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Citation: Bessant, J, Emslie, M and Watts, R 2011, 'Accounting for future generations: Intergenerational equity in Australia', Australian Journal of Public Adminstration, vol. 70, no. 2, pp. 143-155.
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PLEASE DO NOT REMOVE THIS PAGE The Australian Journal of Public Administration, vol. 70, no. 2, pp. 143–155 doi:10.1111/j.1467-8500.2011.00723.x
RESEARCH AND EVALUATION Accounting for Future Generations: Intergenerational Equity in Australia1
Judith C. Bessant, Michael Emslie and Rob Watts RMIT University
Australian governments have published three intergenerational reports since 2002. In line with a general international trend these reports pointed to a problem said to arise from an ageing population which exposes Australia to the risk of a future major fiscal crisis. In this article we argue that by failing to use a generational accounting framework, the reports privilege the elderly at the expense of young people. Added to this, they fail to engage any discussion of intergenerational equity defined as distributive fairness and justice. In this article we explore the value of various approaches to intergenerational justice, focusing on the Principle of Intergenerational Neutrality derived from Rawls’ theory of justice. We argue that this does not work as well from a policy point of view as Sen’s freedom-as-capabilities approach. We conclude that linking Sen’s approach to justice to a generational accounting will enable governments to address future issues of equity.
Key words: intergenerational equity, age, youth, generational accounting, justice, fiscal accountability, policy
Something is profoundly wrong with the way we Gokhale 2009).2 Relying on forecasts of fer- live today ...We no longer ask of a judicial ruling tility trends, economic growth and various as- or a legislative act: is it good? Is it fair? Is it just? sumptions about debit-deficit dynamics, many Is it right? Will it help bring about a better society governments have concluded that they face a or a better world? These used to be the political looming crisis of fiscal sustainability.3 As Bal- questions, even if they invited no easy answers. lassone et al. (2009:8) suggest, there is now We must learn once again to pose them (Judt a consensus that: ‘...overall projected ageing 2010:17). populations [are] projected to lead to increases Since the 1990s most Western nation-states in public spending in most member states by have acknowledged that they are undergoing 2050 on the basis of current policies’. Given a major demographic transformation involving that the policy problem has been defined as a significant increase in the number and pro- long term fiscal sustainability, the conclusion portion of elderly people. In consequence both is drawn that future generations face an increas- national governments and entities like the Or- ing financial burden (Bonin 2001).4 ganisation for Economic Cooperation and De- Australian governments have demonstrated velopment, the International Monetary Fund considerable interest in this matter. Following and the European Union have begun explor- the Charter of Budget Honesty Act 1998 in- ing the policy implications of this (Heller, troduced by the Coalition Howard government Hemming and Kohnert 1986; Liebfritz et al. (1996–2007), Australia has published three 1995; Hauner, Leigh and Skaarup 2007). Most intergenerational reports (Commonwealth of of this work has been framed by a preoccu- Australia 2002, 2007, 2010). These reports pation with fiscal sustainability (Larch and are designed to assess ‘the long-term sus- Noguei-Martins 2006; Ballassone et al. 2009; tainability of current policies’ over a 40 year
C 2011 The Authors Australian Journal of Public Administration C 2011 National Council of the Institute of Public Administration Australia 144 Accounting for Future Generations June 2011 projection, taking account of ‘the financial history, the question of what share of family implications of demographic change’ (Com- and/or community resources should be consumed monwealth of Australia 2002:i). Like the by the elderly (Robinson and Watts-Roy 1999:4). European exercises, the first report of 2002 produced by the Howard government framed What should we think about this way of the policy problem in terms of an impending framing the policy problem? Are we justi- fiscal problem. It argued Australia would see fied as imply treating the intergenerational a tripling in the numbers of people over 85 equity problem as a problem focused on the years of age while the proportion of those aged elderly? (Robinson and Watts-Roy 1999). Sec- 15–64 would fall over the following 40 years ondly, given that Europeans have raised impor- (Commonwealth of Australia 2002). The first tant questions about the principles of ‘intergen- report (Commonwealth of Australia 2002) also erational ethics’ and ‘intergenerational justice’, predicted that Commonwealth spending would how well have economists the group most in- begin to exceed revenue by 2018 resulting in volved in producing the intergenerational re- a budget deficit of $87 billion by 2041–42 ports addressed the ethical dimensions of in- (equivalent to 5% of projected Gross Domestic tergenerational equity? (see Solum 2001 and Product (GDP) in 2041–42). If the 2010 In- Tremmel 2009). How might Australian gov- tergenerational Report is any guide, Australia’s ernments better engage the ethical problems of Labor government has embraced this framing. intergenerational equity? The intergenerational report of 2010, for ex- Mindful of the larger body of international ample, forecast an increase in the proportion of research and policy discussion, we focus on elderly people, a decline in labor force partic- the things said and the things left unsaid in ipation and reduced rates of economic growth, Australia’s intergenerational reports published arguing that future governments would face in Australia in consequence of the passage mounting costs associated with increasing de- of the Charter of Budget Honesty Act 1998. mands on the health system, aged care and aged Though there are some idiosyncratic features pensions (Commonwealth of Australia 2010: involved in the three Australian intergenera- 3–5). tional reports, we argue that there are enough As Schon (1984), Bessant (2008:361–373) features shared in common with equivalent in- and Bacchi (2009) have argued, the way solu- ternational exericises to give this article some tions to a problem are generated depend on how wider application while being of interest to lo- the policy problems are represented. In that vein cal policy and research communities. Doughney and King (2006:24) argued that the We will argue there are grounds for concern. 