8 April 2015
Transcript - #2015072, 2015

Q&A at the CEPAR public forum

QUESTION:

Thanks very much. I'm David Bale, alumni invite. I just wanted to check whether the participation included unpaid work as well as paid work. Fairly simple question.

TREASURER: 

My assumption is it is assumed to be paid work.

QUESTION:

There could be a whole additional number of workers working in the unpaid work that aren't actually contributing to these numbers.

TREASURER:          

Well that's right David, and I hear exactly what you say. I mean, there is an enormous financial contribution from people in - through volunteer work in particular. Often the NGO sector puts a value on that, government has been quite lax in not putting that into the economic data. But I assume that's primarily because we have to have international comparative data in the presentation of information. So, doesn't mean it's unvalued, it's certainly immensely valued. And I think there is a deep desire among some to have government pay for that unpaid contribution. But that is, I think that's unreal in that current environment. But I think there needs to be greater recognition of unpaid participation in work.

QUESTION:

Thank you very much.

TREASURER:

David [inaudible].

QUESTION:

Yep. David Uren from The Australian. The Intergenerational Report included a striking chart showing the difference between the outlook in 40 years' time given what's been put through from last year's Budget already, and the state of affairs had the policy parameters that the Government inherited been allowed to continue. My understanding is that the biggest single component in the changes that you've been able to effect is really the changes in indexation to health and education payments to the states for hospitals and schools. Isn't that really just transferring the burden of an ageing population from the Commonwealth Government to the states?

TREASURER:          

No, no it isn't. Because - well, firstly, the education changes were not legislated and have not yet been legislated, so they're not part of that list of measures that have been implemented. So, education is in the yet-to-be-implemented side of the equation.

In relation to hospitals; there were bonus payments that were made by the previous government that we said we would honour for four years. But unquestionably, one of the things that has happened over the last few months is it's become obvious that the states have been able to improve efficiencies in delivery of their hospital services. And that has been a great indicator that those people that can get greater efficiencies out of hospitals are the ones that actually run the hospitals, rather than the government that doesn't run the hospitals. The Federal Government, apart from one hospital in Tasmania, the Federal Government does not run hospitals. So we will never be able to get greater efficiencies.

Having said that, there is clearly a role to improve the relationship between the Commonwealth and the states from - in the Federation White Paper, which the Prime Minister has already put out a number of discussion papers about. And I have no doubt that tomorrow when I meet with all the Treasurers, that there'll be further discussions about how we can improve the state of the federation, and reduce cost-shifting from Commonwealth to state, or indeed, from state to Commonwealth, which does happen as well.

QUESTION:

Thank you. Just to complete a trifecta of Davids, it's David Knox from Mercer. Thank you Treasurer for highlighting the fact that we're living longer, and we're living longer healthier lives, and…

TREASURER: 

And more prosperous lives.

QUESTION:

And more prosperous lives. Last year you indicated a desire to increase the pension eligibility age from 67 to 70. That's a significant jump, and we understand the discussion around that. I'm wondering…

TREASURER: 

In 2035.

QUESTION:

  1. But I wonder whether it would be preferable to actually link the pension eligibility age to an indicator of life expectancy, rather than a flat 70. So that it's an automatic adjustment as we keep living longer.

TREASURER:          

Well I think that has merit. And in fact, the trajectory that we went on to go from 67 to 70 was a continuation of the Labor Government's trajectory to go from 65 to 67. As you can see from that chart in the IGR, it's just a continuation to 70, but still the gap grows after that. And you're right, I mean, we are endeavouring to give some consistency, and stability, and predictability to the retirement income system. Now, the fundamental question is whether you can do this step by step or whether you've got to take a more holistic approach; because the retirement income system, when it was first developed substantially, with the aged pension obviously, back in the early 1900s, life expectancy is, as you can see from the IGR, was 58 - the pension kicked in at 65. Quite a few people didn't qualify, naturally enough. It's still 65, although rising at the moment.

And as a result of what the previous government did, we offered bipartisan support, you'll recall, for that initiative, even though it was unpopular. When we wanted to continue the trajectory we lost bipartisan support, and I think now with the further development of the superannuation system, particularly in 1992, when life expectancy was around 72, we've seen since that time a whole lot of other things, such as aged care integrate with retirement incomes, the taxation system has been quite dramatically changed to make changes for retirement income purposes, and even healthcare is linking in with retirement income. So, it's a lot more complicated now, the whole retirement income phase of our lives, than at any previous time. So, the question is, do you change it along the way, which reduces the predictability, or do we take stocktake of where the system's at? And that's something we're quite actively considering.

