Lessons of past generations shape our economic future

Peter Costello, who initiated the Treasury’s Intergenerational Reports in 2002, had the right idea when he encouraged Australian couples to have children – one for Mum, one for Dad and one for the country. That clarion call and its associated baby bonus worked in the short term. Fertility ticked up from 1.76 births per woman in 2002 to 1.98 in 2008, closer to the replacement rate of 2.1.

On Monday, the newly released IGR shows Mr Costello’s message is more pertinent than ever. The report is a serious wake-up call. Taking stock of the nation’s economic prospects 40 years from now, Treasury warns that the economy is projected to grow at a slower pace. Slower population growth will be the main reason for the expected decline, because of lower levels of immigration resulting from the Covid-19 pandemic and lower fertility rates. Improved life expectancies because of health advances are good news. Between now and 2061, the number of people over 70 will more than double, over-85s will more than triple and over-100s will increase more than sixfold.

But the ratio of working-age people to those over 65 is set to fall from four to two, creating a serious challenge for the nation in raising revenue and funding health and aged care. The trend is not new. Forty years ago there were 6.6 working-age Australians for every person over 65. Nor is it confined to Australia. Fertility rates in most developed nations, especially Taiwan, South Korea, Japan and southern European countries, have been languishing from a little over one to 1.29 for years. China, conscious of the consequences, has reformed its one-child policy to allow up to three children per family. Australia’s situation will demand more effective immigration, social and economic policy – especially a serious commitment to economic reform and productivity. Governments will need to spend less and we will need to work smarter.

Current productivity growth will need to triple to maintain living standards and meet the fiscal and economic challenges from a smaller and older population, Patrick Commins writes. While government must lead the way, resilience and optimism on the part of families and individuals – including having the confidence to have more children – will be important. That was a big factor post-World War II when rebuilding and expansion took the nation to new levels of prosperity and opportunities, and the baby boomers boosted the population.

Post-pandemic, immigration, especially of young skilled workers and their families, will be a key policy area for government, as Josh Frydenberg told the Committee for Economic Development of Australia on Monday: “A well-targeted, skills-focused migration program can supplement our stock of working-age people, slow the transition to an older population and improve Australia’s economic and fiscal outcomes.” As the report notes, aside from age and skill, characteristics such as English-speaking ability, fitting in with existing workers and entrepreneurship bring higher economic and fiscal benefits. Such factors should be prioritised in selecting migrants.

Productivity growth and economic reform are hard and contested, as the hiatus of the past 15 to 20 years demonstrates. The Treasurer summed up the challenges on Monday when he wrote: “Further investments in skills, infrastructure and digital transformation are required together with reforms that reduce red tape and that lead to more flexible workplaces, increased business investment and a more efficient tax system.’’ Our former top bureaucrat Martin Parkinson makes an important point when he says “complex challenges can still be tackled, if properly explained”, Tom Dusevic reports on Monday. For politicians to lead such reform “takes courage and a vision for our society; what it doesn’t ­involve is a focus on short-term ­political advantage at every turn”, Dr Parkinson says.

On the positive side, the IGR notes, the pandemic “may have accelerated trends in the nature of work that could further reduce barriers to participation through increased flexibility”. The widespread acceptance of remote working, it notes, has “great potential to improve not just participation, but also Australia’s productivity and economic growth”. Flexibility and remote work reduce practical difficulties that often deter younger families from having an extra child. They also encourage older workers to continue contributing and allow for “smoother matching between workers and employers across geographical boundaries”. Changing work patterns are too important an opportunity to be wasted. That point needs to be recognised by unions or their influence will continue to erode.

The education system and the community have done well in recent decades encouraging young women, as well as men, to stretch their wings academically and professionally. For their sake, and for the nation’s future, the satisfaction of family life must be a vital aspiration for the young.

After such a strong economic recovery from the pandemic, it is sobering to realise how much the ageing of the population will be a brake on budgets and living standards for the next 40 years. But forewarned is forearmed. The IGR needs to be a guiding light in shaping government policy and community and workplace attitudes.