2002 Intergenerational Report was driven by While there are a number of technical problems a preoccupation with ‘looking for ways to in- in the reports worth identifying, our primary crease the size of the economy so we all have concern is the absence of an interest in the higher incomes’ while suggesting that a ‘key needs and perspectives of young people who way to improve economic growth is through are alive now or of those yet to be born. Sec- increases in labour force participation and pro- ondly, we agree with Thompson (2003, 2004) ductivity’ (cf. Harvey 2005; Prasad 2006). Gee when she says that the intergenerational reports and Gutman (2000) have been critical of the avoid the ‘philosophical questions that engage ‘demographic alarmism’ at work in the research ethical concerns about distributive fairness and on intergenerational equity. justice and our moral obligations to future gen- As Robinson and Watts-Roy (1999) describe erations’. Like Parfit (1984), Partridge (2008: it, public policy exercises like the Australian in- 4–7), Page (2008:8–14), Tremmel (2009) and tergenerational reports are central to the ‘gen- Thompson (2009), we argue it is both possi- erational equity debate’. They say that this: ble and desirable to make just provision for people not yet born. That the intergenerational ... is the most recent incarnation of a question reports have failed to consider the question of that has been with us since the dawn of recorded justice is a serious deficit in the political and
C 2011 The Authors Australian Journal of Public Administration C 2011 National Council of the Institute of Public Administration Australia Bessant, Emslie and Watts 145 policy deliberative processes in the Australian ing the burgeoning proportion of older people. polity. For that reason we briefly explore some This will lead to a looming fiscal crisis as to- of the possible approaches to justice includ- tal government spending rises from 22.4% of ing Sunstein’s (2007) Principle of Generational GDP (in 2015–16) to 27.1% of GDP by 2049– Neutrality that might inform an intergenera- 50 with a predicted gap between revenue and 3 tional justice framework. Finally we draw on expenditure equivalent to 2 4 % of GDP in 2050 Sen’s (2002, 2009) recent policy-focused ar- (Commonwealth of Australia 2010:xi). guments for adopting a freedom-as-capability The explanation offered points to cost pres- framework that we think might inform a more sures associated with an ageing population and adequate generational accounting framework. especially increased health costs. The 2010 re- We begin by recapping what the intergenera- port states that a quarter of total government tional reports say. spending was on health, aged-pensions and aged care in 2009–10. This is projected to rise to half by 2050 (Commonwealth of Australia Australia’s Intergenerational Reports 2010). Moreover, coupled with declining rates 2002–10: Predicting Fiscal Crisis in the labour force and decreased productivity and falling GDP, the capacity of the taxation There is general agreement in the three system to generate the revenues to fund these intergenerational reports about the problem demands is expected to weaken. Each report Australia faces – though the emphasis on par- forecasts a ‘fiscal gap’. The third intergenera- ticular themes shifts slightly from report to re- tional report suggested that if there was no ac- 3 port. Each points to a major demographic trans- tion, the budget would be in deficit (or 3 4 %of formation in Australia. This is described, for GDP) and net debt would grow to around 20% example, as the expectation that the ‘number of of GDP by 2050 (Commonwealth of Australia people aged 55 and over will grow faster than 2010). the number aged under 55’ (Commonwealth of How should we think about these reports? We Australia 2002:5). The 2010 report suggested might point to the problem involved whenever that while the number of children would grow social scientists make predictions. Philoso- by 45% and the number of prime age working phers and social scientists from Mayo (1949), people would increase by 44%, ‘this will oc- Merton (1948), Popper (1959), Giddens (1990) cur at the same time as the number of older and Soros (2008) have argued that predictions people (65 to 84 years) more than doubles and should generally not be taken too seriously. the number of very old (85 and over) more Their point was summed up by J. K. Galbraith than quadruples’ (Commonwealth of Australia (1975:13) when he suggested that the only 2010:5). Each report has argued there will be function of ‘economic forecasting is to make a dramatic rise in the ‘dependency ratio’ and astrology look respectable’. Alternately we emphasises that as aged and child dependency might draw attention to the reliance of the increases there will be fewer people of prime reports on problematic assumptions. Kinnear work age (15–64) in the workforce. Accord- (2001) or Ablett (1996, 1998), for example, ing to the last report: in ‘1970 there were 7.5 have challenged the premise that older people people of working age to support every per- are a social and economic burden. However our son aged 65 and over’, ‘by 2050 this number is preference here is to point to some large prob- projected to decline to 2.7 people of working lems that relate to the way the problem is rep- age to support every person aged 65 and over’ resented as a problem of ‘fiscal sustainability’ (Commonwealth of Australia 2010:5–6). when the larger and unstated problem is the Each report asserts that the demographic question of intergenerational equity. At stake shift has significant implications for the rev- is the important question of justice. Both our enue stream governments rely on to fund basic intuitive conceptions of justice and the most social services. Each report says that the central sophisticated theories of justice have their ori- problem will be the increased costs of support- gins in the recognition that a certain state of
