Reserve Bank Governor Glenn Stevens just delivered a speech on the Queensland economy, the G20 growth agenda, Australia’s medium-term economic future and the central bank’s submission to a financial system inquiry at a business lunch in Brisbane.
It’s clear he’s worried about the same structural issues that caused Treasury Secretary Martin Parkinson to call for a debate on the GST. He also touched on themes of fiscal sustainability and Australia’s demographics, and it would be reasonable to conclude both men were worried enough to co-ordinate their speeches.
Most importantly, for today’s discussion, even if we do manage this episode as successfully as we might dare hope, major long-run challenges will remain. These are the things I want to highlight today, two of them in particular.
First, fiscal sustainability. The debate here has, I would have to say, been overly- focused on budget outcomes in particular years. The real issues are medium-term ones. Put simply, there are things we want to do as a society, and have voted for, that are not fully funded by taxes over the medium term, as is starting to become clear in the lead up to the May budget. Here I refer to the very important speech given last evening by my colleague, Treasury Secretary, Martin Parkinson. Our situation is not dire by the standards of other countries but neither are the issues trivial. A conversation needs to be had about this.
Second, demographics. More people will be moving into retirement, and fewer people entering the workforce, over the years ahead.
The heads of Treasury and the RBA have warned Australia about the challenges posed by these two headwinds, within 24-hours of each other.
It might be time to engage in policy debate, and maybe dust off an old copy of the Henry review of the tax system.