A key federal government adviser says his generation is the budget's biggest problem

Photo: Matt King/Getty Images

Tony Shepherd has lashed out at his own baby boomer generation’s entitlement mentality, saying continued failure to address looming problems caused by the ageing population will ultimately erode the living standards of younger Australians.

“You and your kids will be paying,” Mr Shepherd said. “The baby boomers did a great job growing our country and much of our current wealth is built on their work. But they’re not shy on the way out in looking after their interests. They’re not holding back.”

The former Coalition audit commission chairman made the pointed remarks ahead of the release on Monday of a report on the challenges facing the nation as part of the Menzies Institute’s 2017 Shepherd Review, which he described as an attempt to explain why “more Australians feel as though they are slipping behind despite working harder than ever”.

Left increasingly anxious by the lack of wages growth and niggling doubts about the future of work, Mr Shepherd said it was time for reformers to focus on explaining the nation’s challenges in a way that people could relate to, rather than just the business or political classes, which he said households no longer trust.

“The average Australian doesn’t worry about rising debt and government borrowing to pay welfare – they don’t see the problem with that,” Mr Shepherd said. “But that’s actually contributing to an erosion of their living standards and will inevitably lead, with no economic growth, to them paying higher taxes.”

Left winning

The former head of the Business Council of Australia admitted a key failing of the Abbott government audit commission was that it was published by then treasurer Joe Hockey just two weeks before the ill-fated 2014 budget, leaving no time to “workshop with the community that we have a problem”.

“Unless we bring the community with us on serious economic reform, I doubt the political environment will support it. That’s absolutely been the lesson of the last three years,” he said.

The Menzies Institute’s Shepherd Review attempts to link back to voters at a time when the right feels it is losing ground to more centrist and left-leaning think-tanks.

“We’re looking at this from the point of view of the average Australian – we are going bottom-up rather than top down,” he said. “We’re saying let’s go through the community – not just the business community – and see what the real options are.

“The community is untrusting, and they get a lot of their data from social media, which is notoriously inaccurate and unreliable – but they have real concerns and they’re not silly. They’re fair dinkum concerns.”

On Monday, the review team – whose members include former MPs Warwick Smith, Indigenous lawyer Geoffrey Winters, venture capitalist Ben Heap, Council of Small Business Australia chief executive Peter Strong, and Menzies policy director Andrew Bragg – will publish the first of three reports.

The economy, stupid

Monday’s document outlines the scale of the problems facing the economy, government, markets, infrastructure and innovation, and will be followed in June with a study of options to address those issues, with recommendations to be finalised by September after public input.

Top of the list of problems is a lack of confidence in government’s ability to manage the economy, the report’s authors argue, which goes back to the need for sustainable budget repair and a repayment of mounting national debt.

Warning that the country is borrowing to meet the weight of growing recurrent expenditure because of an age-related shrinking of the tax base, the report calls for Australians to consider whether a tax system that relies heavily on company tax, income tax and the GST is working as it should.

Few other nations bear such a heavy reliance on personal income and company taxes as Australia does in 2017.

Of the $379 billion likely to be raised in federal taxes in 2016-17, around 73 per cent is collected from company and individual income tax alone. The narrowness of the tax base is magnified even further by the fact that less than 0.1 per cent of companies and 9 per cent of individuals contribute the majority of revenue (59 per cent and 47 per cent respectively).

Another problem is that much of government spending is based on an inefficient and volatile revenue base which is sourced from over 100 taxes across three levels of government, but still draws around 90 per cent of the total from just three taxes: the GST, personal and company tax.

The mismatch between volatile taxes and legislated increases in government spending programs means there will continue to be budget problems in decades to come, Mr Shepherd said.

“Our welfare programs are legislated and indexed so that side of the equation is fixed, but the income side is volatile and mainly depends on the world economy,” he said.

Source; Menzies Research Centre
Source: Menzies Research Centre
Source: Menzies Research Centre

“That means in the end, because of our high reliance on company and income taxes, we’re going to have these shortfalls occurring on a cyclical basis when income drops off.

“We really need to have a good look at that.”


Failure to address the problems identified in report will result in living standards of younger Australians deteriorate, with Mr Shepherd pointing to Japan as an example of what the future looks like.

“All the signs are there that we’re heading down the path of a low-growth trap – that’s not being overdramatic. In the end you end up with an ageing population, no growth, high taxes or a reduction in government services, and a decline in your fundamental standard of living,”

Already, it is almost certain that the burdens already built into the system will fall on coming generations. By 2055 there will be as few as 2.7 people working to support the health and welfare demands of others compared to 4.5 people today.

This article first appeared on AFR.com.au. See the original article here. Follow the AFR on Facebook and Twitter.

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