C 2011 The Authors Australian Journal of Public Administration C 2011 National Council of the Institute of Public Administration Australia 146 Accounting for Future Generations June 2011 affairs is not fair. As Ricoeur (2000:viii) says, the trend in Australia to avoid generational ac- ‘Was not our entry into the region of lawfulness counting, Ablett (1996:91) argued for factor- marked by the cry, ‘that’s not fair’. ing in young people to address a ‘real cause for concern’. Macfarlane (2003:19) too has warned about the implications of this omission: Missing in Action: Intergenerational Equity The young may resent the tax burden imposed Thompson (2003:3–4, 2004) argued that the on them to pay for pension and health expen- 2002 report confronted one basic question that ditures on the old. This will, particularly be the was not addressed: what is wrong with future case if they see the old as owning most of the community’s assets. generations facing a greater tax burden (fis- cal inequity) or a greater level of public debt In short while the intergenerational reports than we do? As she observes, ‘These ques- have had a lot to say about fiscal sustainabil- tions are not fiscal nor technical economic ity, they have said nothing about intergenera- ones, but philosophical questions which en- tional equity. Each of the reports ignores ex- gage ethical concerns about distributive fair- isting intergenerational inequities as well as ness’. That problem characterises the other two future likely inequities. This owes much to the reports. Other commentators have also noticed fact the fact that the Australian reports have this absence. Tapper (2002) noted that the first not emulated the kind of generational account- intergenerational report offered only a slender ing which is the ‘normal’ framework in most framework at best for addressing issues of fair- international intergenerational policy research. ness across the generations. As Tapper (2002) Australia decided not to use the generational noted the ‘welfare state’ has never attempted to accounting approach pioneered by Auerbach address or measure, or indeed aim at, producing et al. (1991, 1994, 2004; see also Raffelhuschen intergenerational equity. Coombs and Dollery 1999:168). The three intergenerational reports (2004b:460) concur, observing that: ‘A surpris- have nowhere analysed public policies in age- ing feature of this nascent literature is the fact cohort or generational terms. This absence has that it has focused heavily on long-term fiscal made it certain that this issue could not be ad- sustainability but overlooked the importance of dressed in Australia. In spite of the fact that intergenerational equity’ (see also Miller and Australia has produced three intergenerational Siggins 2003). reports, the question of intergenerational equity Yet the situation is worse than these com- still remains to be addressed. mentaries have suggested. Firstly given that the Our second large point is that there is no dis- focus is ostensibly on intergenerational mat- cussion of the possible principles for acknowl- ters, it is odd that the perspectives and interests edging or addressing intergenerational equity of one generation, namely young people have in ways which explicitly address the interests simply been omitted from the Australian pol- of those who are yet to be born, but whose icy discussion to date. This is quite an omission existence is being implicitly factored in each given the current size of the age cohort for ex- of the reports. In short, each reports fails to ample aged 12–25, to say nothing of the size of ground their projection of concerns in a con- this age cohort in say 2040 or 2050. Little at- ceptually rigorous idea of intergenerational eq- tention has been given to the current socioeco- uity grounded in a defensible conception of nomic issues that young people face that cause justice. them hardship and suffering. Descriptions of the looming ‘demographic problem’ have sim- ply not addressed the needs or interests of cur- Justice and Intergenerational Equity rent cohorts of young people, except to observe in passing that ‘they’ are not going to be able Each intergenerational report implies that to fund the costs of an ageing population. Per- maintaining Australia’s current low tax rates haps for that reason and running hard against is to be preferred to any increases in taxes
C 2011 The Authors Australian Journal of Public Administration C 2011 National Council of the Institute of Public Administration Australia Bessant, Emslie and Watts 147 either now or in the future, so as to address the sustainability needs to dig deeper and to find projected fiscal deficit. Other approaches are ‘the deeper conceptual and theoretical founda- preferred such as a commitment to continued tions of justice, and intergenerational justice in economic growth (to generate additional particular’. Without necessarily endorsing any revenues), combined with encouraging private of them Thompson says we need to consider at sector funding and continued restraint in gov- least three broadly defined approaches to dis- ernment expenditures. As Thompson (2003, tributive justice. Each takes a liberal framework 2004) has pointed out, that a more fundamental as their starting point in addressing the question question has been avoided: what if anything is of intergenerational justice. It is generally held problematic about future generations facing a that only one of these positions has much to of- larger tax burden or a greater level of public fer to the development of a theory of intergen- debt? As Thompson (2003:3) argued, ‘[to] erational justice, though as we briefly indicate, merely assert that intergenerational fiscal this seems