The age old, old-age question: reform

Tuesday, April 12, 2005

Stephen Mayne writes:

An aging population, an aging federation, an aging government and an aging — but fit and certainly agile — prime minister all mesh together to dominate the news today.

Yesterday’s bit of budget pre-softening warned of cuts to health and aged funding.  Any restriction of access to the Medicare safety net — only introduced  last March as part of the pre-poll splurge — would break an election  commitment. The scheme, however, estimated to cost $440 million over  four years has already swallowed up $649 million and there are fears it  could end up costing $1 billion or more.

That’s a great backdrop to the Productivity Commission’s report called the Economic Implications of an Aging Australia. Australia needs wide-ranging productivity reforms sooner rather than later to avoid a  21% tax increase to pay for an aging population, it warns.

Commission chairman Gary Banks says, however, we shouldn’t be afraid.  “The very fact that aging brings us longer, healthier lives shows why we shouldn’t just see it as a problem,” he says. He talks about three  Ps — population, productivity and participation in the workforce. The last two seem to hold the key. Tim Colebatch comments in The Age this morning that we need a practical policy road map for them.

Increased participation in the workforce, particularly by workers in  the 55 to 64 age group and older, is important. New Zealand has shown that incentives such as increasing the eligibility age for the pension  from 60 to 65 can increase participation dramatically… Increased productivity is the most important potential contributor to higher  future growth and incomes, and the best way to minimise the tax burden on current generations. But this will need tough decisions on economic  reform, an area in which talk is more in evidence than action.

Oh dear. Reform. The Medicare static show us the danger of the  government’s strategy since 2001 of buying itself back into office —  particularly with expenditure on the oldies that will blow out and is  politically suicidal to claw back. It desperately needs new ideas.

Federalism may be the big one — but not the current GST squabble. What  seems to be unsayable at the moment is that the taxes the Commonwealth  and the states are fighting over, were left in place in case the GST  failed to raise the expected revenue. It has — by the bucketful. Those  taxes should go — and the Commonwealth and the states should negotiate  a new federalism.

The prime minister said in his speech to the Menzies Research Centre yesterday: “If we had our time again, we  might have organised ourselves differently”. There’s always time to  re-organise federalism. We should always be on the look out for why we  need to do it and how.

The Australian editorialises today:

“We have state-based hospital systems, despite the fact  that health policy and funding is controlled from Canberra… Ending the  present porridge of state and federal responsibilities is essential if  we are to kick-start the flagging reform process. This does not mean  surrendering all power to the national government. But it does require  Canberra and the states to stop squabbling and decide which government  services can best be provided at what tier of government — and for the  other to butt out. Last night the prime minister made the case for a  national approach in water management, industrial relations, and for  incremental reforms involving Canberra and the states in health and  vocational education. It was a positive speech — as far as it went —  and should not frighten any premier not looking for an unnecessary  fight… But last year the Productivity Commission identified  infrastructure and health services as key reform areas and they are the  ones which the federal Government should vigorously pursue.”

Good idea. That would help productivity — getting the money — and  ensure we get the best value for it when we spend it on community needs like our aging population. With the latter, the states need to accept  that their role is coordinating, not administering. They can free up  some money by thinning their top-heavy health and human services  bureaucracies and concentrating on knowing and meeting their  on-the-ground requirements.

And as part of supporting productivity – and the participation in the  workforce that will support it — the Commonwealth needs to look at tax reforms of the sort the Business Council of Australia suggested  yesterday. Do that, Mr Treasurer, and more people might think you’ll be a better PM than The Sydney Morning Herald poll suggests this morning.