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.
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.
Productivity 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.
Australia faces an ageing and growing population, with escalating pressures on the health system. This will place substantial pressure on Australia’s economy, living standards and government finances over the next 40 years. These are challenges affecting developed countries around the world. Population ageing reduces the proportion of working age people supporting people aged over 65 years. The rate of improvement in average living standards is projected to fall, placing pressure on Australia’s capacity to fund the spending pressures associated with an ageing population, particularly in terms of health spending. Australia’s population will continue to grow over time, though at slightly lower rates than experienced over the past 40 years. This will put pressure on infrastructure, services and the environment, but the growth also assists in managing the pressures of an ageing population by providing the skills and innovation needed to underpin continued economic growth.
Decisions taken in the near term will impact on the wellbeing of future generations. Productivity-enhancing reforms, particularly through nation building infrastructure and improving the skills base, will grow the economy, improve living standards, and partly offset the fiscal pressures of ageing. With an ageing population, productivity growth is the key driver of future growth prospects. Reforms that reduce barriers to participation will also lift growth and reduce future pressures.
To understand more on the economic impact of Australias Ageing Population here is an abridged review of the Intergenerational Report 2010.