Australia is expected to have experienced the slowest population growth in more than a century due to pandemic restrictions on migration, according to advanced excerpts from the Fifth Intergenerational Report.
Treasurer Josh Frydenberg will release the report on Monday with a speech warning of economic pressures imposed by a population that is growing more slowly and aging faster than expected due to COVID-19.
In an address to Australia’s Economic Development Committee, Frydenberg will refer to the rush of baby boomers retiring today as “the greatest demographic transition of the last century” and contributing to a rapid change in the working ratio – from the elderly to those over 65.
The pandemic-induced drop in migration exacerbated the trend and contributed to the first downward revision of long-term population projections in an intergenerational report, with millions of residents expected less in the years to come.
In 1981-1982, there were 6.6 people of working age for every person over 65.
But that number has now fallen to four and is only expected to reach 2.7 by 2060-2061, meaning taxes on every working-age person will need to support essential services for a growing number of Australians over aged.
Although many will continue to work later in life, the aging of the population is expected to lead to declining labor market participation and means that higher productivity will need to be the main driver of economic growth in the years to come. . And that will require economic reform.
“If we want to maintain our standard of living, generate higher wages and create more jobs, Australia has no alternative but to pursue economic reforms, most of which are difficult and contested,” he said. Mr. Frydenberg in his speech.
âWith productivity responsible for 80% of Australia’s income growth over the past 30 years, the task is obvious and the choice is clear.
Productivity, as Nobel Prize-winning economist Paul Krugman put it, ‘isn’t everything, but in the long run, it’s almost everything.’
According to advanced extracts from the IGR disseminated by the Treasury, the labor force participation rate is expected to drop from a record level of 66.3% in March 2021 to 63.6% by 2060-2061 .
And long-term demographic projections have been revised downwards. The 2015 IGR predicted Australia’s population to reach nearly 40 million by 2054-2055, but the delayed IGR in 2021 predicts it will be 38.8 million in 2060-2061.
At the same time, real gross domestic product (GDP) is expected to grow by 2.6% per year over the next 40 years – up from 3% over the past 40 – and real GDP per person is expected to grow at an average annual rate of 1 , 5%, compared to 1.6% over the past 40 years.
This suggests that the economy will grow more slowly than in the past, while the average standard of living will improve at about the same rate.
But the IGR forecast is based on the assumption that annual productivity growth will converge over the next 10 years at 1.5%, which is well above the annual average of 0.5% observed over the years. last five years.
Population specialist and former deputy secretary of the Immigration Department Abul Rizvi has previously suggested such assumptions are unrealistic given the advanced state of Australia’s aging population.
Dr Rizvi told columnist Michael Pascoe in April that “no large developed country has on average achieved real economic growth or productivity growth close to 1.5% per year once deep into its aging phase. Population”.
This suggests that forecasts for economic growth and improved living standards in IGR 2021 will be overly optimistic.
Last week, a Federal Labor Party analysis found that the economy in December 2019 was $ 91 billion lower than forecast in the 2015 Intergenerational Report and lost $ 200 billion in cumulative economic activity as a result.
The analysis claimed that this amounted to an average loss of $ 8,036 for every Australian.
âHaving so spectacularly promised and underestimated their last intergenerational relationship, how can Australians trust Scott Morrison and Josh Frydenberg to live up to it? Said Shadow Treasurer Jim Chalmers.
“The Morrison government’s budget delivered generational debt with no generational dividend and Australians cannot afford this intergenerational report to be another costly missed opportunity.”
Under the Budget Honesty Charter Act, which was also introduced by the Howard government, the Commonwealth is required to publish an IGR every five years to assess how changes in Australia’s population size and age profile might affect economic growth and the country’s public finances over the next four decades.
The reports are meant to be non-partisan and provide useful information on long-standing issues such as climate change or an aging population to guide long-term policy making.
But the last iteration produced by Joe Hockey in 2015 was widely seen as too political and has eroded the credibility of the IGR in the eyes of many economists.
Mr Frydenberg will release the fifth edition on Monday morning at an event in Melbourne.