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Demographic and Social Change:
Implications for Education Funding.
Appendix III: GDP, living standards, productivity and prices
The projections were prepared using 1995-96 prices as
the basis for preparing projections of real expenditures. An estimate of
Gross Domestic Product (GDP) for the income measure in 1995-96 in current
prices was obtained from ABS, National Income Expenditure and Product,
Australian National Accounts, 5206.0. Estimates of growth in real GDP (A)
for the period 1996-97 to 2000-01 was derived from Table 4, Commonwealth
Budget Paper No. 1, Statement 2 Economic and Fiscal Outlook, 1997-98.
Estimates of growth in nominal GDP for the period 2001-02 to 2020-21 were
obtained from the Retirement Income Modelling (RIM) Taskforce. These
estimates were based on an assumption that growth in the Consumer Price
Index (CPI) was 2.5 per cent per annum over this period and this figure
was used to derive growth in real GDP.
RIM estimates of growth in nominal GDP were based on
a set of consistent assumptions about growth in prices, labour
productivity, average hours worked, unemployment, labour force
participation and population. RIM estimates were based on assumptions of
growth in labour productivity of 1.25 per cent per annum over the longer
term and that the unemployment rate fell to 6 per cent by 2002. (Note that
RIM have subsequently revised their assumption about growth in labour
productivity to 1.5 per cent per annum since projections were supplied for
the purposes of this paper.)
Our base case scenario assumes that education, social security and welfare
and labour market and employment expenditures increased in line with
living standards or real GDP per capita. However, a different assumption
was used for health expenditures given that historically over the period
1982-83 to 1994-95 real per capita growth in health expenditures has been
of the order of 2.8 per cent per annum. However, once allowance for ageing
of the population is made and the impact this has on growth in per capita
health expenditures, it was considered appropriate to assume per capita
health expenditures increased by 2 per cent per annum for all demographic
groups over the projection period.
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