The fifth instalment of the Intergenerational Report (IGR) highlighted the challenges for Australia’s economy with century-low population growth said to have a lasting impact over the next four decades.
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.
Raising the alarm on falling fertility rates, lower migration and an ageing population, the Treasurer said Australia will overcome these headwinds.
“The Australian economy will continue to grow, but slower than previously thought. Growth will continue to be highly dependent on productivity gains,” he said.
“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.”
The IGR showed health accounts are poised for the biggest shift in government spending over the next 40 years, going from 4.6 to 6.2 per cent of the GDP, with aged care set to lift from 1.2 to 2.1 per cent and spending on the NDIS to 1.4 per cent of the GDP, or nearly 30 per cent higher than what was forecast in the 2015 IGR.
But despite an ageing population and rising costs, the superannuation system is expected to greatly reduce Australia’s aged care burden as a result of the upcoming lifts in the contribution rate.
In fact, the pension cost is expected to drop from 2.8 per cent of GDP today to 2.1 per cent in 2060.
“Australia is one of the few OECD nations whose aged pension cost is decreasing, which is incredible considering the impact of an ageing population,” said Industry Super Australia’s deputy chief executive, Matt Linden.
According to the Treasury department, lifting the super rate to 12 per cent will see the median superannuation balances at retirement increase from around $125,000 in 2020-21 to around $460,000 in 2060-61.
Industry Super Australia highlighted that this will become more important as the Australian population remains at record lows.
“Lifting the super rate to 12 per cent will decrease the reliance on the aged pension, provide private saving to fund future aged care cost and allow the country to deal with lower-than-expected population growth,” Mr Linden continued.
However, the deputy chief executive highlighted the difference in outcome expectations for men and women.
“But alarmingly, the Treasury report shows that super’s gender gap will persist all the way to 2060, with women still expected to retire with less than men unless urgent action is taken,” Industry Super Australia said.
While Treasury expects the gap to narrow, if more women make voluntary contributions, men are still set to retire with more savings than women in 40 years’ time.
“The IGR shows existing policy settings will not materially close the gender super gap, so additional policies are needed, including paying super on parental leave and better targeting tax concessions,” Mr Linden concluded.
