3.II.(a) Esteemed USA and Australian economists predict insufficient future fiscal revenue (for a burgeoning ageing population that is living longer and longer) to cover:

The book utilises the concept of "Generational accounting to measure the debt burden that one generation leaves the next" ie. the bill the Baby Boomers are leaving to Gen X and Gen Y to pay to look after the Baby Boomers when they are old and unproductive.

(i) The U.S. Federal Government has drastically under-provisioned to cover the cost of its burgeoning ageing population, with fewer (younger) workers contributing to social programmes that were built on a completely different set of assumptions.

(ii) Existing U.S. social programs are a creation of a time when "old people" were expected to die shortly after retirement, with a high ratio of working people to retired people. This high ratio made possible a transfer system where each working generation supported the retirement of prior generations.

(iii)        Reduction in the ratio of workers to beneficiaries: 16.5 to 1 in 1950 down to 3.4 to 1 in 2000. By 2030, the authors project, there will be only two workers for each beneficiary. To alter the authors projections of Federal economic bankruptcy, they present a "menu of pain" (created under the direction of the U.S. treasury secretary) by which the current generation can generate revenues and cut expenditures sufficiently to avoid the coming generational storm. The menu includes draconian tax increases:

*      69% increase in federal income taxes
*      95% increase in payroll taxes
*     106% reduction in federal purchases (admittedly infeasible)
*      45% reduction in Social Security and Medicare benefits

(iv) This is about the "big whammy," as the authors term it, a $51-trillion debt that America is piling up that will come home to roost upon the heads of their children and grandchildren. And these offspring will not be pleased.

(v) Main culprits are Social Security, Medicare and Medicaid as substantial health benefits to the elderly equate to transfer payment obligations so enormous that the working (younger) population will not be able to pay for them. And the distressing thing is that the U.S. Government is aware of this huge financial impost as it has sanctioned government studies, but the U.S. Government has neither the will nor the desire to do anything about it.

(vi) The former incumbent in the White House, George W Bush, greatly exacerbated the problem by recklessly cutting taxes while going on a wild spending spree so that his friends at Raytheon, Halliburton, Big Oil and Big Pharma will have full capitalization. As the authors note, politicians care almost exclusively about maintaining themselves in office. Consequently they are seldom able to address problems beyond the short horizon of the next election.

(vii) The authors predict a decline in the value of the U.S. dollar. In the last 6 years to 2007, the Big Dollar fell by over 60% against the Euro.

Federal Budget Paper No. 5, known as the Intergenerational Report (92 pages) which accompanied the 2002 Federal Budget, sought to predict Australia’s future economic predicament to facilitate policy development.

The report argues that present levels of spending on Health Care Costs and Health System Costs will be unsustainable as the Baby Boomer generation (born between 1945 and 1965) retires, and that without changes to policies, social spending will increase by 5% of GDP by 2030.

(b) education and childcare is expected to fall, as there will be fewer young people.

The report shows the strain on federal finances starting at around 2008, pushing out to a deficit in 2018 and plateauing out at 2042. Health spending, welfare and aged care benefits are seen as the main culprits due to increasing number of retirees supported by a smaller number of taxpayers.

Changes in the structure of the labour market are likely to mean that there are greater numbers of taxpayers in good health continuing to work past 65. The report assumed no increase in participation by mothers, also likely to occur as the population ages and employers seek alternative sources of labour supply. The impact of a healthier Australia – where more people will be able to work at all ages – is also not factored in. Access to affordable health and other services will be especially important for people who are less well-off in this context.

(i) criticises the report for placing no heed on the "intergenerational equity" problem of making Baby Boomers bear their fair share of those costs (health, aged care and age pensions); and

(ii) notes that Australia has always favoured a lean and mean approach to the welfare state which minimises the risk of intergenerational catastrophe by comparison with larger European countries where the welfare impost will be catastrophic.

More recently, the Productivity Commission's Media Release for Economic Implications of an Ageing Australia of 12 April 2005 similarly concluded that Australia's burgeoning Baby Boomers will place an unprecedented economic burden. However, keeping the ageing population healthy and in the workforce will mitigate these costs:

Ageing will reduce economic growth at the same time that demands for public services increases, such as health, aged care and the age pension. With present policy settings, age-related spending will exceed the growth of tax revenue creating a fiscal gap equal to around 6½ per cent of GDP by 2044–45.
With the workforce shrinking as a proportion of the population, per capita GDP growth will fall to as low as 1.25 per cent per year in the 2020s, about half the rate in 2003–04.
“The ageing of our population ...... will be felt sooner than many imagine. The actions of Governments today will determine how well Australia copes with ageing pressures in the future.”
In the absence of other policy actions to reduce fiscal pressure, -
* taxation levels would need to rise by 21 per cent by 2044–45, or
* the debt burden of ageing would become twice as large as Australia’s GDP.
The Commission said that policy responses would have to be on a broad front and at all levels of Government. Co-ordinated reforms would be needed in key human service areas like health and aged care. The Commission shows that raising labour force participation can partly offset ageing’s impacts and highlights the importance of productivity growth to future prosperity.

Demands on Australia's public hospital system seemingly have never been more acute. "It makes me sick" by Lisa Carty North Shore Times Wed 25 July 2007 highlights Royal North Shore Hospital was gripped by crisis for the second time in a week on Monday 23 July when ambulances were banked up for hours while hospital staff scrambled to find beds for incoming patients due to increased numbers of sick old people suffering from Winter illnesses taking up beds.

"Devastated" by Wendy Kay, North Shore Times Fri 3 Aug 2007 highlights the acute shortage of beds at RNSH.

Professor Diana Olsberge, Head of the School of Sociology and Anthropology University of NSW, who has studied 7,000 boomers Australia-wide in particular the economic aspects of ageing (for the Australian Housing and Urban Research Institute) contended in June 2007 that baby boomers are suffering a national delusion about ageing by expecting Government to deliver the good times when they are old.

"They hold unrealistic expectations about health and lifestyle into old age and have little notion of how much it will cost and how to pay for it."
"There is a national delusion amongst baby boomers because they believe the Government is going to provide, that Government will meet their expectations about health and lifestyle,"
"I am saying there is going to be more user pay and people will need to pay for their own health if that want that level of health provision.”
"For acute conditions our health system provides the best services you can get, but for elective surgery, the enhanced expectations of boomers may well be sorely pressed.
"The public health system will be so stretched as they age."

Section 3.II lists a plethora of recent journal articles and government reports of the negative impact on health care funding due to -

(i) diminishing future tax payer pool from Gen X and Gen Y;

(ii) Baby Boomers living longer and longer due to antibiotics, anti-cholesterol statins, anti-coagulants and blood pressure drugs etc; and

(iii) high cost of many new medical technologies eg. nano-technology, nano-medicine, genetic testing, gene therapy, pharmacogenomics, rational drug design, xenotransplants and bioengineered organ, joint, or tissue replacement, minimally-invasive surgery, robotics and virtual surgery.