More than Fiscal: The Intergenerational Report, Sustainability and Public Policy in Australia is the best book about the Intergenerational Report that I have ever read.
Admittedly, it's also the only book about the Intergenerational Report I've ever read.
But it also has the benefit of being written by a star‑studded cast of social scientists, brought together by the Academy of the Social Sciences in Australia. It's a credit to the academy - and particularly to editors Andrew Podger, Jane Hall and Mike Woods - for bringing a bevy of big brains together to think about this report, and the long‑term.
Many of the authors were authorities in their respective fields when the first Intergenerational Report came out in 2002. A keen understanding of the past two decades helps them think about how we can shape the coming decades.
The Intergenerational Report is more than a forecast. But predictions are central to the document, and often shape the reporting around it. How affluent will Australia be in the future? What will happen to the birth rate and participation? What is the trajectory of the nation's debt? In the wake of the past five Intergenerational Reports, these are the kinds of questions that have raged in the media.
Forecasting is hard, as the quip goes, particularly about the future.
Economist Edgar Fiedler advised his colleagues: 'Give them a number or give them a date, but not both.'
Many pundits take this counsel, making faux forecasts that are too vague to be judged. When expert forecasters are tested, their predictions often fall embarrassingly short. A major exercise conducted by the University of Pennsylvania's Philip Tetlock found that many pundits were no better than 'dart throwing monkeys' at predicting major world events.
More than Fiscal is a reminder that past Intergenerational Reports haven't always hit the bullseye. We've now had five Intergenerational Reports - 2002, 2007, 2010, 2015 and 2021. So we can compare the results from these reports with each other, and with the actual figures.
Let me give a few examples.
- In the first two Intergenerational Reports, labour productivity was forecast to be 1.75 per cent. Since the cooling of the mining boom, it has averaged 0.8 per cent (p47)
- The labour force participation rate by 60‑64 year old women in 2021 was forecast to be 26 per cent in the first Intergenerational Reports. It turned out to be more than twice as high: 55 per cent (p58)
- In the fifth Intergenerational Report, the yield on 10‑year Commonwealth bonds was not forecast to rise until 2025‑26, but has already risen (p43).
- The first Intergenerational Report predicted that the total fertility rate would steadily fall to 1.6 births per woman. A few years later, it rose to 2 births per woman. So the fourth Intergenerational Report forecast that it would stay at 1.9 births per woman. It has now fallen to 1.7 births per woman (p63). Current figures match the forecasts of the first Intergenerational Report far better than the fourth Intergenerational Report.
- Australia's population in 2050 was forecast to be 25.7 million in the first Intergenerational Report, and 35.3 million in the fifth Intergenerational Reports (p71). That's a difference of more than one‑third. Put another way, we've now got more people in Australia than the first Intergenerational Reports thought we'd have in 2050 (p60).
John Kenneth Galbraith once said of economic forecasting that its only role is to make astrology look predictable. If weather forecasters were as inaccurate as the past forecasts of the Intergenerational Reports, Australians would need to pack a sunhat and umbrella every day.
Are the missed forecasts due to the fact that policymakers responded to the Intergenerational Report? In general, no. The policy impact of most Intergenerational Reports has been modest. Moreover, fertility, labour force participation and productivity do respond to government policies, but they also respond even more strongly to outside economic shocks, new innovations, and new ways of producing the same output with fewer inputs.
Indeed, this is one of the challenges of long‑term forecasting: it places a heavy weight on demographics, and assumes constant trends. By its nature, forecasting finds it difficult to take account of sudden changes. This includes negative shocks such as the COVID pandemic and war in Ukraine, and positive shocks such as commodity price spikes and widespread access to mobile broadband. But over the long‑run, such shocks can put an economy on a very different trajectory - wreaking havoc with economic and demographic forecasts.
So if the Intergenerational Report isn't a perfect crystal ball, what is its purpose? In my view, it's to encourage policymakers to think over a slightly longer time horizon: moving beyond the three‑year election cycle and four‑year forward estimates to consider how policies might impact future generations.
Some of the themes have been consistent across intergenerational reports. Fiscal sustainability. Demographic challenges. Productivity opportunities. Australia has areas in which we lead the world. The creation of universal superannuation in the early‑1990s means that our retirement savings system is far more sustainable than many other advanced nations. The creation of HECS‑HELP means that students make a contribution to their education (which will deliver a lifetime income bump of around three‑quarters of a million dollars), without imposing an up‑front burden on students of modest means.
What should the Intergenerational Report focus on? More than Fiscal contains some signal lessons about what not to do, describing the 2015 Intergenerational Report as 'blatantly partisan', and noting that the 2021 report was 'not as independent or authoritative as it might have been'. Indeed, given that four of the five Intergenerational Reports have been brought down by Coalition Governments, you may not be surprised to hear that I regard them largely as a missed opportunity.
One significant omission from the Intergenerational Reports (with the exception of the 2010 report) is the issue of climate change. As Nicholas Stern noted in his 2006 report for the British Government, climate change is the quintessential intergenerational issue, imposing an economic cost of at least 5 per cent of global output if left unchecked, a figure that could increase to 20 per cent of global gross domestic product. In his excellent chapter for More Than Fiscal, David Pearce discusses the importance of a climate change focus in the Intergenerational Report. As Ross Garnaut's 'renewable energy superpower' framing reminds us, there are also massive opportunities for Australia in this transition.
Another suggestion is to look at social capital. John McCallum, Lindy Orthia and Diane Hosking argue that the wellbeing framework of the 2010 Intergenerational Report could be used to analyse the strength of community ties in a way that complements the Australian Government's wellbeing framework. Although the Australian Bureau of Statistics has limited long‑run data on social capital, my own work with Nick Terrell (published in Reconnected: A Community Builder's Handbook) indicates a decline in many traditional forms of community engagement.
Another big issue for the long‑term is inequality, which Richard Holden emphasises in his closing section. As Peter Whiteford reminds us, Australia social safety net is the best‑targeted in the OECD. Whiteford also points out that over a decade‑long period, about two‑thirds of Australian households access the income support system, making the social safety net more of a trampoline than a poverty trap. But that fluidity and mobility does not characterise the property market, which is increasingly locking out young people. As Rachel Ong ViforJ points out, the early‑1980s saw 55.5 per cent of 25‑34 year‑olds owning their homes, significantly above the latest figure, of just 31.1 per cent (p118).
What's missing from More than Fiscal? One factor is existential risk. Dangers such as bioterrorism, nuclear war and rogue artificial intelligence have the potential to end our species. In What's the Worst That Could Happen?, I discuss some of these risks, and conclude with a similar estimate of the odds of catastrophe as Oxford's Toby Ord - about one in six over the coming century. It is curious not to see any discussion in More than Fiscal of the possibility of a species‑ending disaster.
At its best, the Intergenerational Report isn't just a set of statistics, it's a way of sparking new conversations about the long‑term. In turn, More than Fiscal isn't just an analysis of five reports, it's also a way of sparking conversations about the kind of Intergenerational Report that will best serve Australia. It is my pleasure to officially launch this book. May it be enjoyed by today's readers, and by generations to come.
