Population ageing, taxation, pensions and health costs, CHERE Working Paper 2007/10

.⅛ UNIVERSinOF

<<5 Technologysydney

Abstract

This paper argues against the policy position that begins with a doomsday scenario of
publicly provided health insurance and pension systems threatened with collapse under
the stresses imposed by population ageing, and instead contends that the threat of crisis in
these systems is policy driven. The central thesis of the paper is that a range of policies
lead to the creation of an ageing crisis by inhibiting the efficient reallocation of female
labour from the home to the market in response to the decline in fertility. The analysis
focuses on family support policies that create large effective tax burdens on female labour
supply, by means testing the support on family income, or selectively on the second
income. Examples include Family Tax Benefit Part A and Part B, the Medicare Levy and
the Medicare Safety Net. The analysis draws on household survey data to show that
female labour supply is strongly positively associated with household saving, the
purchase of private health insurance and spending on family health generally. Policies
that inhibit female labour supply therefore have the effect of reducing the tax base for
funding public pensions and health care, while simultaneously reducing the capacity of
families to fund them privately.

JEL: D19, H13, I18, J26

Keywords: life cycle, health costs, pensions, household taxation

Acknowledgment

The research was supported by an NHMRC Program Grant

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