Draft Productivity Commission Report on Population Ageing, Pharmaceutical Benefits Scheme, Exchange Rates, Bank Secrecy – Interview with Alexandra Kirk, ABC FM

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OECD Upbeat on Australian Economic Performance
November 30, 2004

Draft Productivity Commission Report on Population Ageing, Pharmaceutical Benefits Scheme, Exchange Rates, Bank Secrecy – Interview with Alexandra Kirk, ABC FM


Interview with Alexandra Kirk


Thursday, 25 November 2004
8.00 am

SUBJECTS: Draft Productivity Commission Report on Population Ageing, Pharmaceutical

Benefits Scheme, Exchange Rates, Bank Secrecy


Treasurer good morning.


Good morning Alex.


Firstly, the Productivity Commission has put the cost of Australia’s

ageing population even higher than your Intergenerational Report of two years

ago and it is predicting a looming fiscal gap of as much as $2 thousand billion.

It says that you need to make some tough decisions on tax and health, are you

ready to act now?


Well we raised this issue two years ago because we thought the important thing

was to take the Australian public with us in understanding first of all the

dimensions of the problem and this independent report has confirmed what we

said in our Intergenerational Report. And the point that I have been making

all along is that Australia will have to deal with the ageing of the population

and it will have to deal with the major costs that that will bring.

We will either deal with it in small licks early on or be forced to deal with

it in large dislocation later on but we will have to deal with it. Demography

is destiny. Our destiny has been set by the changing fertility rate since the

1960s, it is set in stone. We can’t walk away from it, we can’t

change it. Now these are the…


So will you take up the challenges now put up by the Productivity Commission

for action both on tax and health?


…you either deal with it early on in small amounts or later on in larger

amounts and we have begun to deal with it. Now, we have begun to deal with it

in trying to get pharmaceutical benefits onto a sustainable footing. Let me

give you one figure which the Productivity Commission finds us and I think Australians

ought to think about this carefully. For men who are aged 65 to 74, the average

costs of their pharmaceutical benefits is 18 times men aged 15 to 24 –

18 times. So as your population ages and you get a much larger proportion in

that 65 plus, the drawdown on pharmaceutical scheme is 18 times the cost of

when they are young. And what that tells you is you have got to get that Pharmaceutical

Benefits Scheme onto a sustainable basis or the ageing of the population will

break it. That is why we had two years ago, small measures to try and make this

financially sustainable and…


So people will have to pay for the drugs themselves now, for the real cost

of the drugs?


…well as you know, we announced changes in our Budget two years ago.

They were opposed in the Senate, we finally got them through and by winning

the election we have been able to keep those measure in place. So, what we have

got to continue to do is we have got to continue to get best cost per dollar

because the ageing of the population is just going to drive these costs out

of the reach of average Australians otherwise.


But the Productivity Commission is urging a far more serious action on a broader

front, saying you have to improve the cost effectiveness of the health system

as a whole. Don’t you now have to address what to do for example, with

older Australian who are in hospitals because there are no nursing home beds

for them, in order to relieve the pressure of the stressed hospital system?


Yes well let me give you another figure which comes out of this Report. The

cost of healthcare for somebody between 35 and 54 is $1700 on average. If you

are over 85 it is $7900. So in that older group of Australians healthcare costs

per person are four times what they are for younger Australians. Now, what that

means is that you have got to ensure that you are getting best value for dollar

in healthcare. It also puts into perspective incidentally that a promise to

give free private healthcare to everybody over 75, the Medicare Gold promise,

was probably the most irresponsible promise that has ever been made in Australia

when you look at these figures, that is precisely…


But Labor lost the election and you won the election so isn’t it time

to concentrate on what you are doing and isn’t it time to address the

problem of the number of older Australians who are in hospitals when the hospitals

themselves say they should be in high care nursing homes?


Well the most important thing is to try and keep as many older Australians

as possible out of hospitals, that is to improve healthcare so that they can

stay at home and to improve health and community care packages. If we just say

we are going to move people over 85 into hospitals or aged care homes, frankly

we are giving the game away. The idea is to keep as many as possible in the

community, the idea as I have said is in age groups where we have under participation,

particularly men over 55, to keep them in the workforce longer and we have got

to try and engage people in society much more because we know once they retire

their health care goes up, their illnesses go up and in fact these are the areas

where we are going to find increasing pressure to fund services.


In your view should the Commonwealth take over the running of the hospitals

from the States?