QUESTION:

I have a question, may I speak?

TREASURER:          

Yes ma’am up the back.

QUESTION:

Thank you. My name's Shobha Varkey, and I am Vice-President of Prisoners Aid and I am Vice-Chair of the Canberra Interfaith Forum. And my question is, I too have a passion for decreasing recidivism. If you analyse the intergenerational crime rate, what way can we - they say prevention is better than cure - how can we break that cycle?

TREASURER:          

Well Shobha, it is a good question. Recidivism is something that perhaps criminal lawyers think a lot about, but I'm not sure that legislators and the general public think a lot about. And that's because it is far easier, in a sense, to lock people up, and think that the problem has gone away. But when they come out and commit a crime again, it is, it becomes a systemic issue. And our laws of evidence are, well actually I don't want to get into the whole jurisprudential debate. I feel as though I'm at a university. But I'd just say to you, it is essentially a state issue, ma'am. It's not something, we don't run any particular justice system, and certainly at a federal level recidivism is not something that we end up dealing with. But it's something that maybe can generate debate here in the ACT with the Chief Minister, and, although, I'm not sure that Canberra has a jail, do they?

AUDIENCE:

[inaudible]

TREASURER:                      

Oh it's a new one, new one. Right, I'm sorry. [inaudible]

QUESTION:

Recidivism is not just the ACT, it’s Australia wide.

TREASURER:          

Across Australia, yes, I understand.

QUESTION:

And it costs us X billion dollars to lock people up. I was suggesting, as a solution, that you have productivity and you decrease mental health, and you raise productivity by utilising them, and decrease crime.

TREASURER:          

Well, they're all good suggestions ma'am, it's not …

QUESTION:

Okay. Thank you very much.

TREASURER:          

Just to point you in an area, the Northern Territory actually has outstanding, an outstanding program that I heard about, about a year ago, and particularly young people, getting them out of jail on day activity and taking them into workplaces, on anonymous basis, and no one knew that they were on day release from jail. And they've actually massively reduced recidivism in the Northern Territory, particularly amongst Indigenous Australians, which is a very good story in itself.

QUESTION:

Kaye Fallick from YourLifeChoices website. Yes, we have an ageing population. I'm interested, because you're widely reported on saying that we would fall off our chairs when the IGR came out, and given that the fiscal gap in IGR…

TREASURER:          

It would be hard to fall off those chairs.

QUESTION:

These are a bit comfortable. IGR, one the fiscal gap was 5 per cent, two was 3.5, three was 2.75, and four has a number of 3.6, I understand three different trajectories. But a serious question, what, in your opinion, was the stand-out fall-off-the-chair horror piece of information in this report?

TREASURER:                      

Well, it doesn't have to be horror. You can fall off your chair with excitement as well. So, well, there are many statistics in there that are intriguing. I mean, what happened was every government through the IGRs has got longevity wrong and even on the same benchmark, they've got it wrong. The second thing is we were on a trajectory for debt to GDP that in today's equivalents would have been third after Greece and Japan if we just let spending continue to grow. And I think the spending trajectory is the one of most concern, particularly given where the line is on revenues. The highest ever level of revenue is around 26 per cent of GDP. Now, that doesn't necessarily mean tax. Tax can be part of revenue. The total government revenue was around, from memory, 26 per cent of GDP which occurred in the '80s. So in order to be able to link the expenditure trajectory, we'd need to increase revenue dramatically not to its highest level ever but probably to its highest level ever plus around 70 or 80 per cent, and that's with fewer working Australians of traditional working age between 15 and 65.

So the financial burden is falling on the shoulders of fewer and the financial burden would be far, far greater, and that is simply not sustainable in a world where we are competing vigorously with countries that have much lower tax rates, including New Zealand just across the creek. Everyone used to think oh, New Zealand's the poor, poor little sister or little brother. Well, New Zealand actually has substantially lower headline tax rates than Australia and is far more aggressive in the international marketplace where they compete directly with us, for example, in dairy. And they have higher workforce participation of older New Zealanders and they have higher workforce participation of females than we do in Australia.

So there are many lessons where we can compare with other similar countries facing similar challenges, and I think they're, you know, in aggregate. They're the things that are startling in the IGR. And if you have a look through, when you look at, for example, at our debt to GDP, Japan currently can fund its debt to GDP from domestic savings. Now, that apparently is coming to an end this year. The government debt of Japan for the first time since World War II is not going to be totally funded by domestic savings for the first time. So no one was overly concerned about Japan and Japan's demography has been, you know, their population is actually decreasing substantially. So Japan wasn't the issue. Greece is self-explanatory. So, on the current trajectory of spending, or what we inherited, we would be coming third. That's unacceptable. Now, we've addressed half of that but there's still a long way to go.