not to be strongly warranted. inequity is something to be avoided’, is to assume a position that requires argument, and it will require an exercise that goes to questions Theories of Justice of justice. The fact that the intergenerational reports fail The first is the ‘mutual advantage’ conception to explicitly defend the assumption that inter- of justice. This defines a just society as one generational inequity is a problem, does not where each person – who is assumed to be both mean that the problem of intergenerational eq- rational and self-interested – derives maximum uity is thereby avoided. The assumption that in- benefit like wealth or access to valued resources tergenerational inequity is a problem requires they can from voluntary cooperation, and that us to ask: on what basis do we understand there the result of this process is just (eg, Gauthier is a problem. If intergenerational inequity is a 1986). Given that large numbers of people, for problem then we are required to identify the example, gamble heavily, rely on astrology or principles of justice that it breaches so that act altruistically, the assumptions about human more positively governments can develop poli- conduct that supports this approach do not seem cies that promote just outcomes. Clarifying the to sit on a robust empirical foundation. principles of justice that are at stake in the re- The second approach is the ‘desert’ or ‘enti- lations between different generations will en- tlement’ approach to justice (eg, Nozick 1974). able governments to better promote intergener- It offers a libertarian account of rights and jus- ational equity. tice that establishes the rightness of owning Thompson (2003) is right to argue that cer- property in ways that can be unequal but is tain ideas about justice are implied in the in- nonetheless ‘just’ by appealing to a set of prin- tergenerational reports. Our ideas of justice ciples. For Nozick, whether any given distri- are best framed as the answers we give to the bution of property or resources is just depends question: ‘what do we owe to others?’(Scanlon on how the distribution came about. If it came 2000). As Thompson points out, the intergener- about in accordance with the rules of acqui- ational reports rely on two ethical ideas about sition, transfer and rectification, then it is not intergenerational fiscal equity, namely pursu- unjust, however unequal it may be. For Nagel ing a good and sustainable quality of life, and (1975) Nozick’sargument is too thin to be cred- applying a ‘benefitter-pays’ principle of fair- ible. This is because it is neither able nor willing ness.5 In both cases as she argues, there are im- to acknowledge the empirical and ethical prob- plicit ideas about fairness operating, but these lems created by the substantive inequalities that are neither elucidated nor defended. That is, characterise most societies. neither the goal of achieving future well-being, At the least that problem is acknowledged by nor the ‘benefitter-pays’ principle are defended the third approach that seeks to justify an egal- as goods in and of themselves. Thompson itarian approach. This is the ‘fair outcomes’ (2003:6) argues that any discussion of fiscal approach to justice exemplified by Rawls
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(1971). Rawls’ famous account of justice says may be for the simplest of reasons like the that a just society is one in which the relevant in- idea that parents are generally disposed to care stitutions and relations produce outcomes that about their children’s well-being and to make its members regard as fair. It will be recalled sacrifices for them). Sunstein (2007:269) has that Rawls attempted to construct a procedu- extrapolated the Principle of Intergenerational ral and rational model of justice based on what Neutrality from Rawls’ theory. Does this offer a he called ‘the original position’. This involved useful way of thinking about intergenerational people making a ‘fair choice’ based a commit- justice in ways that might be useful for policy- ment to just treatment, while assuming ‘igno- makers? rance’ about the people whose lives would be affected by their decisions. The idea of the ‘veil The Principle of Intergenerational of ignorance’ presumed that: Neutrality ... no-one knows his place in society, his class position or social status, nor does anyone know For an adequate discussion about intergenera- his fortune in the distribution of natural assets tional equity we need to reinstate the perspec- and abilities, his intelligence, strength, and the tives, interests and needs of currently living like. I shall even assume that the parties do not young people as well as yet-to-be born cohorts know their conceptions of the good or their spe- of young people. Secondly what ethical prin- cial psychological propensities. The principles ciples might we rely on to establish whether of justice are chosen behind a veil of ignorance it is a good thing for future generations to be (Rawls 1971:11). required by policy-makers today to be respon- As for the two key principles of justice, Rawls sible for a larger tax burden or a greater level pointed first to ‘the difference principle’ that of public debt? As an initial step we might con- allows for inequalities in the distribution of sider using the Principle of Intergenerational goods when and only if those inequalities ben- Neutrality. efit ‘the worst-off members of society’. The As Sunstein (2007:269) explains, this princi- other principle is the idea that offices and posi- ple proposes: that ‘the decade of one’sbirth has tions ought to be open to everyone under condi- no moral relevance any more than does one’s tions of equal opportunity. Rawls believed that skin color or sex’ when addressing the question the difference principle was a rational choice of justice or fairness. This principle helps us to for participants in the ‘original position’ for think about equity across generations, includ- one key reason. He assumed that each member ing equity for those not yet born, in ways that of society had an equal claim on their soci- do not create invidious problems. To establish ety’s