The 2021 Intergenerational Report (IGR) details the economic challenges, and the opportunities facing Australia and underlines the fact that the economic impact of COVID-19 won’t be short lived.
The IGR provides a modelled view of the future over the next 40 years.
It’s not a guarantee of what will be, but an insight into what could be.
report, the fifth of its kind, delivers three key insights:
1) Our population is growing slower and ageing faster than expected.
2) The Australian economy will continue to grow, but slower than previously thought.
Growth will continue to be highly dependent on productivity gains.
3) While Australia’s debt is sustainable and low by international standards, the ageing of our population will put significant pressures on both revenue and expenditure.
Population:
As a result of COVID-19 this is the first IGR where the size of the population has been revised down.
Closed borders have seen more people leave than come to our shores over the last 12 months which has seen population growth at just 0.1 per cent, the lowest in 100 years.
Migration levels are forecast to get back to where they were in 2024-25, but do not recover the ground lost during COVID-19.
As a result, Australia’s population is expected to reach 38.8 million in 2060-61, six years later than was forecast in the last IGR.
On top of this a lower than expected migration intake contributes to the ageing of the population as the average age of migrants is below that of the existing population.
Economic growth:
Australia’s economy is expected to be more than two and a half times bigger in 2060-61 than it is today, with real GDP per person growing at an average annual rate of 1.5 per cent compared with 1.6 per cent over the last 40 years.
To generate this growth, it is assumed that productivity growth will maintain its 30 year average of 1.5 per cent.
This, however, will require an improvement in Australia’s recent productivity performance of 1.2 per cent over the most recent cycle.
Further investments in skills, infrastructure and digital transformation are required together with reforms generating red tape reduction, more flexible workplaces, increased business investment and a more efficient tax system.
With productivity responsible for over 80 per cent of Australia’s national income growth over the past 30 years, the task is obvious and the choice is clear.
If we want to maintain our living standards, generate higher wages and create more jobs, Australia has no alternative other than to pursue economic reform, much of which is hard and contested.
Environment:
The changing climate will also affect the economy and the budget.
The physical and transitional effects of climate change, the impacts of mitigation efforts and the benefits of early adaptation measures will all affect the economy and the budget over time.
The transition to lower carbon emissions globally will mean that some sectors will need to adjust to falling demand for some exports, while new opportunities will be created in other sectors.
The effects will depend on domestic and global actions, as well as the pace and extent of climate change.
Australia is playing its part on climate change, having met our 2020 commitments and being on track to meet and beat our 2030 target.
Sustainable debt:
Deficits are expected to decline from 7.8 per cent of GDP today to 0.7 per cent in 2036-37, before widening to 2.3 per cent in 2060-61.
It’s a trajectory similar to many of the previous IGRs reflecting the impact of an ageing population and existing policy settings. However, the budget position is significantly better than projected in most past IGRs.
The Howard government’s 2002 and 2007 IGRs forecast deficits at the end of the 40 year period of seven per cent and five per cent respectively and the Rudd government’s 2010 IGR forecast a deficit of four per cent in 2050.
Only in 2015 was a surplus forecast of 0.5 per cent at the end of the period, but that was in the absence of COVID, the biggest economic shock since the Great Depression.
In this year’s IGR, health accounts for the biggest shift in government spending over the next 40 years, going from 4.6 to 6.2 per cent of GDP, with aged care going from 1.2 to 2.1 per cent of GDP and spending on the NDIS at 1.4 per cent of GDP, nearly 30 per cent higher than what was forecast in the 2015 IGR.
Significantly, as expenditure rises, the tax take doesn’t go beyond 23.9 per cent of GDP, the self-imposed cap the Coalition put in place.
Growing the economy is Australia’s pathway to Budget repair, not austerity or higher taxes.
Only by growing the economy can we continue to guarantee the essential services Australians rely on.
We are relatively well placed, but at the same time, there are warning signs. There remains much work to do be done.
Josh Frydenberg, Federal Treasurer
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Utter tosh from Josh. Here is my response:
‘Lies, lies and corrupted intergenerational report statistics’
Today the fifth so-called “intergenerational report” (IGR) is finally released. After a long delay, and no-doubt copious tweaking to make it as bleak as possible, Federal Treasurer Josh Frydenberg lays it all out. The problem is, the IGR is based on one big, fat lie.
Let’s look at this central economic and demographic assumption.
Federal Treasurer Josh Frydenberg outlines how 30 years ago, for each person aged over 65, there were 6.6 people of ‘working age’. Today, there are 4 working-age people, and by 2060-61, there will only be 2.7 for each person aged over 65. In other words, ‘the economy’ can’t afford an ageing population.
Sounds scary, hey?
You’d think workforce participation had gone down in the last 30 years, with worse to come. It hasn’t. The opposite has happened. More on that later.
But isn’t living longer a good thing? And what is ‘working age’ anyway, you may ask.
