Productivity should offset costs of ageing population

As the Albanese government prepares to release Treasury’s new Intergenerational Report on Thursday, the Business Council of Australia’s blueprint for improving productivity, Seize the Moment, has set out Australia’s demographic challenge. By 2040, it shows, the ratio of people over 65 to those of working age, 15 to 64, will be just one to three. In 2020 it was one to four, compared with one to five-plus in 2000. The bottom line is “an ageing population means fewer workers to support older Australians”. That is why higher productivity – working smarter rather than harder – to be achieved through economic reform will matter more than ever in coming decades.

After business groups were beguiled into accommodating the government’s workplace relations agenda at the Jobs and Skills Summit 11 months ago, the BCA finding its voice is in the national interest. Without remedial action, it warned, Australia risked “surrendering our advantages in energy, and our chance to capitalise on the skills and experience of our people … on our current path, we face the real risk of Australia being overtaken by the rest of the world and Australians being worse off for generations to come”.

Writing in The Australian on Tuesday, Jim Chalmers says the IGR will identify the areas in which the biggest productivity gains can be made in the next 40 years. He lists them as “economic dynamism and competition; investing in new data and digital innovations such as cloud computing, AI and machine learning; investing in a better-skilled and more adaptable workforce, and; embracing the net-zero transformation”. For all that, the economy is expected to grow at a slower pace than in past decades, as is the case in other advanced economies. According to an excerpt from the IGR released in advance on Monday, during the next 40 years Australia’s real GDP “is projected to grow at an average annual pace of 2.2 per cent from 2022-23 to 2062-63. That is 0.9 percentage points lower than the average growth of the past 40 years”. The projected slowdown reflects “lower projected population growth and reduced participation as the population ages, along with an assumption of slower long-run productivity growth”.

In line with government policy, Dr Chalmers has already ruled out the BCA’s call to broaden the base and increase the rate of the GST to reduce reliance on personal and company tax and to cut the corporate tax rate to 25 per cent. Australia currently ranks 29th out of 38 OECD economies for the competitiveness of our corporate tax rate. “We are living with the consequences of this uncompetitive tax system – Australia is in the grip of an investment drought,” the BCA warns. But Dr Chalmers said: “There is a huge amount of common ground that we can work with the BCA on, outside the GST.” He needs to spell out the possibilities. Without risking taxpayers’ funds “picking winners”, the government, as well as industry, has a role to play in diversifying our industrial and export base. As the BCA notes, “Australia ranks 91st in the world for the diversity and research intensity of our exports, just ahead of Namibia and below Kenya”.

Dr Chalmers, understandably, has ruled out adopting a “harsh” industrial relations system. But the BCA’s call for the system to lift performance, encourage flexibility and allow wages to rise with productivity would bring about reforms that are not harsh but achievable, with much to offer workers as well as employers. Since 2002, when Peter Costello introduced Intergenerational Reports, they have provided useful long-term policy guidance for governments of both sides. This year’s report will be no different, complemented by the well-researched practical blueprint of the BCA that covers themes that are too important for it to be put away in a drawer after the attention it is gaining this week.