goods. Natural issues like genetic talent why this matters we need to consider briefly the or bodily ability should not affect this claim, problem of inequity or unfair treatment. so the right of any individual, before further The significance of inequity can be appre- considerations are taken into account, must be ciated by using a real, or imagined, difference to an equal share in material wealth. Implicit in between one person or group and another to Rawls’ approach was the idea that the genera- justify unequal treatment that disadvantages the tion one belonged to was irrelevant. As Rawls person or group at whom that treatment is di- (1999:254) put it the veil of ignorance means rected. How this works can be seen when one that people: group of people who are equally skilled or tal- ented or who fulfill the same roles as others, ... do not know to which generation they belong do not get the same treatment or rewards be- or, what becomes the same thing, the stage of cause another dominant or powerful group use civilization of their society. a factor like age or gender to justify unequal As Laslett and Fishkin (1992:20) have noted, treatment. Conversely another form of inequity Rawls’ Theory of Justice ‘marked the proper can result from using a principle of treating initiation of obligations to future generations as everyone as if they are the same. Denying a topic of salient philosophical interest’. (This that some differences matter and need to be
C 2011 The Authors Australian Journal of Public Administration C 2011 National Council of the Institute of Public Administration Australia Bessant, Emslie and Watts 149 compensated for can create inequities. A dec- address environmental issues like global warm- laration for example that all citizens should be ing or water resources, but fail to consider those treated equally can mean that certain differ- who will be born in 2030 or 2050 by treating ences like physical disabilities are not acknowl- those people as worthy of less concern by virtue edged which leads to those with disabilities be- of their birth date. ing disadvantaged because they cannot access The Principle of Intergenerational Neutral- buildings or valued services like public trans- ity entails that if we take the idea of justice port or education. seriously then we need to take into account There is also the question of when is it ap- the interests of generations who have not yet propriate to decide that the relations between been born. However the Principle of Intergen- different groups are best described as a differ- erational Neutrality shares with Rawls’ larger ence and when they are unfair. Consider the conception of justice, the problem that it does question of age cohorts. We now have a situa- not provide a contentful basis for determining tion where older people consume more medical either the facts of the case that need evaluation and hospital services. Is this a case of difference or the basis for adjudicating between compet- or one involving unfair or discriminatory treat- ing claims about the goods that should be pur- ment? There is a case for saying that the heavy sued – or the bad that should be avoided (Sandel investment of capital in health care facilities 1998). and services favoring older people does not re- Further the principle challenges the idea that flect deliberate or prejudicial decisions to favor it is acceptable to treat people differentially on older people. Rather, it reflects the fact that the the basis of their age is also a weakness. On the health care claims of older people are greater one hand we can agree that it is unacceptable than those made by younger people. That is, the to use identity markers like gender, sexuality, difference in allocation of resources reflects the or religion to discriminate against people. The fact that there is more extensive ill-health and use of markers like age to distribute valued re- morbidity among older people. Or consider the sources unequally is destructive of many valued historical fact that a century ago the average ends and goods. Significant inequities or in- life expectancy for men was 49 years. Today justices undermine political, social and ethical the average is say 79 years. While that differ- values like freedom, good health, and human ence reflects a range of social, policy based or freedom. However where there are blatant in- technological changes (ie, better medical treat- equities which work by treating people’s age, ment, etc), would we say it is unfair? Is this a level of ability, gender, income level, sexuality, case of ‘difference’ that is grounded in history or religion to discriminate against them we may and not something we would describe unfair need to practice ‘reverse discrimination’ which treatment? works by acknowledging those identity mark- This Principle of Intergenerational Neutrality ers and the ways that inequalities are attached has been widely discussed (Weiss and Brown to or distributed by using these markers. 1991; Portney and Weyant 1999; Howarth Here we also see the characteristic prob- 2005; Sunstein 2007). It proposes that the cit- lems attached to an excessive regard for ab- izens of every generation be treated equally. stract rationality, especially when it is linked In environmental policy, the field where this to the search for a singular or monistic princi- idea has been discussed most widely, it trans- ple of justice. Against the preference favoring a lates into the protocol idea that present gen- monistic principle of justice, we do not believe erations are ‘obliged to take the interests of we need a single principle on which to ground their environmentally threatened descendents a view of justice.6 While this is not the place to as seriously as they take their own’ (Sunstein argue this here, we argue that we live in a world 2007:13). The Principle of Intergenerational where there are incommensurable and multiple Neutrality suggests there is a problem if peo- ways of evaluating the elements that constitute ple born for example in 1950, and who now a good life or that inform our idea of justice or make policy decisions designed for example to fairness (Sen 2009).