QUESTION:

Peter Martin from The Age, sir. You’ve said that every IGR has got things wrong and that's not surprising…

TREASURER:          

It isn't surprising.

QUESTION:

…as the future changes. One of the things every IGR has got wrong is population. Population has grown faster than projected in every IGR. You've projected a convenient number of 39 point what? It's just under 40 million, just under…

TREASURER:          

39.5.

QUESTION:

Just under 40 million. And you've done that by assuming a steady rating, in numerical terms, falling as a proportion of immigration. I'm wondering whether the odds are that that's wrong, too. That we will have a much bigger Australia or at the very least, a bigger Australia than you've projected. Because think about it: you're running short of workers. Aren't we going to increase immigration?

TREASURER:          

Well, that's assuming that they want to come here in larger and larger numbers and that in many…

QUESTION:

They won’t want to come here?

TREASURER:          

Well, the point is that in terms of the skill base, there has been a complete reset. Since the first IGR, there has been a reset in the composition of immigration, and that has been a bipartisan approach to increase skilled migration and the NOM in the IGR also includes students studying. So obviously, since say 1990, there has been a dramatic increase in the number of foreign students studying in Australia which has counted as part of the NOM - Net Overseas Migration number. So the composition has changed over the last few years.

Since Peter Costello encouraged Australians to have one for mum, one for dad, and one for Australia, a number of Australians have, actually, including me. And so the interesting thing is, well, what is potentially going to hold that back? So it's, you know, the birth rate we are seeing is pretty much unchanged. In terms of net overseas migration, we see the students studying in Australia increasing, but you don't necessarily expect that there's going to be ever-increasing numbers that want to come here to live as educated people unless they study here or there is, there are events offshore that are going to change the nature of, there might be instability offshore.

We are seeing, you know, I mean the truth is in some of our programs we were advised that demand is coming off, coming to Australia. So the number we actually put on the NOM is more realistic and more contemporaneous than any government has previously put on the NOM for the IGR. That's the truth.

QUESTION:

Dr Terry Dwyer, Dwyer Lawyers. It’s 50 years since I went to school and went to a school reunion. Lord De L'Isle was the Governor-General, Robert Menzies was the Prime Minister, and this country has changed enormously. Why should anyone care about what it's going to be like in 50 years? It’ll be a different country. And if we care so much about spending, why did we run an inheritance subsidy scheme called the Aged Pension and not recoup the Aged Pension out of the states? And I speak as a potential beneficiary of a house in Northbridge.

TREASURER:                      

Not sure about the last bit, but what, recoup the Age Pension from whom, sorry?

QUESTION:

From deceased estates.

TREASURER:          

Oh, right, and have a death, sorry, death duty.

QUESTION:

[inaudible].

TREASURER:                      

Well, what we've seen with death duties around the world is that there is - there's been a significant tendency for high net worth individuals to reduce their liability in the first place. And in a sense, the people that are captured are usually middle, or lower-income people that have been caught in cases of death duties. Australians rejected death duties some years ago. It is certainly not in the contemplation of this Government to reintroduce death duties, I would say to you. And the tax system is very different today to what it was previously.

You’re absolutely right. Australia is very different today to what it was 40, 50 years ago, and whatever we are trying to predict Australia is going to look like in 40 years' time is inevitably going to be wrong. But it doesn't mean that you shouldn't undertake things now that strengthen our position in 40 years time. That's like building a dam or building a Snowy Mountain Scheme. It's about building for tomorrow, and the Intergenerational Report gives us enough information to be able to start building for tomorrow.

That's what we're doing. We're endeavouring to build for tomorrow. And if we can see problems coming, if we can see challenges coming, let us fix them now and not pass the buck to a future generation. That's why I'm in public service, that's why many of you care about your children, and so on. It is about preparing for tomorrow, and if we can undertake action now that is a minor change here or a significant change over there that is going to make tomorrow so much better and helps us to be more resilient for the future, then let us take that action now.

QUESTION:

I think it's me now.

TREASURER:          

Yes, it is.

QUESTION:

David Richardson from the Australia Institute. In your speech today, you emphasized the importance of workforce participation and technology and the role that health technology. By implication, education is going to play in economic growth into the future productivity, but none of those things are in the Intergenerational Report. It's assumed that productivity growth is 1.5 per cent for now and for ever, no matter what. Do you take that as a very serious criticism of the Intergenerational Report?

