IGR shows Federal Government must not shy away from big reforms: CEDA

The 2023 Intergenerational Report (IGR) shows Australia can wait no longer to seriously tackle the costs of climate change, boost productivity, fund the growing costs of services like health and aged care, and start a serious conversation about tax reform, says CEDA Chief Economist Cassandra Winzar. 

Ms Winzar said the report was right to identify the slump in productivity as Australia’s key economic challenge. 

“Productivity is now assumed to grow by 1.2 per cent a year, down from 1.5 per cent in the previous IGR,” Ms Winzar said.

“This means that in 40 years’ time the average Australian will be 20 per cent poorer than otherwise.

“If we can’t boost productivity, we’ll all have to work longer and harder.”

“Addressing productivity is complex and multifaceted. But one way to address it is for the Federal Government to make productivity payments to states and territories to encourage reform. This has been effective in the past.”

Climate change

Previous IGRs have not addressed climate change seriously and it is good to see this report make a start on modelling its impacts.

The report rightly identifies that the disruptions of climate change bring opportunities to boost economic diversity and grow our share of higher productivity industries.

“We should prioritise developing industries where we have a comparative advantage, like lithium mining and processing, rather than cutting ourselves off from global trade by onshoring manufacturing such as battery production,” Ms Winzar said.

“To ensure we can land the jobs transition that comes with the energy transition, we also need to: harmonise occupational licensing in key jobs needed for the transition; increase access to training for people at risk of losing jobs; and progress reforms of temporary skilled migration to enable pathways for highly skilled clean energy workers, including via intra-company transfers.”

Care economy 

This report shows that given the pressures on the Budget, as well as the demand for services from an ageing population, the Government must overhaul aged-care funding and consider an expanded role for self-funding and user contributions.

“The only way the community can be confident in the sustainable and appropriate funding of aged care is through better targeting of services, comprehensive tax reform to broaden the tax base and greater levels of self-funding,” Ms Winzar said. 

Previous CEDA research has found there will be a shortfall of at least 110,000 direct-care workers in aged care over the coming decade. Other care sectors are facing similar challenges. Without increasing the workforce we can’t provide the services the Australian community needs.  

“The Government should introduce an essential skills visa to meet massive worker shortages like this in industries where there are no direct visa pathways such as aged care, disability and health,” Ms Winzar said.

“This demand currently cannot be met through the domestic labour market alone.”

Tax reform

The Government should use this report to start a conversation about our future tax system. 

“In particular, we must overhaul the personal income tax system or it will become less progressive, and look at the balance between taxing of income, capital and consumption,” Ms Winzar said. 

“But there must be broad, wholesale tax reform, not the piecemeal approach the Government is currently taking.”

The first IGR was released more than 20 years ago. To date, we haven’t seen many substantial policy responses to these reports. 

“The horizons may seem far in the future, but we can’t wait any longer,” Ms Winzar said.