AUSTRALIA’S UNSUSTAINABLE HEALTH AND SOCIAL SECURITY SYSTEM.
PREAMBLE The catalyst for this offering is a statement by John Roskam, Institute of Public Affairs, to the effect that after twenty years of economic growth the Australian welfare state is becoming unsustainable particularly since 51% of the work force is not paying tax. (Between the Lines, ABC RN, 9 July, 2017) This is a significant statement when taken in conjunction with other economic and social factors bedevilling the Australian nation. The inescapable fact is currently Australian living standards are drifting lower, under employment is drifting higher and the natural resources ‘boom’ has peaked. Social security and health expenses have risen strongly over the past decade and are becoming unsustainable. No political Party has admitted to this over arching consolidating situation. In the foreseeable future Australians will face the choice whether to massively increase export income, tighten the collective belt or borrow money from overseas to maintain an unsustainable life style. The following comments is an attempt to define issues that singley are manageable but collectively, unless solved will make it difficult to “put another prawn on the barbie”.
THE LUCKY COUNTRY Re-enter Donald Horne, author of The Lucky Country. In 1964. Horne warned Australians were not appreciating their apparent good luck was built on ephemera that could not last. First gold, then the sheep’s back, then followed the curse of natural resource endowment and finally a growing dependency on the welfare state. Horne wrote “throughout the world the basis of material prosperity is likely, for the first time in history, to be with clever educated people. The need to build cleverness is considered to be un-Australian.” In 2017 this sentiment has been repeated, see Education next section. Historically politicians and the media have deliberately misconstrued the title resulting in Australians being lulled into a false sense of security. For a quarter of a century Australians have basked in steady, stable growth (GFC excepted) due to a demand for minerals from global growth not from their own intellectual effort.
Materialising from sub-liminal shadows arer recurring budget deficits (to $30 billion a year), rising national debt ($474 billion and increasing, Jan. 2017) and serious personnel debt of 123% of GDP, third highest in the world. (macroeconomics. com, Feb. 2017) In a buoyant manufacturing export oriented economy the above data would not be of critical concern but in an economy stressed by the curse of natural resource endowment this is a serious situation, somehow, somewhere Government expenditure must be reined in, taxation increased or export income generated.
EDUCATION AND COMETIVENESS “Lets start at the very beginning” so trills The Sound Of Music and so it should be but an OECD report places Australia 27th out of 35 advanced countries in terms of expenditure on early childhood education. Education at a Glance, 2014) The above situation is reflected in the OECD PISA for surveys between 2000 and 2012 which confirmed Australian declining education ratings, namely Maths 6 to 19, Science 8 to 16 and Reading 4 to 13. (OECD Australian PISA Rankings) The falling standards reinforce comments by the former Chief Scientist, Professor Chubb, who warned about Australia’s declining STEM ability. Among the findings of the Davos Economic Forum (January 2017) was the conclusion that Australia’s ability to benefit from automation and artificial intelligence developments would be hampered by lack of preparation and a deficiency in STEM ability. A contributing nail to this educational coffin is the current Government budget that is reducing university income and restricting 457 visas to academic staff – another impediment to creating innovative exports.
A final word on education by Professor Greg Austin, Centre for Cyber Research, Australian Defence Force Academy is instructive, “over the past twenty years Government has been fostering a culture of incompetence in training and computing skills in cyber security” – which brings Australia back to the full meaning of The Lucky Country!
TAXATION AND EMPLOYMENT The recent ‘Between the Lines’ program indicated 51% of the work forceis not paying tax. Digging deeper it is recorded that 48% of Australians, 12.2 million ‘income units’, pay no tax. Further the top 10% of income earners contribute 47% of national income tax. After welfare payments the average Australian only pays $3424 in tax after deducting welfare benefits. (National Centre for Social Economic Modelling, The Conversation, July 2015) In a population of around 24 million the low ‘income units’ become understandable when it is revealed there are 1.1 million registered under employed while the unemployment rate has risen from 5.7 to 5.9%. (SMH, March 2017) In the youth sector the jobless rate, at 13.5%, is at the highest level in forty years while under employment hovers round 18%. (The Guardian, 27 March 2017) The continuing rising under employment trend will continue to reduce ‘income units’ and increase demand on the social security and health budgets.
