The Australian government is set to release its sixth intergenerational report (IGR), providing forecasts for the economy and budget over the next 40 years. However, there are debates surrounding the value of long-term projections and their potential pitfalls. While forecasting can be challenging, it doesn’t deter experts from making predictions. Yet, they often face criticism when their forecasts fall short. One economist admitted that his bank had misjudged the outcomes of the past three Reserve Bank of Australia (RBA) monthly meetings.
The IGR will extend the projections up to four decades, building upon the forecasts presented in the May budget, which covered the period until 2033-34. However, some experts argue that three years of forward estimates is the realistic limit for accurate forecasting, with ten years being a stretch. The 40-year projection is considered more of an interesting glimpse into the future.
This year’s IGR is being released just 26 months since the previous report, whereas Labor governments tend to release them around every three years, compared to Coalition governments’ breaks of five years or more.
The government has been progressively unveiling findings from this year’s IGR, including projected increases in defense and aged care spending, as well as slow population growth. Some experts believe that while precise numbers may not always be accurate, discussions around important issues like Australia’s demographic challenges are beneficial. Not all developments predicted by the IGRs come to fruition, as illustrated by the 2002 report missing the increase in women’s workforce participation.
Anthony Scott, a professor at Monash University‘s Centre for Health Economics, explains that the usefulness of projections lies in how they are utilized by the government and the broader population. Projections can prompt necessary action and prevent worst-case scenarios from becoming a reality. For instance, if tax revenues need to be increased to address rising demands for aged and disability care, should the stage-three tax cuts proceed? In the past, it was speculated that the Albanese government might have used an early IGR to shift public support and modify tax cuts for high earners, but that motivation has dissipated.
Technological advancements and changes in population trajectories can also influence future outcomes. For example, improved health technologies, including artificial intelligence, may reduce the need for certain types of care. Incentives for migration or policies encouraging population growth could also alter population projections.
The IGR also places a significant emphasis on climate change, with this year’s report dedicating an entire section to the topic. However, experts caution that forecasting the precise impacts of climate change is extremely challenging. A tiny variance in factors like rainfall can produce vastly differing outcomes, as evidenced by last year’s record floods in Lismore. Nevertheless, addressing climate change and its potential impacts remains crucial. Andy Pitman, director of the ARC Centre of Excellence for Climate Extremes, suggests that by taking drastic actions to reduce greenhouse gas emissions, the negative effects of climate change can be mitigated.
In summary, while forecasting long-term economic and budget trends can be challenging, the intergenerational report provides valuable insights into the future. Despite the potential for error, identifying demographic challenges and engaging in discussions surrounding them is pertinent. Projections can inform policy decisions and spur actions that prevent worst-case scenarios from becoming reality. The importance of addressing climate change cannot be understated, even if forecasting its precise impacts remains difficult. By taking proactive measures, the impacts of climate change can be minimized. Ultimately, the true value of the report lies in the conversations it generates and the subsequent actions it inspires.