A report by the Productivity Commission, An Ageing Australia: Preparing for the Future, has found that Australia is facing a major slowdown in its growth in national income per capita and productivity outlook at the same time that ageing will start to make major demands on the budgets of all Australian governments. Actions taken early can make the transition to an older Australia easier.
The Commission projects that unless ‘luck or appropriate policies intervene’, net national income per capita, the best single measure of national prosperity, may grow by only 1.1 per cent per annum over the next five decades. In the last 20 ‘boom’ years, the yearly growth rate was 2.7 per cent.
Simultaneously, the Commission estimates that population ageing will place pressures on government budgets of 6 per cent of GDP by 2060, and reduce labour supply per capita. It projects that labour force participation rates will fall from 65 to 60 per cent.
The population aged 75 or more years is projected to rise by 4 million from 2012 to 2060. In 2012, there were roughly, one centenarian for every 100 babies. By 2060, it is estimated that there will be 25 such centenarians. Meanwhile, Australia’s population will continue to grow strongly, and is expected to lie between 34 and 42 million people by 2060, with the most likely outcome around 38 million. Sydney and Melbourne are projected to each have a population over 7 million.
Peter Harris, Chairman of the Commission, said: ‘The best time to develop policies that address the inescapable implications of demographic change is while the transition is in its infancy. It is a good time to start a debate and to float creative policy options.’
The report makes no recommendations, but raises three areas for policy consideration.
The design of the Age Pension and the broader retirement system discourages an active economic role by older people, notwithstanding their far longer life expectancy. The current arrangements are at best arbitrarily linked to life expectancy. The report examines indexing the age at which people might access retirement benefits to longevity. It notes that after completing school, current generations will otherwise spend nearly half their lives not in the labour force, mostly in retirement.
Many older people are asset rich, but income poor. Innovative ways of accessing just a small share of people’s housing equity could leave them with assets that still grow, while improving services and relieving some fiscal pressures. There appear to be large potential gains in efficiency in the health care sector. A policy agenda focused on lifting productivity in the health sector could relieve fiscal pressures, while not reducing service quality.