Invest
Ageing population to keep budget in red for another 40 years
Australia needs to lift productivity to overcome the real threats of an ageing population brought on by a dwindling fertility rate and a stop in migration, a government report shows.
Ageing population to keep budget in red for another 40 years
Australia needs to lift productivity to overcome the real threats of an ageing population brought on by a dwindling fertility rate and a stop in migration, a government report shows.
The fifth instalment of the Intergenerational Report (IGR) highlighted the challenges for Australia’s economy with a century-low population growth said to have a lasting impact over the next four decades.
The IGR has been handed down every five years, kicking off with Treasurer Peter Costello, giving Australia a snapshot of life in 40 years’ time. While scheduled to hit desks in 2020, the fifth IGR report was delayed by 12 months due to the pandemic.
Unveiling the long-awaited document this week, Treasurer Josh Frydenberg said its release served as an “early warning sign” for the government and the country about what's to come if certain trends remain.
The real fear is Australia's dwindling population, with the country said to hit 38.8 million in 2060-61 or six years later than earlier forecasted.
“This is the first time there has been a downward revision of the population forecast in an IGR,” Mr Frydenberg said.
Not only is Australia facing a smaller-than-expected populace, but its age too is concerning with expectations the pressure on welfare and health services will swell significantly.
As such, the budget is expected to remain in the red for at least another 40 years, improving to 0.7 per cent in 2036-37 but then widening to 2.3 per cent by 2060-61, “as the effects of ageing take hold”.
“It’s a trajectory similar to many of the previous IGRs reflecting the impact of an ageing population and existing policy settings,” Mr Frydenberg outlined.
Rising healthcare costs
Unsurprisingly, an ageing population with fewer workers is tipped to see Australia spend more of its GDP on aged care support.
“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,” the report found.
According to Mr Frydenberg, 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.
“Ageing will remain a key source of pressure on our economy and on our budget over time,” Mr Frydenberg said.
“The taxes of each working-age person will need to support the essential services for a growing number of older Australians.”
Economic growth
But despite the barriers, Mr Frydenberg expects Australia’s economy to be two and half times bigger in 40 years than it is today.
He highlighted that the real GDP per person is expected to grow at an average annual rate of 1.5 per cent a year 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,” the Treasury report explained.
Mr Frydenberg concluded that "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".
RELATED ARTICLES
-
Australia’s spending surprise raises the odds of a February rate move — here’s how to protect margin and momentum
-
Australia’s inflation cools to 3.4% — why the RBA’s next move still isn’t a lay‑up for business
-
Inflation cools to 3.4% — but the RBA’s reaction function keeps businesses on a knife-edge
About the author
About the author
Economy
Australia’s spending surprise raises the odds of a February rate move — here’s how to protect margin and momentum
Household outlays are running hotter than economists expected, with the latest ABS readings showing broad-based gains across services and goods. That resilience is exactly the kind of demand impulse ...Read more
Economy
Australia’s inflation cools to 3.4% — why the RBA’s next move still isn’t a lay‑up for business
Headline inflation easing is good optics; balance sheets feel something different. With year‑on‑year CPI down to 3.4% in November from 3.8%, hopes for rate relief are rising — but policymakers remain ...Read more
Economy
Inflation cools to 3.4% — but the RBA’s reaction function keeps businesses on a knife-edge
Australia’s headline CPI edged down to 3.4% year-on-year in November, from 3.8%, easing immediate pressure but not eliminating the risk of further tightening. With services inflation sticky and ...Read more
Economy
Higher-for-longer, not higher forever: How Australia’s inflation ‘surprise’ is rewriting CFO playbooks for 2026
Australia’s latest inflation pulse eased but didn’t budge bank outlooks: near‑term rate cuts are still a long shot, with some houses flagging upside risk. That steadier‑for‑longer cash rate is pushing ...Read more
Economy
Australia's inflation illusion: the real challenge lies in pricing power and productivity
Headline inflation has cooled to 3.4% year-on-year, but the Reserve Bank’s caution—and a still‑hot housing backdrop—mean the rate threat hasn’t left the room. For boards, the next few quarters are ...Read more
Economy
When house prices lift, tills ring: A case study in turning Australia’s wealth effect into growth
Australia’s latest upswing in household wealth, anchored by higher dwelling values, is more than a feel‑good statistic—it is a profit and planning signal. The ABS notes property’s centrality to ...Read more
Economy
RBA's hawkish stance reflects inflation concerns, State Street economist comments
In a recent statement, the Reserve Bank of Australia (RBA) has signaled a hawkish stance on interest rates, drawing insights from financial experts about the implications for Australia's economic ...Read more
Economy
Navigating the inflation maze: How CFOs can outsmart economic hurdles in Australia
Fresh inflation data have cooled expectations of near-term rate cuts in Australia, intensifying pressure on margins, capital allocation and demand. Rather than wait for monetary relief that may not ...Read more
Economy
Australia’s spending surprise raises the odds of a February rate move — here’s how to protect margin and momentum
Household outlays are running hotter than economists expected, with the latest ABS readings showing broad-based gains across services and goods. That resilience is exactly the kind of demand impulse ...Read more
Economy
Australia’s inflation cools to 3.4% — why the RBA’s next move still isn’t a lay‑up for business
Headline inflation easing is good optics; balance sheets feel something different. With year‑on‑year CPI down to 3.4% in November from 3.8%, hopes for rate relief are rising — but policymakers remain ...Read more
Economy
Inflation cools to 3.4% — but the RBA’s reaction function keeps businesses on a knife-edge
Australia’s headline CPI edged down to 3.4% year-on-year in November, from 3.8%, easing immediate pressure but not eliminating the risk of further tightening. With services inflation sticky and ...Read more
Economy
Higher-for-longer, not higher forever: How Australia’s inflation ‘surprise’ is rewriting CFO playbooks for 2026
Australia’s latest inflation pulse eased but didn’t budge bank outlooks: near‑term rate cuts are still a long shot, with some houses flagging upside risk. That steadier‑for‑longer cash rate is pushing ...Read more
Economy
Australia's inflation illusion: the real challenge lies in pricing power and productivity
Headline inflation has cooled to 3.4% year-on-year, but the Reserve Bank’s caution—and a still‑hot housing backdrop—mean the rate threat hasn’t left the room. For boards, the next few quarters are ...Read more
Economy
When house prices lift, tills ring: A case study in turning Australia’s wealth effect into growth
Australia’s latest upswing in household wealth, anchored by higher dwelling values, is more than a feel‑good statistic—it is a profit and planning signal. The ABS notes property’s centrality to ...Read more
Economy
RBA's hawkish stance reflects inflation concerns, State Street economist comments
In a recent statement, the Reserve Bank of Australia (RBA) has signaled a hawkish stance on interest rates, drawing insights from financial experts about the implications for Australia's economic ...Read more
Economy
Navigating the inflation maze: How CFOs can outsmart economic hurdles in Australia
Fresh inflation data have cooled expectations of near-term rate cuts in Australia, intensifying pressure on margins, capital allocation and demand. Rather than wait for monetary relief that may not ...Read more