TREASURER:          

No. And why? Because there are many things that could have been in the report. International economic challenges. Climate change has more recognition and more space in the report than global economic volatility. So there are many things that are not there that if we were going to spend 12 months working on the report that you could put in.

QUESTION:

Should a warning be on the cover?

TREASURER:          

Should a warning be on the cover? I think a warning's on the cover of everything any government publishes, in one form or another. And the fact is there are many inputs. This is the debate we should have, how can we improve productivity?

Now, I know they were contentious changes to higher education, but I met with a number of start-ups the other day, still start-ups. Some of them are multi-billion dollar Australian companies in technology, and there was this deep desire to work closely with the universities, but they were finding it very, very difficult and, because of entrenched attitudes at some universities. And you compare that with Stanford and Silicon Valley or some of the other universities in California or around the world, and there is a classic collaboration between business and the universities.

Now, the vice-chancellors collectively are saying we want to work closer with the business community. We want to have a more commercial approach to universities. But the reforms failed to pass the Senate. It has to happen, as John Dawkins and Gareth Evans and all these other people who are not natural supporters of our side of politics have said, we're going to have to have change in higher education because if we don't, these companies which are more mobile than ever before are simply going to take their technology and their innovation to another university somewhere else.

And with the emergence of campuses that have 200,000 students in Asia - these are campuses with massive, massive economic firepower. They are being built, they're emerging, they're in operation on our doorstep. Australian innovators are going to move and set up in partnership with those campuses to the cost of Australian universities and Australian students.

So that's why we need to reform higher education as one area. That helps to improve productivity, there's no doubt about that.

QUESTION:

Hello, Ginny Sargent from the Research School of Population Health here at the ANU.

TREASURER:          

Yes.

QUESTION:

I'm not CEPAR, but I'm interested in our research about work and health. So we know that work can be good for health, so there's an interest there in keeping people in work, and workforce participation for older workers. But the concern is that workers with poorer health are less likely to stay in the workforce, and therefore less likely to be in the workforce as they get older. Have you got any plans for increasing preventative health to keep the workers healthier and keep people in the workforce longer?

TREASURER:          

Well it really is a question for the Minister for Health as we have a number of preventative health programs.

QUESTION:

Which were cut in the last Budget [inaudible].

TREASURER:          

Well everything - almost everything was cut in the last Budget for various reasons.

QUESTION:

[inaudible].

TREASURER:          

Well I'm not going to dispute which programs were terminated, but having said that, we also continue to increase health expenditure substantially. In fact this year our expenditure on health increased, from memory, by about 9 per cent, which is well above inflation, well above health inflation, and obviously well above the speed of the economy in real terms, and I can't get into a debate about preventative health versus all the other aspects of health. But I'd just say this, you're absolutely right. If older Australians have poorer health the question is how can we improve that in order to help to facilitate workforce participation?

Now technology is going to be our best friend in this regard, and it will help in relation to medical research, and that's one of the reasons why we are absolutely committed to the Medical Research Future Fund, because this is a great strength of Australia. And I visited a centre for ageing and medical research in Concord in Sydney recently, and they have ground-breaking research - global research in relation to delaying the aging process which is effectively one of the things that is one of the most significant preventative health measures you can make. But they lack, they desperately need research money. So we actually came with a plan to develop the biggest research infrastructure commitment in Australia's history, and one of the largest in the world because this is a great area of strength for Australia, medical research. We remain absolutely committed to it despite the fact that we've lost half the funding, or a percentage of the funding for that medical research, but that is about investing in as much about preventative health as it is about quality of health. And we are determined to proceed with the Medical Research Future Fund and continue to increase funding for medical research, because that will be one of the major contributors through innovation, not just technological innovation but obviously all sorts of medicinal innovation as well.

There are many other areas where we continue to invest, obviously the PBS being one of them. It continues to have ever-growing increases in funding. Obviously the recommendations that come forward for new drugs are about better drugs that in turn help to alleviate immediate illnesses that may end up contributing to chronic illnesses and deteriorations in quality health. So the argument about preventative health is where do you start? And I'm not a medical expert in that regard, but yes I agree with you, we want to increase workforce participation.

QUESTION:

[inaudible] the latest IGR projects implications of proposed policy changes for the Budget, but it provides little insight into who bears the costs of such policies. So does it concern you that such important part of policy analysis are not in the record?

TREASURER:          

Who bears the cost?

