NOT since World War II have governments borrowed so much money to prop up crippled public balance sheets. Now, age shall indeed weary us.
And the years are likely to condemn.At least if we don't act now.
According to recent figures from the International Monetary Fund, the borrowings of advanced economies are likely to exceed, on average, total gross domestic product in the next few years.
For Australia, this would equate to borrowing well over $1 trillion to prop up public finances.
Thankfully here we're not doing anything like that.
But in the US, gross debt in 2014 is expected to be some 107 per cent of GDP. Japan comes in at an impressive 234 per cent.
By comparison, Australia's projected borrowings are a relatively modest 16 per cent of GDP, which is still a pretty high level.
All of this is incurred to counter the effects of the global financial crisis.
It will take many years to pay off and there are growing fears that some countries may try to inflate their way out of the problem. This means that some nations embark on a regime of relatively high inflation and other more unorthodox measures such as quantitative easing (printing money). This reduces the value of currency which means the debt you owe is less.
But all this focus on recovering from our current debt burden neglects a much larger structural problem when it comes to advanced economies. And that is our ageing population.
The IMF estimates that the cost of catering for an ageing population in decades to come is likely to be 10 times the cost of mopping up the current economic mess.
This is the structural problem that the government partially acknowledged when it moved to raise the pension age to 67 in the Budget. And it dwarfs the challenges of the economic downturn.
The only way it can be addressed is through wholesale tax reform in areas such as superannuation and a massive reprioritisation of expenditure.
Under the structure we have now, an ever decreasing proportion of the population will be funding the needs of the elderly.
Give it a decade or two and it will be people like me who are causing the Global Aged Crisis.
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Tuesday, June 23, 2009
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