Annual report 2003-04

A wide ranging reform effort is required if higher living standards for Australians are to be maintained in the face of population ageing and other foreseeable environmental and economic challenges, says the Productivity Commission in its annual report for 2003-04, released today. The report, completed last November, focuses on issues raised in the Commission’s draft report on the Economic Implications of an Ageing Australia.

The Commission’s research shows that Australia’s economic growth will flag as its workforce grows more slowly than its population. And health and aged care costs will be particular pressure points on government finances.

The Commission argues that the impacts of an ageing population are unlikely to reach ‘crisis’ proportions but that they will pose some difficult policy choices. Raising the tax burden, increasing public debt and rationing access to services all have major downsides. This underlines the importance of reforms that address ageing pressures at their source and that improve the economic wherewithal to deal with them.

The Commission sees little practical scope for policies directed at immigration or fertility to significantly moderate ageing trends. This highlights the policy challenge of raising labour participation and productivity so as to sustain economic growth.

Whether higher growth would also alleviate fiscal pressures will depend on consequent demands for and costs of providing government services. Key among these is health care. The Commission notes that structural reforms that achieve more cost-effective health services would have a clear fiscal pay-off, as well as directly benefiting the community.

The Commission’s forthcoming final reports on National Competition Policy Reforms and on Ageing aim to assist all governments develop an action agenda to meet the ageing and other significant challenges facing Australia.