QUESTION:

Of the proposed policy.

TREASURER:          

Of proposed policy. We all do. We all do. We're all taxpayers in one form or another. Even if you're retired and you're not, you're receiving a non-taxable income, or you don't hit tax-free threshold. We all pay tax, GST, we pay rates on our homes, or we pay it through our rent. We all pay tax. I keep saying to state and federal colleagues and local government, it's not about who spends the money, it all comes from the same taxpayer, whether it's the Federal Government, the State Government, Local Government, or if business that comes up to us and says if you give us this income stream we'll be able to deliver this service, and I say terrific, but that's effectively a tax. It all comes from the same individual. There's only so much juice you can get out of one lemon, and the problem is that if we keep spending more, and the state keeps controlling the spending of more and more of your money, you have less control over your money. You'd have less control over your lives, and ultimately the people best able to determine what's in their interest are individuals. And for those most vulnerable in the community, for those that we all have a responsibility to help, for those that are part of the social compact, the Government has a role to step in on your behalf and make sure that no-one is left behind. But also the safety net cannot become a cargo net into which people fall in and never get out. We've got to give them the chance to bounce back out. And that's part of the welfare reform that we are talking about at the moment. This will need to be the last one sorry.

QUESTION:

Treasurer it's Michael Moore, I'm the CEO of the Public Health Association of Australia, and Adjunct Professor at the University of Canberra. You started really with an assumption about the ageing of the population, people getting to 100 years old in the not-too-distant future, and you mentioned that that's partially around seatbelts and smoking and so forth…

TREASURER:          

Well on the trajectory in the IGA, you can see in the '70s it started to flat-line, life expectancy, but then it picked up again. And when I asked the Treasury, well why did it pick up again they said they were seatbelt laws, random breath-testing, you know, better management of chronic heart disease. It was really interesting. It doesn't mean it might flat-line again, but if you make the assumptions about technology then you can keep going, and you'll remember…

QUESTION:

They’re not about technology though…

TREASURER:          

No they weren't counting technology, no, no.

QUESTION:

And there's a very point I'm getting to. So actually when you're making those predictions, in fact many many public health academics have written just the opposite, that because of the obesity epidemic environment, because of the harm associated with alcohol, that we're actually going to see just the opposite happening, a reduction in life expectancy. And you've said in answer to the question to Jenny, well let's have a medical solution, no it's not a medical solution. The question is what do you do about it. And there's a couple of starting points. The first one is stop the obesity epidemic and alcoholic environment by preventing marketing of junk food and marketing of alcohol, but it does take intervention. So my question to you is, you talked about the medical research fund, but actually it was never a health and medical research fund, despite the fact that we know our greatest improvements in health and our greatest improvements in life expectancy have actually been about preventative health. When are you going to start doing those sorts of interventions?

TREASURER:          

Well, again it's a good question, but I must say I'm not the Minister for Health, and I can't, I can't get into a debate about alcoholism and obesity in one sense because…

QUESTION:

Really about the assumptions in this report actually.

TREASURER:          

No, no, I understand that, but I also pointed out that breakthroughs in the management of heart disease actually did contribute to that improvement. And reduction in smoking, which satisfies part of your concern.

QUESTION:

And vaccines.

TREASURER: 

There's no doubt about vaccination and a range of other things. But it's part of the equation as well, it is part of the equation. You could also say occupational health and safety made a contribution, a range of other things. So you've got to look at the aggregate, this is higher level, you're asking me to opine on particular medical policy at a particular point in time, and I won't be drawn in.

QUESTION:

Fundamental to this report though, Joe.

TREASURER:          

Well its part of these contribution, part of the contribution. But you're right, and look it all comes back as well to the basic human instinct that we want to live longer for better quality life. So there will be many Government decisions, or community decisions along the way that will change the nature of the outcomes of this report, as you would expect. I'm not saying this is what Australia will look like in 40 years’ time, but I am saying there are some obvious trends if you follow the trends. Now the trajectory on debt and deficit it assumes that if nothing were done, well someone is going to have do something because it is clearly unsustainable. Someone, somewhere, is going to have to do it, and what we're saying is we're prepared to step up to the plate, we're prepared to have a go. Because we know there's a looming problem, and it's like everything if you know there's a looming problem you can take action where appropriate. Governments have to make choices about what action they take, and some of that will be popular, some will be unpopular, but we've got to do what is right. That's what we've got to believe to be right as public policy, to do what is right. And I'd say to you in conclusion, we welcome your contribution, and finally can I thank everyone for coming along and giving me your time, thank you very much.