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What we need is a defensible account of how We need to be able to assess the extent to we might carry out an empirical and norma- which people are actually capable of freely tive assessment of the extent to which a given choosing and then pursuing those goods which society either now or in the future sustains so- they value. This takes into account being free to cial fairness. That is we need some capacity value different ends – for example, being free to establish both descriptively and normatively to choose between alternative conceptions of how we can know about the way social re- the goods that we want and then being able to sources and benefits are currently distributed pursue those valued ends. Hence his insistence in a given society if we are also to engage the on the capabilities people have because a com- question of intergenerational justice. If we are prehensive view of freedom is not interested to do this we need to start with a conception in the culmination outcomes, but in the whole of freedom-as-capability (Sen 2009). In effect process of choosing and being able to pursue if we are to set up the capacity to establish those ends. Hence too an interest in the whole intergenerational justice, we need to know a of a person’s life and not: lot about the extent of current intergenerational ... equity and link this to quite detailed exercises just on some detached objects of convenience, such as incomes or commodities that a person in intergenerational accounting. Although we may possess, which are often taken, especially cannot detail this as fully as we would like in economic analysis to be the main criteria of here, we argue there is value in identifying human success (Sen 2009:233). and measuring social well-being based on Sen’s (2009) freedom/capabilities approach in ways Sen emphasises that this requires us to focus on that can work in a framework of generational more than just the means of living and rather to accounting. attend to the actual opportunities of living. For this reason Sen (2009:253) rejects any proposal to use income or wealth as a simple or singu- Sen on Freedom-as-Capability lar measure of the ‘good life’ or of ‘progress’. Sen says that resources like income or educa- Sen (2009) avoids the problems of Rawls ab- tion may be used advantageously – or not – stracted account of justice by focusing on an in a variety of ways because of differences in ethic of freedom. Sen’s starting point is to ask personal characteristics, people’s physical en- how can we evaluate aspects of a person’s life vironment, their social relationships and their or those of a community against an idea of culture. This affects their capacity to use in- justice? For Sen argues any assessment ought come and other resources to avoid poverty. This to be based on the extent to which people are framework opens up a rich new approach (al- free to choose and then to pursue the goods ready being trialed in France since 2009) to a they value. To have freedom firstly is to have framework of social accounting directly rele- opportunities to pursue our objectives, namely vant to any government serious about develop- the goods that we value. This is the ‘oppor- ing policies that have a chance of securing both tunity’ aspect of freedom. What Sen calls a the human goods and the kinds of human re- ‘comprehensive outcome’ approach to freedom lations enabling all of their citizens to flourish takes into account people’s capacity to choose (Stiglitz, Sen and Fitoussi 2009). between various valued ends, and then to be As Stiglitz, Sen and Fitoussi (2009:12) ar- able to pursue those ends. Secondly freedom gue, it is time to shift the emphasis away from ought to mean that we are free from unwar- ‘measuring economic production to measuring ranted constraints imposed by others. (This is people’s well-being’. Their interest is in ‘as- a ‘process’ approach to freedom). In short, Sen sessing whether levels of human well-being can accepts the need to acknowledge a plurality of be sustained over time’ understanding that this values, while being mindful of people’s capac- ‘depends on whether stocks of capital that are ity to choose freely and being able to pursue important (natural, physical, human, social) are the valued ends. passed on to future generations’ (Stiglitz, Sen
C 2011 The Authors Australian Journal of Public Administration C 2011 National Council of the Institute of Public Administration Australia Bessant, Emslie and Watts 151 and Fitoussi 2009:11). What they have in mind tem by paying their contribution to state insur- is a capacity to identify and assess levels of ance schemes). The overall true inter-temporal well-being within a given community and how debt is assumed to be financed by the net tax they change over time. They want to be able to payments of all future generations. In reality assess the inequalities which mean some people how this burden will be actually distributed face excessive disadvantage while others enjoy is of course unknown because it will depend excessive privilege. The elements of well-being on unknown future policies. If possible as that need to be assessed include material living Raffelhuschen (1999:168) explains, this can be standards, health, education, personal activities calculated to take account of age and gender including work, political voice and governance, over the remaining lifetimes of representative social connections and friendship, the quality individuals with the help of relevant micro data. of the environment and the various kinds of in- To make this exercise possible European gen- security. This approach to well-being we argue, erational accounting treats all non-age specific is entirely compatible with a generational ac- government (consumption) expenditures as if counting framework: in effect an enlarged ap- they are distributed uniformly over the life- proach to ‘measuring’ well-being also opens up cycle while government consumption is allo- the opportunity to engage in intergenerational cated equally to all generations thus reducing accounting. their net tax burden. Generational accounting is valuable firstly because it recognises that the traditional bud- The Value of Generational Accounting get accounting preoccupation with cash-flow deficits and the size of surpluses/deficits is The ‘generational accounting’ framework was unable to identify factors like future liabilities first developed by Auerbach et al. (1991) (see of tax based retirement-based income schemes also Auerbach et al. 1994; OECD 1997; Bonin and so is ‘unreliable as indicators of fis- 2001).7 As developed in Europe, generational cal sustainability’ (Raffelhuschen 2002:75). As accounting involves calculating the present Raffelhuschen (2002:76) explains: value of net tax payments (ie, taxes paid mi- nus transfers paid for example from pensions ...generational accounting reports for every gen- and income support schemes) and presenting eration alive (or even unborn) the remaining net this in a present value and a rest-of-life cal- payments to the budget and distribute the result- ing burden or surplus equally on all future gener- culation for every cohort of people presently ations ...it suggests that there are no free lunches alive and/or born in the future (Raffelhuschen that is expenditures in the future have to be paid 8 1999; Gallagher 2006). Generational account- for either by present or future generations. In ing calculates the ‘residual’ required to bal- short, it takes a long term view of budget making ance the governments’ inter-temporal budget and reporting. constraint. This entails adding-up all current and future generations net payments (which in Secondly the value of generational accounting Europe are typically negative) and subtracting lies in its ability to indicate the nature of the (adding) the explicit net debt (wealth). This burden passed from current to future genera- enables a calculation of the fiscal gap with tions based on the assumption that contempo- respect to those demands on future budgets rary fiscal policy settings do not alter typically which would ensure sustainable fiscal policy. as ‘set’ in a given base year. It is therefore This allows for a reasonable estimate of the true possible to provide assessments of current in- government debt or wealth for the base year tergenerational ratios of expenditure and rev- since it makes explicit those government liabil- enue effects for existing age cohorts as well ities not included in the standard debt statistics as construct future hypothetical assessments of published by governments. (These liabilities the relative ratio of burdens borne (eg, by taxa- may include entitlements to pension benefits tion) versus benefits received (eg, income sup- that young people get in a pay-as-you-go sys- port) by existing or future age cohorts. This can
C 2011 The Authors Australian Journal of Public Administration C 2011 National Council of the Institute of Public Administration Australia 152 Accounting for Future Generations June 2011 reveal serious degrees of unfairness in the ciently the political consequences arising from present, as well as point to possible patterns of the capacity of generational accounting to shed unfairness into the future subject to the severe light on the fairness of Australia’s current tax caveat about all such forecasts. system – which a generational accounting Finally generational accounting can illumi- model, for example, would generate. nate the consequences of maintaining exist- ing fiscal policies along with their social dis- Conclusion tributive effects. There is a degree of political volatility associated with the discovery that a Wehave argued that like Canada, the Australian country’s current highly inequitable tax system approach to intergenerational equity, as distinct is not fair and likely to lead to non-sustainable from intergenerational fiscal sustainability, fiscal policies over the long haul. In Australia has been largely non-existent (Foot and Venne successive governments, and the political es- 2005). In spite of efforts over the past few tablishment have long refused to acknowledge decades by a number of well-known writers the lack of equity in the total package of (eg, Laslett and Fishkin 1992; Bengtson and Australia’s taxation policies, let alone question Achenbaum 1993; Marmor, Smeeding and the adequacy of that system to sustain valued Green 1994; Thompson 2003, 2004) to address social functions or enable what has been called intergenerational equity, and to identify the a ‘fair go’. These are issues that Australian gov- principles of justice when considering future ernments have not wanted to be described or generational relations, these fundamental discussed: generational accounting threatens to dimensions have been missing in action in enable both. Australia. To date the Australian government has We argued that the current framing of the avoided using a generational accounting frame- problem privileges certain age groups at the work to produce its intergenerational reports. expense of others and runs the risk of under- The fact that Australia has chosen not to follow mining desirable forms of generational inter- the widespread European practice of genera- dependence and fairness. If this agenda setting tional accounting has been a major failing of activity proceeds unchallenged, we are likely to Australian intergenerational reporting. As one see policies which will be inimical to any de- official associated with the Retirement and In- fensible conception of justice and more