According to the IGR’s central economic assumption, you are apparently working (and paying taxes) if you are 15-64 years of age. Conversely, you are not working (or paying taxes) if you are 65 and above.
I kid you not. The IGR authors at Federal Treasury have clearly not left the 20th century.
What actually matters is what portion of the population is working, not what portion is 65 and above.
This tricky and obsolete ‘working age’ assumption in the IGR, upon which the whole report hangs, will be endlessly spun by politicians, activists and the media in coming days, weeks and months. Yet as any economics 101 student – often 19 and studying full time for the next few years – should know, there is an inconvenient truth here: Age does not determine workforce participation.
Repeat: Age does not determine workforce participation.
Workforce participation is more so determined both by economic opportunity and reducing discrimination in the workforce. Over recent decades, opportunity for and discrimination against women have both significantly improved, allowing much greater workforce participation for women of all ages. Workforce ageism is another area we can greatly improve on, along with employers taking up their responsibility to increase training and education for Australian youth.
COVID-19 and the shutting of Australia’s borders has inadvertently helped in this regard, with less access to cheap and exploitable migrant labour. We’ve seen much-improved outcomes, with the Australian Bureau of Statistics (ABS) revealing that youth unemployment just hit a 12-year low.
I’ve written before that “In Australia, an increasing number of people (voluntarily) work past 65, off-setting an increase in the average age and stabilising our workforce participation ratio.”[1] But ‘stabilising workforce participation’ now looks like a pessimistic estimate! The COVID-19 pandemic has actually helped to drive Australia’s overall workforce participation rate to all-time high of 66 per cent. It was around 61 percent in 1980 – and has been steadily growing since, despite a gradually ageing population that the IGR claims brings workforce participation down.[2]
This again proves my point that ageing does not determine or lower overall workforce participation. Societies adjust. Australia’s healthy and welcome gradual ageing process has been accompanied by higher workforce participation. Win, win.
There is still a lot of slack in the market with many people across all ages unemployed and underemployed. Recent estimates put this number at over 2.5 million Australians (19.0% of the workforce).[3]
So what’s the real agenda and why is Federal Treasury’s IGR ignoring this clear and empirical evidence?
Mr Frydenberg will say the fiscal and economic challenges associated with a smaller and older population must be met with a “well-targeted, skills-focused migration program”.[4]
Bingo.
This is despite it being scientifically proven that migrant Australians age at exactly the same rate as everyone else – and that immigration has no material or long-term impact on ageing.[5] No independent, self-respecting economist or demographer would associate themselves with this Ponzi demographics.
The IGR also gnashes its teeth over lower fertility, but totally ignores one of the key reasons – skyrocketing housing prices driving up Australia’s cost of living – and then doubles down on one of the key drivers of this housing affordability crisis, being government-engineered rapid population growth.
Talk about a self-defeating policy agenda.
The IGR was cooked up as an idea to napalm our society into accepting something it is sceptical about and has never been properly consulted on – high immigration-fed rapid population growth.
Rapid population growth – as opposed to slow and managed population growth – has many economic and environmental costs and relatively few benefits, even under the pessimistic workforce participation assumptions in the IGR. For example, even under the IGR assumptions, “per capita real GDP growth will slow only slightly, the IGR will say, from 1.6 per cent over the past 40 years, to 1.5 per cent.”[6]
Did anyone notice the Recent Reserve Bank statement that the pause in Australia’s migration program will lead to higher per capita living standards for Australians? [7]
There are other fallacies in the IGR but the central assumption of lower workforce participation is the key issue to focus on. Everything else in the report falls down like a house of cards once this big lie is exposed.
The IGR is a key weapon used by major party politicians to uphold a system of governance and economics that is corrupt to the core – one that is designed to benefit the few at the expense of the many.
All of this demonstrates that the IGR is yet another case of lies, lies and statistics.
It is clear that the IGR engineers conclusions to support a pre-conceived narrative. It also ignores that personal income taxes are only part of the tax economy, and that the (our) Reserve Bank of Australia has an unlimited amount of money to print to pay for any “so-called” budget deficit, including COVID support and our aged pension system (which should be universal). But we’ll leave that controversial idea for next time.
A long-lived society with low population growth is clearly the best outcome for our economy, environment and society.
It’s time to stop the corruption of our major political parties and public policy by the all-powerful property industry lobby and other vested interests.
Australia should hold a stand-alone national ‘population plebiscite’. It would give all Australians the choice between the current government target of around 40 million by 2050 and a much more manageable 30 million. The latter can be achieved with one simply policy change – lower annual permanent immigration program from the recent level of around 200,000 back to our average annual permanent intake level during the twentieth century – around 70,000.
Lower immigration is not “anti-immigration” as some will assert. Lower immigration is the most pro-immigration thing we can do. It will help to rebuild broad public confidence in our immigration program for the long term. Critically, a manageable rate of immigration will also help to prevent voters being driven into the arms of political parties with extreme immigration policies.
ENDS
William Bourke
President
Sustainable Australia Party