Former Treasury head Martin Parkinson: “Unless we actually grab this challenge by the horns and really get concrete about what are the priority issues, we are actually going to find ourselves sleepwalking into a real mess.” Photo: Louie Douvis RBA Governor Glenn Stevens and for Mr Parkinson at the National Reform Summit in Sydney on Wednesday. Photo: Louie Douvis
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Australia is facing the equivalent of a recession in the next decade as incomes grow at only a fraction of the officially forecast pace, the National Reform Summit has been told.
The past head of the Treasury, Martin Parkinson, told the Sydney summit that unless Australia acted quickly, it would sacrifice as much as 5 per cent of the economy in the next ten years, the equivalent of a recession.
“Unless we actually grab this challenge by the horns and really get concrete about what are the priority issues, we are actually going to find ourselves sleepwalking into a real mess,” he said.
Economic modeller Janine Dixon from Victoria University had told the summit the Treasury’s Intergenerational Report had painted a “rosy” picture of the future, projecting average growth in real income per person of 1.4 per cent, meaning that by 2055 Australians would enjoy real incomes 75 per cent higher.
Her own modelling had real incomes growing by less than 1 per cent per year, meaning that by 2055 incomes would be only 44 per cent higher.
“Put another way, it would take an extra 20 years to reach the income forecast in the Intergenerational Report for 2055,” she said.
Her modelling has productivity growing at only half the pace assumed by the Treasury, whose assumption was based on the unusually high decade of productivity growth that followed the economic reforms of the early 1990s.
Melbourne University economist Ross Garnaut said if her estimates turned out to be correct, the budget would “never get back to surplus”.
Reserve Bank governor Glenn Stevens said Australia’s economic growth rate had mostly started with a “two” instead of a “three”, “despite the lowest interest rates in our lifetimes”.
Dr Parkinson said if economic growth remained nearer to 2.5 per cent than 3 per cent, as much as 5 percentage points of gross domestic product would be lost over the next decade.
“If this is not happening because our population growth is slow, it means willingly accepting the impact of a recession,” he said.
“The loss of GDP from a recession is about 5 or 6 percentage points.”
Without acting we would be “sleepwalking into a real mess”.
The summit has brought together 100 business and community leaders to try and discuss issues the organisers believe the government is afraid to touch. It is sponsored by KPMG, and both the Australian Financial Review and The Australian newspapers.
Asked to be specific about tax or spending measures that could help boost growth, Dr Parkinson said the most obvious way in which the tax system held growth back was the way in which it skewed tax concessions to the top end of the income distribution.
“It’s not a retirement incomes policy, it’s a wealth accumulation policy,” he said. “That doesn’t make sense to me. It’s an obvious area we should be looking at.”
The draft communique to be refined at the summit notes “widespread concern” that super tax concessions are used for purposes “inconsistent with the purpose of the retirement income system”.
Australian National University tax professor Miranda Stewart cautioned the summit against cutting income tax rates in order to emulate either New Zealand or Singapore. She said New Zealand was more heavily taxed than Australia and Singapore housed most of its citizens in public housing.
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