The Federal Treasury has recently released the “2021 Intergenerational Report,” forecasting a smaller population growth, rapidly ageing citizens and slower economic growth over the next 40 years to 2060-61. The Australian economy will continue to be debilitated by the COVID-induced shockwaves, hitting Federal budget bottom lines, employment and migration in the succeeding 40 years.
As part of the Charter of Budget Honesty, the intergenerational report is handed down every five years to prognosticate the long-term impacts of the Federal Government’s social and economic policies.
Australian population will reduce markedly over the next 40 years. The 2015 Intergenerational Report projected Australia’s population would grow to 40 million by 2054-55. This report (2021 Intergenerational Report) predicts it will reach 38.8 million by 2060-61.
This means Australian economy will be smaller than what was forecast in 2015. In 2020-21, the population growth was 0.1% due to restriction on migration in response to COVID-19 pandemic. It is expected to recover to 1.3% per year by 2023-24, but it will then gradually fall to 0.8% per year by 2060-61.
Australia’s population growth has been driven by net overseas migration. In the decade ended 31 December 2020, the net migration accounted for 60% of the population growth in Australia. This is expected to increase to 74% by 2060-61.
Australians are expected to live longer. On average, men born in 2060-61 are expected to live to 86.8 years, compared to 81.4 years for people born in 2020-21. On the other hand, women born in 2060-61 are expected to live to 89.3 years, compared to 85.4 for those born in 2020-21.
The ageing population will reduce the labour force participation rate from a record high of 66.3% in 2021 to 63.6% by 2060-61.
The 2021 Intergenerational Report predicts that 23% of the Australian population will be over 65 in 2060-61 which is 16% in 2020-21. The ratio of people of working age to those at retirement age will continue to reduce.
In the early 1980s, there were more than six people working for every Australian aged over 65. In the early 2010s, that ratio has decreased to just four working Australians. By 2060-61, it will be less than three working age people to support a retired Australian.
In the next 40 years, Australian Federal budget will be under a major pressure from health and aged care spending. As a share of the government spending, health care outlay will spike from 19% in 2021-22 to 26% in 2060-61.
In dollar terms, the health spending will increase from $3,250 per person in 2018-2019, to $3,970 in 2031-32 and then to $8,700 in 2060-61. As a share of the economy, the aged care spending alone will nearly double from 1.2% of the gross domestic product (GDP) in 2021-22 to 2.1% by 2060-61.
Australian economy will grow at a slower pace over the next 40 years than it has over the past 40 years. The GDP is projected to grow at 2.6% per year over the next 40 years, compared with 3.0% over the past 40 years.
The budget is expected to remain in deficits at least another 40 years, thanks to Covid-19 pandemic. In 2020-21, the Federal budget was in deficit with 7.8% of GDP which is projected to be 2.3% of GDP by 2060-61.