How Useful is the Intergenerational Report over 40 Years?

Let me first of all say that I love the work that the team that put together the 2023 Intergenerational Report have done. As I am always telling clients, the thinking that goes into what might happen and why is far more important than predictions or forecasts, and a lot of data collection and analysis has gone into the report. I would also like to add that forecasts over 40 years are extremely difficult as they are subject to small changes on an annual basis, creating huge long-term changes.

The question I have in my mind is that given what a lot of the public (and organisations) see are the glossy graphs and summaries of the current report how useful are those really?

The reason that I ask that question is that there are significant variations between the longer-term forecasts of the reports that have been done over the years. An excellent piece of work from Rafal Chomik published in The Conversation illustrates this. The following graphs are from that article. For example the Labor Force Participation Rate (if you go to the original article you can see the data points in the graphs)

The Intergenerational Report 1 (IGR1) Published in 2002, forecast a Labor Participation Rate of 56% in 2042. IGR6 (The current one). Predicts a 66% participation rate in 2043 (the years are slightly offset). Over a shorter period of time, the IGR1 predicted the rate would be 60% in 2024. IGR6 shows 67% for 2023 and 2024.

Another example is the forecast government spending on the aged pension:

IGR1 forecast this would be 4.6% of GDP in 2042. IGR6 is now forecasting it will be 2.2% of GDP in 2042.

While the differences between these figures (in both graphs) are relatively small percentages, they make a huge difference in how we might think about policy. For example, while there are different estimates of GPD, Australia's was roughly US$1.675 Trillion in 2022. So a difference of 2.4% in spending on the aged pension is US$40 billion a year.

My point here is not to criticise the work done here. It is far better than what I could have come up with. My point is that we need to be very careful about interpretation and over-reliance on forecasts that are taken more seriously than they should be because they have a large amount of data and modelling in them. Especially over the long term.

So take the information provided, dig down into it and think about the issues and what it all means rather than looking at the headlines and the summaries. To be fair to the authors of the report, they do a comparison to the 2002 report in Appendix A6 and a sensitivity analysis in Appendix A4, which are very useful in helping you do this.

When working with clients there are constant discussions about the value of forecasts and the balance between a strategy that is planning-based and a strategy that is reactive (in the best sense of the word) by building an organisation that is able to respond to change. Context is vital in these conversations. Contact me if you want to do that sort of thinking.

Paul Higgins