The Government has released the 2015 Intergenerational Report on how current, historical and proposed policy drivers would shape Australia over the next 40 years.
Intergenerational Reports are produced every five years to assess the long-term sustainability of current Government policies and how changes to Australia’s population size and age profile may impact on economic growth, workforce and public finances.
In releasing the fourth Intergenerational Report today, Treasurer Joe Hockey presented a hopeful but cautious picture of Australia’s growth prospects. Broadly, he highlighted increased participation and productivity as the necessary drivers of prospective economic growth.
Population, Participation, Productivity
The Report found an increased migration intake would bring benefits for the participation rate, necessary to support our projected population of 39.7 million people in 2054-55. With the projected life expectancy to rise to 95.1 years for men and 96.6 years for women, increased participation and productivity are necessary to sustain our dependent ageing population.
Mr Hockey noted that government today is spending around $1.1 billion daily, while collecting only $1 billion in receipts. The $100 million revenue shortfall is clearly unsustainable.
Social welfare spending has historically been an area of fiscal pressure, with 55% of the federal budget currently spent on transfer payments, health and education. Spending on the aged pension is set to increase from almost $2,000 per person in 2014-15 to $3,200 in 2054-55 in today’s dollars. The NDIS will cost 1.1% of GDP, compared to 0.1% now. Further, government health spending is projected to rise from 4.2% of GDP in 2014-15 to 5.5% in 2054-55.
The proportion of working aged people (aged 15-64) compared to those over 64 is also falling. From 7.3:1 in 1974-75 to 4.5:1 in 2015, the proportion will drop to 2.7:1 by 2054-55. Crucial to mitigating this drop will be encouraging female workforce participation, which has risen from 46% to 66% in the last 40 years, and is set to rise to 70% by 2054-55.
In regards to productivity, the Treasurer was upbeat, noting that, on historical trends, productivity should increase by 1.5% annually over the long term. However, GDP should grow at 2.8% over the next 40 years compared to 3.1% in the previous 40 years.
The way forward
Taken together, population, participation and productivity shape the economic growth projections in the Report. Mr Hockey has stated that the Government’s proposed budget strategy should put the budget back onto a sustainable footing in the medium term.
A comparison of fiscal policies (proposed, current and historical) shows that under policy settings prior to the 2014-15 budget, net debt would reach 122% of GDP by 2054-55. Under currently legislated plans, the figure is 60%. Under the Coalition’s proposed policies, government debt would be eliminated by 2031-32.
The Report is optimistic about Australia’s prospects, with the caveat that conservative fiscal measures must be employed. Mr Hockey believes that a rising and sustainable quality of life is possible for all Australians, if productivity and participation improvements can be achieved.
Further information
You can read the Intergenerational Report Overview here, or the full Report here.
