Australia’s population forecast to grow slower and age faster than expected
Australia’s population is forecast to grow slower and age faster than anticipated and the government will be forced to use deficit spending to pay for services for the next 40 years, the latest intergenerational report has found.
The brainchild of former treasurer Peter Costello, the intergenerational report, also known as the IGR, maps out what Australia will look like in four decades’ time, barring any major upheavals or sudden policy switches and is released every five years.
In Josh Frydenberg’s IGR, due to be officially released in Melbourne on Monday, the Australia of 2060-61 is already looking different from what might have been, with the Covid pandemic blamed for a downshift in population expectations and economic growth.
“The most enduring economic effect of Covid-19 is likely to be a smaller overall population,” Frydenberg will say.
“This reflects sharply lower migration during the pandemic. The 2015 IGR projected that Australia’s population would reach almost 40 million by 2054-55.
“This IGR projects the population will reach 38.8 million in 2060-61. This is the first time there has been a downward revision of the long-term population projections in an intergenerational report.
“This means the economy will be smaller and Australia’s population will be older than it otherwise would have been, with flow-on implications for our economic and fiscal outcomes.”
That’s likely to see government policy shift to include an even stronger focus on what Frydenberg called a “well-targeted, skills-focused” migration program to offset the ageing population – which will also mean fewer people of working age.
Henry Sherrell, migration fellow at the Grattan Institute, has pointed out that previous IGRs have underrepresented Australia’s rate of migration, having predicted a decline in the rate of net overseas migration.
Given the report is used to help set government fiscal policy, underrepresenting previous growth in the Australian economy has “consequences for the assessment of the sustainability of public finances, a core purpose of the IGR”.
But Frydenberg says the data points to the pandemic affecting Australia’s population over the next four decades. An ageing population will ber one of the key challenges, with the nation already “in the middle of the biggest demographic transition of the last century”. “Many baby boomers are reaching retirement right now. This is contributing to a rapid change in the ratio of working-age people to those over 65. In 1981-82, for each person aged over 65, there were 6.6 people of working age,” he will say.
“Today, there are four working-age people. By 2060-61, there will only be 2.7. To date, we have managed this transition well. But ageing will remain a key source of pressure on our economy and on our budget over time.”
That’s because as the population ages, more pressure is put on the health and pension system. Fewer workingage people means fewer tax dollars to spread around for those services.
Meanwhile, the budget is also predicted to remain in deficit. Net debt is projected to peak at 40.9% of GDP in 2024-25, before dipping back to 28.2% in 2044-45 and then shooting back to 34.4% of GDP by 2060-61.
The first prediction is in line with the budget’s predictions over the forward estimates, which peaked at 40.9%. But the prediction of where it will sit by 2060-61 shows the government thinks it will fall by only 6.5% points over the next 40 years.
That projection lays the groundwork for the Morrison government embarking on “fiscal repair”.
“This is a projection of what could be, not what will be,” he will say in his speech.
“As outlined in our fiscal strategy, our immediate priority is to support our economic recovery and drive unemployment lower. And fiscal policy has an important role to play in this.
“But once our economic recovery is secure, we have a responsibility to again do the work necessary to restore our finances and rebuild our fiscal buffers.”
Fiscal repair means “discipline” and not austerity, according to the treasurer, who is preparing the government’s economic message in an election year.
“IGRs always deliver sobering news. That is their role. It is up to governments to respond,” an extract from his speech reads.