Australia, blessed with the curse of natural resources, despite excellent research institutions, has languished in developing industries driven bytechnologial advancement capable of replacing export income from natural resources. As the Davos Forum concluded Auatralia’s collective skills are not yet in place. While a high value export industry can absorb above average wage rates it is concerning Australian rates, with in a relatively unskilled work force, is significantly higher than rates in competitor manufacturing countries. (Table 1)
|COUNTRY||$A per hour||COUNTRY||$A per hour|
SOCIAL SERVICE AND HEALTH COSTS The preceeding information provides a backdrop to forecast unsustainable social security and health costs. The Australian Institute for Health (2014) reported health costs have increased from $4600 per person per year (2002) to $6400 per person (2012), fom 8.6 to 9.7% of GDP, costs are still increasing, around 4% year on year. The projection of Government spending, Table 2, by category provides a funding challenge for those born today who will be fourty something in 2060, the ‘sins of their fathers ‘ will indeed weigh upon them
T2 Projection of Government spending (% GDP) Productivity Commission
|CATAGORY||2011 - 12||2059 - 60|
In confirmation, the Institute of Actuaries determined Health Cover costs will rise from 6.5% to 10.8%of GDP over the next 50 years.
NATIONAL BUDGET 2017 – 18 The summary illustrates the impact of Social Security and Health on the National budget.
NATIONAL BUDGET 2017- 18
|EXPENSE||$A billion||REVENUE||$A billion|
|Social Security||164||Private Tax||210|
|Health||75||Fringe B Tax||4|
|Defence||30||Company & RR Tax||80|
|Other Purposes||93||Sales Tax||67|
|Non Tax Items||29|
Deficit is 464 – 445 = ($19) billion. The combined Social Security and Health budget totals $329 billion which is equivalent to 51% of expenses or 54% of revenue. With a population of 24 million this equates to a cost per person per year of $9,900, say $10,000. Budget deficit projections in billions for years 2018-19 ($16), 2019-20 ($3), and 1920-21 (11). The Grattaan Institute forecasts deficits will continue untill at least 2025. (Australia Exports and Budget, June 2017). The deficit will willbe under additional pressure due to declining corporate tax rates from 30% to 25% over the next few years.
AUSTRALIAN TRADE BALANCE For the year 2016-17 the Australian terms of trade were in the red. (DFAT) Total exports were $259 billion and total imports were $269 billion, therefore a trade deficit of $18 billion.For three years from 2013 Australia’s terms of trade were negative to the tune of billions of dollars. Since late 2016 terms of trade have dramatically improved but this may not be all good news. The trade surplus is, in part, due to a decline in imports which reflect a softening in domestic demand due to weak wages growth and increasing under employment. A dangerous sign – Australians were using savings for the Christmas splurge, based on this information Christmas 2018 might be a commercial disaster. There has also been a small rise in commodity prices, the economy again saved by the curse of natural resources. endowment. (CNBC-Economy, April 2017)
The Australian economy requires a strong positive terms of trade to off set budget deficits (major contributors social security and health) and to assist in the annual interest payments of $16 billion (rising) and the $474 billion (rising) of national debt. (DFAT: The Treasurer, smh, 29 January 2017) Australia’s salvation must primerally rest with a strong terms of trade generated by STEM, artificial intelligence and automation. And so again to “The Sound of Music”!! “Lets start at the very beginning.”
POSTAMBLE The purpose of this article is to present a snapshot or illustrate a trend that will create a problem funding increasing Social Security and Health portfolios. this situation has already been described as unsustainable. For an economy able to fund its own operating expenses, excluding infrastructure improvements, revenue from terms of trade, tax and other sources should cover other outgoings, we have heard the Government bleat “we must live within our means”, it is not doing it. Australia is in an invidious position for several cogent reasons:
- under employment is increasing,
- ‘tax units’ are decreasing,
- export income is still reliant on natural resources,
- export income to replace natural resources is not being generated fast enough.
- the education system is not adequately preparing the young Australian workforce skills in STEM, artificial intelligence and automation. The rising trend in social security and health costs, if continued, will be a contributing factor to jeopardising Australia’s AAA credit rating. If savings cannot be made to the budget or income boosted by exports then Australia’s living standards will decline further, then interest rates on the national debt will rise. The2017 budget levy on banks to raisr $6 billion over four years does nothing to off set the $239 billion (and increasing) social security and health budget.