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Sunday, November 28, 2004

Flight DJ800: Demographic Timebomb

Apart from concentrating on the infruriating infighting that is New Labor, yesterday's Insiders featured the world's best Treasurer, Peter Costello waxing lyrical on the demographic timebomb. As he said, this is set in stone and will happen. As is Costello's want to coin forgetable phrases (e.g. hoax the folks and Kylie Minogues), he wrapped the whole problem into a question of the three Ps: Population, participation rate and productivity. With population working against us through low fertility rates, we have to get the other two Ps working for us, claims Costello. The scary fact according to the government sponsored fluff piece by the Productivity Commision is that in 40 years, an extra 6% of GDP will be required to "look after" the ageing population. Costello could not come up with anything concrete on how the government will solve the problem apart from wrecking the PBS and a paltry tax incentive to keep pensioners in work longer. First off, remember that this problem would be a whole lot worse than if the ALP government had not introduced compulsory superannuation. That little "job costing" measure has done much to mitigate the problem, as well as lining the pockets of financial advisors from coast to coast. The government's main charge at the moment is that if we don't start with small measures now, Australia will have to take a big adjustment in the future. Unfortunately, when governments talk like this, they are usually gearing us up for service cuts. Anyway, enough of the whinging, here are the easy peasy solutions to the demographic timebomb, and as Costello "set the agenda" it is only fair to use Pete's three Ps to frame the answers.


There are studies that show that immigration and fertility can be managed to even out the bump that is looming. There are also studies that show the Western countries who make it easier for women to balance child rearing and their career, will have more children. So measures like paid parental leave, and tightening of discrimination laws would put a tick in this box.


The government should put as much time and effort into getting the female participation rate up as they are at keeping old people employed. Income splitting, scarce child care and just outright sexism in the workforce need to be addressed. However, this goes against the white picket fence view of "where's my bloody dinner you cow?" that the incumbent government holds.


The government is actively working against this facet. By reducing the amount of R&D and introducing full fee paying places, Australia is on course to become a dumb country. Sure, we can still dig things out of the ground, but we can't do anything smart with the resources. A substantial investment in education is the sure fire way of raising GDP by the extra 6.4% required to whether the storm. In fact, if we continue with the woeful education spending, the GDP will not be as great as the productivity commission predicts. And since governments shouldn't be in the business of picking winners, make all studies free, not just the sceinces.


Provided that Costello three P model is correct, then free education to tertiary level, affordable and obtainable childcare and paid parental leave are three simple concrete ways to address the ageing populaton problem. What's more, there is no downside to investing in these measures. There is no long term unsustainable cost. Its all good.

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