THE age at which Australians receive the pension should be indexed to life expectancy, so that as the population ages, the pension age continually rises in tandem, the Business Council of Australia proposes.
The council, the lobby group for the biggest 100 companies, also wants the federal government to start putting money away now to help pay the bills an older population will impose on future taxpayers for health care, aged care and pensions.
Its budget submission, released today, urges the federal government to stick to its commitment to put the budget back in surplus in 2012-13. But it also proposes a number of new rules to lock in austerity for years to come, and to prepare for the expected costs after 2020 as baby boomers swell the numbers of the oldest Australians.
While applauding the Rudd government's move in 2010 to lift the pension age to 67 by 2023, the Business Council says it is not enough to offset the costs to the budget of rapidly increasing life expectancy.
"Based on the standard population data, and not allowing for any (future) improvements, 50 per cent of men aged 65 can expect to live to age 84 (with 25 per cent living to age 89)," the council said.
But if one extrapolates the trend of improving life expectancy into the future, it could increase substantially. "Under some scenarios, a 65-year-old man today may have a 50 per cent probability of living to age 93, and a 25 per cent probability of living to over 100."
It recommends that the government should commit in principle to index the pension age to life expectancy, and order Treasury to compile an updated intergenerational report, this time looking at the costs of an ageing population for the whole economy, and not merely for the federal government.
The critical questions of how long the government should support people on average in retirement, and the details of the scheme, would be decided after Treasury reported. But it would clearly open the door for much bigger and faster rises in the pension age than either side of politics has committed to.
The council also wants the government to adopt three new fiscal rules, designed to limit future taxes, give priority to saving over new spending and start putting money aside each year in a fund earmarked to meet future health, aged care and pension costs.
Under its plan, the government would:
Commit permanently to keep taxes below 23.7 per cent of GDP, the level in the final year of the Howard-Costello government. This is unlikely to be accepted as it would limit the government's options when the economy is on the point of boiling over.
Adopt a target of paying off its net debt by 2021 so it would be able to inject up to 3 per cent of GDP $42 billion in today's money into counter-cyclical stimulus measures, as the Rudd government did in 2008-09.
While giving priority to paying off debt, start putting money aside ultimately about 0.6 per cent of GDP, $8 billion a year in today's money to meet the future costs of an ageing society.
