One weird trick that proves the IGR is nonsense

I have a piece in today’s Guardian, written before the release of the Intergenerational Report and making the case that the intergenerational equity problem, as it was conceived in the 1980s and 1990s has already been resolved. Key quote

The resolution of the intergenerational fiscal problem was a major public policy achievement of the reform era of the 1980s and 1990s. But a political class still fixated on the most ideological version of the reform agenda, in which cutting public spending is desirable in and out of season has refused to drop the club of intergenerational equity. The idea that (very modest) budget deficits and public debt levels constitute “robbing our children” remains a staple in calls for “reform”.

Having seen the IGR, there’s a single statistical choice that shows the entire exercise to be worthless. The key issue in all this is whether changes in our demographic structure will create an unreasonable fiscal burden. The Report chooses to summarise this by reference to what it calls the “dependency ratio”, defined as the ratio of people aged over 65 to those aged 15-64.

In what kind of world would this make sense? Essentially, one in which
* Children aged 14 and under cost nothing to raise and required no public expenditure on schools, daycare etc
* Children leave school at 15. After this, they not only support themselves, but contribute to the support of those over 65
* People retire become eligible for age pensions at 65

The first of these assumptions is obviously silly, but it has become more so over time as the cost of raising children and of school education has risen steadily, outstripping growth in average incomes. As regards schools, back in the 1960s the standard class size was 40 (at least in SA where I went to school), and there were hardly any ancillary staff. Since then, the staff-student ratio would have doubled

The second assumption was broadly accurate in the 1960s, when measures like this were introduced. But it’s totally out date today, when high school completion is the norm and some post-secondary education is expected

The third assumption is particularly striking. The IGR is all about the supposed burden of age pensions, but they neglect to mention that the pension age will be 67 in 2023, and will almost certainly increase further after that.

The reason for this silliness is obvious. If children and increased retirement ages are taken into account, the dependency ratio in 2050 will be very similar to that in the 1960s, which we managed with ease.

I’ve accused the IGR of reflecting the dead hand of the reform ideology of the 1980s, but it seems as if their thinking really belongs in the 1960s, when Abbot was in school and Hockey in nappies. That’s one kind of intergenerationalism, I guess.

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