In 2002, Professors Sinn and Uebelmesser examined the voting implications of the German ageing population in relation to necessary pension system reform (study appears in European Journal of Political Economy). They found that "until 2016, a reform can be democratically enforced. After 2016, Germany will be a gerontocracy". Many eyes will be on the fatherland in the near future to see how this prediction plays out.
Australia's demographic shifts are less dramatic than much of Europe, and our pension system less vulnerable to population ageing. OECD estimates show that between 2010 and 2040, public pension expenditures will rise from 3.6 per cent to 4.7 per cent of GDP – somewhat modest compared to 10.5 per cent to 12.4 per cent in Germany or 11 per cent to 16.5 per cent in Belgium. Nevertheless, our public finances, especially healthcare, are far from immune to the Baby Boomers' retirement.
Given the existence of an explicit understanding about an intergenerational contract in democracies, there lies a clear incentive problem when the proportion of voters who have a low remaining life expectancy, becomes too large.
Octogenarians who know that they only have a limited number of years left often simply vote for candidates offering the most generous pensions and other complementary public expenditures. This is understandable and indeed rational, but this is with scant regard for exactly who is paying the taxes to fund it – much less who will pay higher future taxes to fund the interest on debt that those contemporaneously unfunded expenditures necessitated.
This problem worsens when a demographic event (as the post-WWII baby boom will soon do) produces a glut of people of that age. Some wasteful and distortionary symptoms of this event have already emerged, including large swathes of vacant properties in our major cities despite a colossal housing unaffordability crisis ("Empty Nests in Melbourne", December 9, 2015).
Analogously, much was said about intergenerational fairness in the taxation-reform debate during 2015. All reform proposals – reducing superannuation tax breaks, repealing negative gearing, GST hikes, removing university fees caps – all have significant age-profile redistributional implications, just as for the corresponding income and wealth profiles.
These points have been highlighted frequently by John Daley at the Grattan Institute (among others) in various reports and media contributions.
What is needed to redress the balance is some practical, low-cost, and politically tractable method of making the age-distribution of the voting public younger, which will better match optimal intertemporal (consumption and taxation) preferences to better fulfil this intergenerational contract. Governments, too, need to be shown the virtues of targeting their policies more at future taxpayers.
While this sort of debate often stokes intergenerational conflict, young citizens not yet old enough to vote are often well informed about effective governance. They should be listened to as they are equal stakeholders in the nation and more than equal stakeholders in the future of the nation (they will also drive most of the much-needed innovation in coming decades).
Bill Shorten's recent suggestion (not for the first time) of lowering the voting age from 18 to 16 has some merit in this regard, but is unlikely to attract enough support to become reality in the foreseeable future.
We propose that instead, voting is made optional for people after they reach retirement age, while compulsion remains for everyone else down to 18 years. This idea is likely to garner a lot more support – even from those in the very cohort who stand to be affected.
Many elderly Australians, who struggle operationally to get to the polling booth on election day, would no longer have to worry about receiving a cruel fine in the mail – not to mention those who simply do not like having to vote. Many others would, for the sake of their children and grandchildren, agree about the need to offset the age-profile distortion of government influence.
Making voting optional for elderly Australians can be seen as a democratic way of correcting the political implications of demographic skews. By better balancing the intergenerational contract, the proposed arrangement would lead to public policies that are fairer, more sustainable, and conducive to future economic growth.
Liam Lenten and Jan Libich are both senior lecturers in economics at La Trobe University.
This opinion piece was originally published in the Australian Financial Review on 18 February,
read more: http://www.afr.com/opinion/elderly-will-rule-but-why-should-they-vote-20160218-gmxarw#ixzz40ZfySH5i
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