Within a generation, 1 in 4 Australians will be aged over 65, they will live longer, work longer and they will cost the country more.

Aged care and health care costs to the taxpayer will double, and to meet the costs the Australian government will either need to borrow more or cut spending.

One way we have of meeting the costs without changing our way of life, is through immigration and a more productive workforce.

These were the essentials to come from the Australian Government’s latest ‘Intergenerational Report’ which is produced every five years and predicts how Australia will evolve economically 40 years into the future.

The latest report was released in March 2015 and is available in full on the Treasury’s website.  These were among the key findings:
 

1. We’re getting older, living longer and are healthier for longer

By 2055, the Australian population is expected to grow to 40 million from 24 million and the proportion of Australians aged 65 and over will increase to 23 per cent of the population, compared to 15 per cent now.

Australian men have the highest life expectancy in the world. Life expectancy for the average Australian at birth is projected to increase from 91.5 years in 2015 to 95.1 years in 2055 for males, and from 93.6 years in 2015 to 96.6 years for females.

Australia has the 4th highest healthly life expectancy in the world (that is the number of years lived without significant disability). If you were born now, your healthy life expectancy on average is 73 years.

A 2005 Australian Productivity Commission Economic Implications of An Ageing Australia report recognised the impacts of this ageing population and noted there would be pressure on health and aged care services. Work will need to be done to manage the fall in labour force participation – something the Government has already approached by lifting the age of retirement. The Commission says that to offset the impacts of an ageing population Australia will need to work more productively to maintain our quality of life.

The Intergenerational Report says ‘active ageing’ would benefit the economy and older Australians would stay in the workforce longer.

“This is the grey army that is going to deliver prosperity in Australia's future," Treasurer Joe Hocky said.

2. Health and aged care costs to double

Federal government health spending is expected to more than double in the next 40 years, from around $2,800 to around $6,500 per person in today’s dollars. Costs in this area have continued to rise, with spending on aged care quadrupling since 1975, and it is projected to nearly double again as a percentage of GDP by 2055.

These costs are reflective of a quality health system and the increased life expectancy and being healthy for longer is part of this. However reducing health spending growth won’t be easy according to the Grattan Institute’s Game-changers report  which showed, Australia already has one of the OECD’s most efficient health systems, in terms of life expectancy achieved for dollars spent.

Instead the Gratten Institute saw room to improve in Australia’s Pharmaceutical Benefits Scheme and to negotiate harder on generic drug prices. Already governments are providing incentives to hospitals to become more efficient by introducing funding formulas which reward them for greater efficiency and reduced waste.
 

3. Government debt will surge without change

The government is “spending over $100 million a day more than it collects, and is borrowing to meet the shortfall”, the report notes.

In the absence of any new cost-saving legislation, net government debt is projected to reach 57.2 per cent of GDP in 2054-55 ($2,609 billion in today’s dollars). However the government says it can achieve a sustainable surplus from 2019-20 onwards if it is able to get its proposed savings measures passed.

If government expenditure is not significantly reduced, or its revenues significantly increased, successive governments will divert money away from public services in order to service the debt and standards of living will fall.

It will also impact the ability of the government to invest in new infrastructure, and other enhancement projects.
 

4. We will be better educated and Workplace productivity growth will slow

In 1970 only one third of boys and a quarter of girls attended school until year 12. By 2011 this had increased to 75 percent and 80 percent. Government spending on education per person, in today’s dollars is projected to grow from $1500 per person in 2014/15 to $1900 in 2054/55.

This better education gives us the basis for growth in productivity but the Intergenerational Report flags that productivity is actually slowing.

The report forecasts productivity improvements of just 1.5 per cent per annum over the next 40 years.

Australia’s productivity growth was much higher in the 1990s, with an estimated average of 2.2 per cent growth per year.

At a time when ageing and health costs are rising, and less people in the workforce, productivity gains will be critical to maintaining Australia’s current standard of living.
 

4. Young immigrants will maintain population growth

If it weren’t for immigrants, our population would be in decline due to our low birth rate. Net immigration is predicted to average 215,000 a year over the next 40 years.
 
Immigrants not only maintain population growth, they also make us younger as a nation - around 54 per cent of migrants are aged 15-29, compared to 21 per cent for the broader population.

They are good for the economy, as they tend to be more economically active than the rest of the population, and therefore increase overall labour force participation rates – which is critical in managing our ageing population.
 

5. Delivering digital technology and payments

The aim of the Digital Transformation Office is to deliver government services digitally to individuals, and make access as easy as internet banking or ordering a taxi through an app.

It will commence on July 1 with a small team of specialists, with an initial focus on simplifying access to different government agencies, most likely with the use of digital identities for users, and an enhancement of the myGov service.

Although it is a federal body within Malcom Turnbull’s Department of Communications, it will also interact with state government agencies, and aim to deliver one-stop access to all state and federal services.

The DTO has the potential to impact on government payment systems, but may be restricted in its capability to act until a range of proposed upgrades have been introduced (see the article Medicare payments outsourcing in doubt).

To kick it off, the government allocated $95 million in the May budget over four years to establish the DTO as an “executive agency” within the communications portfolio. The funds are part of a $255 million budget aimed at creating the government’s digital footprint.

 

This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.

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