Why the federal budget represents the victory of the Baby Boomers over the ‘Alphabet soup’ generations

The 2014 federal budget is aimed at cutting back a range of entitlements. But to understand whose entitlements are being cut, and why, we need to look at Australia’s demographics.

There are two groups in Australia who are relevant to the federal budget: the ‘Baby Boomers’ and everyone else.

To quote the Australian Bureau of Statistics:

“From 1946 to 1965 (inclusive) there were 4.2 million births in Australia. This 20 year period is generally referred to as the “Baby Boom”. While other periods are occasionally quoted when referring to the post-World War II baby boom, the ABS endorses 1946 to 1965 as the definitive Baby Boomer birth years.”

The category ‘everyone else’ includes Generation X – born between 1966 and 1980; Generation Y – born between 1981 and 1994; and Generation Z – born between 1995 and 2009. I will refer to these groups as the ‘Alphabet Soup’ generations or ‘Alphabets’ for short.

The 2014 federal budget reflects demographics, and the Baby Boomers have the numbers that matter for federal elections. So the budget is a deliberate move to reduce the entitlements of the alphabet soup generations and to protect the Baby Boomers.

Don’t believe me? Let’s look at the evidence.

Let’s start with education. University education became free in Australia on January 1, 1974. This was just in time for the 1956 cohort of Baby Boomers to commence tertiary studies.

In 1989 fees were reintroduced. This was just in time for the last of the Baby Boomers to graduate after failing a few subjects on the way.

But the Baby Boomers had kids, and they didn’t want to have to pay the children’s university fees. HECS was a great way to avoid the parents paying. The kids could pay later! However, fees were restrained while the Baby Boomers’ children attended university.

Of course, by 2016, pretty much all of the Boomer kids will have finished university. So from 2016, universities will be able to charge what they like for undergraduate studies and students accessing the government HELP scheme to pay for university fees will have to pay interest up to 6% on their loans.

So the Boomers got free university, their kids got subsidised university (with a scheme to make sure the kids, not the parents, paid) but now the entitlement is gone. Is the timing just a coincidence? I think not!

Let’s look at unemployment benefits.

This is a tricky one. The unemployed fall into two distinct groups: the young unemployed in the alphabet generations, and the unemployed Boomers who are aged over 50. The budget appears to view the former as wastrels who are simply bludging, while the latter are suffering the insidious effects of ageism.

To see this, note that the 2014 federal budget deliberately applies very different policies to these two groups.

From January 1, 2015, those people born after 1985 (i.e. Alphabets) applying for Newstart or Youth Allowance (Other) will have to participate in relevant activities. These activities are yet to be defined but clearly the view is that there needs to be an incentive for the young to ‘avoid’ being unemployed. The Alphabets must participate in these activities for 6 months before being able to gain relevant benefits.

In contrast, from July 1, 2014, employers who hire an eligible mature-aged job seeker, on a full-time basis, will be paid a subsidy of $10,000 over 24 months. Eligible mature-aged job seeker is, of course, code for ‘member of the baby boom generation’. This incentive is to overcome ageism.

Now whether you agree with these policies or not, the different approaches to the generations should lead to some reflection.

Still need more evidence? Let’s look at the age pension

The old age pension costs about $37 billion per year. It makes up about half of all federal income support payments. But changes to the ability to access this benefit were deferred in the federal budget. The pension age will be increased to 70 by 1 July 2035. Of course subtract 70 from 2035 and we have the year 1965. So the changes to eligibility will only affect the ‘tail end’ of the Boomers, with the final changes falling on the alphabet generations!

Still not convinced? Let’s look at the cuts.

School funding – cut. But the vast majority of Boomers no longer have kids at school.

Family tax benefits – cut. Again, few Boomers are still getting the family tax benefits.

What about health care?

The government has decided to impose a $7 co-payment on visits to the GP, on diagnostic tests and on imaging. This would appear to fall broadly over the generations, catching the Alphabets with young families and the older, ailing Boomers. So how does this policy favour the Boomers?

The answer is in the use of the funds. To quote from the Budget Papers, the money collected by the co-payment will fund medical research:

“Establishing the biggest medical research fund of its kind in the world, the $20 billion Medical Research Future Fund. Every dollar of savings from health in this Budget will be invested to build this Fund, until the Fund reaches $20 billion.”

So there will be $20b to find a cure for cancer, heart disease and all the other nasties that will otherwise take away so many worthy Baby Boomers in the next 40 years! If there is really a budget crisis, why is the money going to this research fund that, at best, will be a Boomer boondoggle?

Individually, the policies announced in the 2014 federal budget may be good or bad. I will leave that debate for another time. It will also be interesting to see how many policies get through the Senate unscathed.

But is it purely a coincidence that the big losers from the federal budget are those in the alphabet generations born after 1965, while the winners are the demographic bubble of Baby Boomers who loom large at the ballot box?

Economics may dominate when it comes to justifying public policy, but let’s face it, demographics rule when it comes to politics.

This is an edited version of my presentation as part of the Young Economists debate at the annual Australian Conference of Economists, Hobart, July 4, 2014.

The topic was:’The 2014 federal budget is a step in the right direction for reducing entitlement’

I was on the (elderly) affirmative team. We lost. But we were robbed!

For other articles by Professor Stephen King (and other economists) see the CoRE Economics Blog at www.economics.com.au and Professor Stephen King’s columns at the Conversation, https://theconversation.com/profiles/stephen-king-1374/articles