TRANSCRIPT
THE HON PETER COSTELLO MP

Treasurer

Press Conference

Commonwealth Parliament Offices

Sydney

Thursday, 25 November 2004

12.30 pm

SUBJECTS: Productivity Commission Draft Report on Ageing

TREASURER:

Today the Productivity Commission has released a Draft Report on the Economic

Implications of an Ageing Australia. First of all, I thank the Productivity

Commission for its draft, and I encourage all interested parties to look at

this draft report, and to put submissions back to the Productivity Commission

before it produces its final report.

This is a very significant report because it talks about the implications

for our society and our economy of the demographic changes which are going to

be driving costs over the next forty years. In large part, this report endorses

what the Government laid down in our Intergenerational Report in 2002 when we

put this issue on the agenda. And the issue is this: That, because of falling

fertility rates in the sixties and the seventies, the number of Australians

of working age is hardly going to increase over the next forty years; but, because

of improvements in medical science, the number of Australians over working age,

65 plus, is going to increase. The ratio of those of workforce age to those

that are in the retirement phase is going to dramatically decline. You are going

to have more people in retirement, more older Australians, in proportion to

those in the workforce than we have ever had before.

And what this report finds, is, that the ageing of the population, particularly

with the advances in medical treatment, is going to drive huge cost burdens.

And on current estimations of the Productivity Commission, it could open a gap

between taxes and expenditures of six to seven per cent of GDP. We are talking

here about $50 billion per annum.

Some of the statistics that the Productivity Commission has here in its report

are very sobering statistics, like the fact that for men who are 65 and over,

their draw down on pharmaceutical costs is about 18 times the draw down of young

men in their twenties. That the cost of medical care for Australians at the

end of their life is about four or five times what it is in their middle age.

And so, as the population ages, as we have more people in those cohorts, the

cost and the draw down on pharmaceuticals and medical is going to be so much

greater.

Now, I have said over and over again, demography is destiny. This is already

set in stone. It was the changes of the 1970s which is going to bring this about.

It is just going to take a long time to come about. We cannot change that destiny.

What we can do, is, we can put in place measures to adjust to it. We will either

put in place small measures early on, or we will have to have larger measures

later on. But we will have to have measures because this is coming. We want

to take the Australian public into our confidence in all of this, to talk to

the Australian public about the nature and the dimension of the problem, and

the measures that will be required to meet it. And that is why I would encourage

people to have a look at this report, to put submissions, before we get a final

report from the Productivity Commission.

JOURNALIST:

Treasurer, one of those measures [inaudible] will the cost of PBS medicines

be one of the things to go up to try and cut costs?

TREASURER:

Well, we have got to make sure we get the Pharmaceutical Benefits Scheme onto

a sustainable basis. And it is not only that. Older Australians draw down more

heavily but we are inventing all the time new pharmaceuticals. So there will

be co-contribution measures. We have already introduced a co-contribution measure.

We announced that in our Budget two years ago. We finally got that through the

Parliament. But there will have to be other measures. We will have to constantly

assess new pharmaceuticals to make sure we get cost benefits. We will have to

constantly work where we can at introducing generics rather than named drugs.

This is going to be an approach right across the board. But my point is this:

If we start now, the measures will be smaller. If we leave it ten years or fifteen

years or twenty years, there will still have to be measures but they will just

be much greater.

JOURNALIST:

You spoke this morning on the ABC about keeping people in the workforce. Are

you considering raising the age where people can draw down on their super?

TREASURER:

Well, we have already put in place measures, we have announced measures in

relation to that, and we are not taking them any further. But we would encourage

people, particularly men at the age of 55 who are entitled to draw down on their

super, to consider staying in the workforce longer. This has been a point I

have been making over and over and over again: That we have a low participation

rate for men over 55, and men at the age of 55 ought to consider staying in

the workforce longer. We want to introduce some measures which will encourage

them to do so by allowing them to draw on superannuation if they remain in work.

And we are going to keep encouraging people to remain in the workforce during

years which can be very productive working years.

JOURNALIST:

Given another baby boom is unlikely, do we need to dramatically increase our

immigration of workers?

TREASURER:

Well, one of the things that this report does, is, it looks at whether or

not migration would solve the problem of the ageing. And it finds that it would

not. Whatever the merits of migration are, migration is not going to solve the

declining fertility rate and the ageing of the population. The fertility rate

– this is what people have got to get in mind – the fertility rate

fell in the seventies. Thirty years ago. And what we are now looking at, is,

the long-term workout of a change that has been with us for thirty years. And

there are no quick fixes. It is not immigration. Even if – and you would

not do this – even if you lifted the fertility rate tomorrow, for the

next thirty years it would probably make things worse. Because then you would

have the ageing of the population, plus a new boom of children, and you would

have two large cohorts, as we call them, out of the workforce at both ends of

the spectrum. So, my point is this: This is something that is coming, and it

is unavoidable, and it has been coming for thirty years, and it will work out

for forty years, and we will have to come to grips with it. Now, let me just

make this point: We are not the only country in the world that has to come to

grips with this. All of the western industrialised societies will have to come

to grips with this. In many respects, we are further down the adjustment path

than other developed economies, because we have been working at it over the

last two years. But all of the western societies will have to deal with this.

JOURNALIST:

If you don’t expand the workforce through migration of workers, then

who will be around to pay the taxes, to fund the funding for the aged? If migration

isn’t the answer, then where do you get, where do you maintain the tax

revenue from?

TREASURER:

Well, the people who will be paying the taxes are the people being born today.

It is just that they will be supporting more people in retirement. And that

is why we have got to ensure that people in retirement start preparing for their

own retirement through superannuation, through investment. We as a Government

start working on sustaining health care and pharmaceuticals. But there is no

magic bullet here. You see, even if you bring in migrants, skilled migrants,

they are going to age, too, over the next thirty or forty years. It does not

change the profile. What we had, is, we had fertility rates up around three,

and those fertility rates have gone to 1.7. So, we had a huge bulge in the post-war

baby boom that is just moving its way through the age cohorts. And immigration

is not going to stop that.

JOURNALIST:

You mentioned productivity is one way, increasing productivity levels, is

one way of dealing with an ageing population. How difficult, though, is that

going to be? I mean, how many hard decisions is your Government going to have

to make?

TREASURER:

We have to work at increasing productivity. We had a huge productivity boom

in Australia in the late nineties. And we have to try and sustain that, and

increase it. And that means we have to work on reforming industrial relations.

That would be the best productivity improvement you could have here in Australia

at the moment. We cut capital gains tax, we cut companies tax. All of this was

about boosting productivity in the Australian economy. But I have been hammering

this point for a long time, now. There are three drivers of growth in an economy.

The three “P”s – population, participation, productivity.

Population – the number of people. That is going to decline. Working age

people. Participation – the proportion of those people of working age

who are in the workforce. And productivity – the output of those people

that are in the workforce. Population is going to work against us over the next

thirty and forty years in terms of the number of working age people, so we have

to heighten the two other “P”s – participation and productivity.

Okay. Thanks very much.