Well look, one of the things incidentally that this Report finds is that this

huge fiscal gap, 6 or 7 per cent of GDP, we are talking $50, $60 billion per

annum, is going to be borne by the Commonwealth. One of the reasons why I commissioned

this Report was that State Governments said, ‘oh what about us? We are

going to have to bear some of this cost.’ In fact what the Report finds

is that it is going to have to be borne by the Commonwealth and the Commonwealth

is going to have to deal with this. The point I make, the Commonwealth can’t

keep on taking over new areas of expenditure when it is bearing the brunt of

the ageing of the population whilst giving the States growth taxes which we

have. That is just not going to work, that’s going to break it…


So what is the tangible action will you take then, what tangible action will

you take? You have outlined what the challenges are.


…we will increase participation, we have got to increase participation

amongst older males, we have got to increase participation amongst women coming

back into the workforce, we have got to increase participation amongst people

who are on Disability Support Pension, we have got to give incentives for people

to work part-time, maybe by drawing down on their superannuation over 65, we

have got to put the Pharmaceutical Benefits Scheme on a sustainable basis, we

have got get people to co-contribute to their healthcare costs with private

health insurance incentives. All of the things that we have been working on

we have to put in place and we have to deliver further and we have to raise

the productivity in our economy to cope with what is set in stone, this is going

to happen, that is my message. It is done, demography is destiny. This is set

in stone, the only question is how we respond to the ageing of the population.


Well the Productivity Commission says on the productivity front that the Government

should index the marginal tax rates to the cost of living increases which would

cut the extra revenue needed that you need by half. You have been unwilling

to so that so far, is it now time to bite the bullet?


Well, we have done better than that. If all we had done was indexed the tax

scales of 1996 to inflation then people would be paying more tax than they are

today. What we have actually done is we have reduced income taxes in real terms,

and I actually think that is still the game here. If all you were to do was

to say over the next 40 years, we will just index those thresholds to inflation,

I think you would be ruling out that we ought to be working out, which is in

some respects and at some levels, reducing them.


You just returned from a meeting of the G20 in Germany and in this time the

US dollar has continued to plummet, is there concerned among the G20 about the

low US dollar?


Oh yes there is a lot of concern, particularly between Europe and America this

has become a very tetchy relationship. The European economies are not growing

strongly, the American dollar is falling, that is making it harder for the Europeans

and improving the American’s competitiveness. The Europeans would like

a stronger US dollar and the US would like the European economies to grow faster

and it has become very tetchy. From Australia’s point of view our dollar

is now at a, quite high level, part of that is because commodities are high,

but the other part of it is that the US dollar is falling all around the world

and this is making life tougher for Australian exporters.


And would the G20 and Australia, including Australia, like the US to do something

about the, something to stop the slide in the dollar?


Well, I don’t think it is real life to expect a Government to intervene

in relation to its own currency and nobody is asking that. But what the G20

did say and it reaffirmed this in its Communiqus, is that the Americans will

have to deal with their deficits including their Budget deficit which is very,

very high, and their Current Account Deficit. And the American administration

knows that and it has said that and it will have to deal with that over time,

that might reduce some of the imbalances in the world at the moment, and certainly

get the American economy onto a stronger financial footing.


And on the continuing problem of the secrecy of, in Switzerland, of Swiss bank

accounts and Australia has a stake in here, has there been any progress?


Well, we raised this matter at the Group of 20 in Berlin, we push very strongly

for concerted action against countries that are applying secrecy laws which

is helping tax avoidance and corporate malfeasance and our initiative was taken

up, it was endorsed by the G20 and the Group of 20, these are the largest nations

in the world financially, are going to put pressure on those countries that

are not currently complying. Now…


What sort of pressure?


…well, we are going to start off by applying diplomatic pressure and

there could be graded responses. Now some of these countries may think to themselves,

we can withstand pressure from Australia and they probably can. But if the pressure

comes from the United States and Britain and Germany and France and Japan, and

the Group of 20, then I think we have got much better prospects. It is something

I pushed very strongly at this meeting and the meeting endorsed it and the Nations

have pledged to take this up with countries that are not complying.


And just back on the domestic front, your colleague Foreign Minister Alexander

Downer is predicting that the Labor Leader Mark Latham will face a leadership

challenge by Christmas next year. As a sporting man, what odds do you give Mark

Latham leading Labor at the next election?


Well, I think they have probably made up their mind about Mr Latham but what

they haven’t made up their mind about is the alternatives so I will watch

like everybody else to see what alternatives emerge over the course of next



And speaking of leaders when do you think you will assume the Liberal leadership?


Well I get asked this question practically everyday and the answer never changes

Alex, I am very happy doing what I am doing at the moment and I am working on

big issues like funding Australia for the next 40 or 50 years.


Mr Costello thank you.


Thanks Alex.