spent 10 years in this place continuing to argue about this issue, not having it resolved and finding we have created a much more difficult problem for our future generations.