A DINGO ATE THE VALETUDARIANS:

The first thing that should be said about Monday's Intergenerational Report is that, despite the largely critical reception, it is pretty good. Actually, very good. It is not a big-bang reform plan, but it was never intended to be. It is a strong piece of Treasury work, clearly presented and well supported. It helps us think about the evolution of the Australian economy over the next few decades, and the evolution of government spending and taxes. It therefore also guides us to what the political contest between the major parties will be about, or at least should be.

The striking conclusion is that we can get by, and quite well. This is despite net Australian government debt doubling since the pandemic, and despite deficits projected to add to net debt for the entire forty-year projection period to 2060-61. On the assumptions used in the report, Australian living standards measured as real income per head will be twice as high in forty years as they are today. We will be able to pay for sharply increasing health and aged care costs, for the projected cost of other current spending programs, for aged pensions and superannuation tax concessions and for increased defence spending, and yet end up with a net Australian government debt-to-GDP ratio markedly lower in forty years than it will be over the next few years.

We will be able to do all that with a ratio of taxes to GDP that doesn't rise above a ceiling of 23.9 per cent -- markedly lower than the average of the years when Peter Costello was treasurer. We can do it despite an ageing population, despite slowing population growth, despite a fall in the worker-to-population ratio and the workforce participation rate, despite an assumption that net migration is brought back up to pre-pandemic levels but is then capped, and despite any significant increase in the interest rate on government borrowing.

And while we face deficits for decades, the IGR numbers also show that if government spending is cut by 1 per cent of GDP from the share it will otherwise reach by 2061, while the revenue ceiling is raised to a tax share of 24.9 per cent from 23.9 per cent, the deficit disappears. Changes of that magnitude have been frequent in Australia's fiscal history over the last four decades.

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