When Australia’s welfare state began with the introduction of the age pension in 1909, social security was reserved exclusively for those in their twilight years. Australia’s welfare state now extends all the way from the cradle to the grave, from childcare subsidies to aged care and a raft of program in between.
According to the latest Intergenerational Report, federal government spending is set to increase by almost 4 per cent of GDP in the coming decades. The lion’s share of this increase will be driven by aged care, the Age Pension and the National Disability Insurance Scheme. As demands on the federal budget continue to climb, the number of working age Australians to retirees will fall from three to just two.
This dramatic expansion in the size of the state raises important questions of fiscal sustainability and intergenerational equity: given Australia’s reliance on income tax, will working age Australians foot the bill? Or will older Australians be required to be more self-reliant in retirement? Does Australia’s welfare state benignly shift the lifetime incomes of each generation from the economically productive middle years to early childhood and later life? Or are our tax and social security policies propping up the living standards of older Australians at the expense of future generations?