specif- come Modeling Unit (RIM) the unit responsi- ically intergenerational equity. Like Thompson ble for the forecasting in the intergenerational (2003:2, 2004) we argued that the intergener- reports has indicated,9 RIM had not had re- ational reports have avoided any engagement quests for generational accounting either from with ethical concerns about distributive fair- Treasury officials or ministers (or from the ness and justice. Commission of Audit (1997) which had used In arguing that the omission of intergenera- RIM data in 1996). Further RIM had accepted tional equity is a serious problem we examined the Howard government’s preference for data the value of deploying the Principle of Inter- which related only to expenditure programs de- generational Neutrality which requires existing signed to reveal a ‘time dynamic’. That offi- policy-makers to consider the consequences of cial noted that RIM was also worried about the their decisions for future generations. While ad- ‘undue sensitivity of the generational account- dressing the challenges of the projected demo- ing estimates’ and the ability to give ‘meaning graphic shift, the Principle of Intergenerational to results’. Apparently some officials (eg, in Neutrality is not able to take into account equity the Department of Finance) asked about the as well as the needs, interests and perspectives approach, but according to this official the of particular age cohorts. Including these con- Howard government was happy with the pol- siderations in descriptions of ‘the problem of icy and fiscal relevance of the program projec- the demographic shift’ is critical if attention tions. While we ought to treat this explanation is to be given to the question of justice. We with respect, it does not acknowledge suffi- also made the case for the use of generational
C 2011 The Authors Australian Journal of Public Administration C 2011 National Council of the Institute of Public Administration Australia Bessant, Emslie and Watts 153 accounting in Australia. Linking generational vices Directive (PSD) to GDP ratios in excess accounting and forms of practical reasoning of 100% (eg, Erlanger 2010). can play a role in ensuring generational inter- 5. This is the principle that people securing a dependence and the capacity of different gener- present benefit ought to pay for it because it is ations to live together in ways that are mutually unjust and unfair to expect the next generation supportive, needs to be put on the agenda. Ma- to have to pay (eg, by higher taxation rates) for jor policy agencies need to give urgent consid- the aged care, health care, and pharmaceutical eration to the idea of taking intergenerational subsidies of the present generation. accounting seriously. 6. We note this principle runs through philos- ophy from Bentham and Kant to Rawls (1971) Endnotes to Nozick (1974). 1. The authors would like to acknowledge the 7. A standard approach to intergenerational ac- value of the two anonymous referee’s reports in counting involves calculating the present value revising this article for publication. of total net tax payments to the government over the remaining lifetime of a cohort born in a spe- 2. Approximately 27 countries are now car- cific year (where net tax payments are defined rying out regular intergenerational reporting as taxes paid minus transfers received). This exercises. These countries, mostly European, present value of net tax payments is labeled do so every 12 to 18 months in contrast with the generational account. The intergenerational Australia which does its intergenerational re- distribution of the net tax burden is analysed porting every five years (Commonwealth of by comparing the generational accounts of dif- Australia 2010:87). ferent cohorts of the population. Most typically 3. In Europe, for example, the European this is done by comparing the generational base Union (EU) relies on indicators like account of a newborn in the base year with fu- ‘S1’(defined as ‘the size of the permanent ture generations ie, those born after the base budgetary adjustment necessary for the gross year – and most typically just one year after the consolidated debt to reach 60% of GDP in base year. 2050’) and ‘S2’ (defined as the ‘size of the 8. The standard approach to generational ac- permanent budgetary adjustment necessary to counting can be represented in a more formal fulfill the inter-temporal budget constraint’) way thus: (European Commission 2007). In each case these definitions rest on any number of as- PVGt = NWGt + PVLt + PVFt. sumptions when forecasts are made, for exam- where ple, that growth and interest rates stay constant PVGt = Present value of prospective purchases over time or that such postulates as ‘the law of of goods and services motion of the public debt ratio’ hold true. NWGt = Net wealth of the government 4. This problem is not necessarily to be con- PVLt = Present value of future aggregate net fused with the ‘discovery’ of a ‘sovereign debt tax payments by generations living at time t crisis’ in Europe during 2010 with claims that PVFt = Present value of future aggregate tax government budget deficits as a share of rele- payments by future generations born after time vant GDP especially in Greece (13.6%), Ireland t (Gallagher 2006). (14.3%), the United Kingdom (12.6%), Spain 9. Email conversation, 4 May 2010. (11.2%) and Belgium (9.4%) were at politi- cally unacceptable levels. Another dimension References of this problem was the ‘discovery’ also made that some EU member states had very high Ablett, J. 1996. ‘Intergenerational Accounting-An levels of public sector debt (to GDP) chiefly Australian Perspective.’ Review of Income and Greece, Italy and Belgium with Payment Ser- Wealth 42(1):91–105.
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