Coronavirus, China and the ‘baby bust’ a perfect storm for boomers

Baby boomers must reduce their ­expectations about support for their post-work lifestyle as the world is cleaved in two.

Retiring baby boomers looking for superannuation, pensions and healthcare in a decade when growth in the taxpaying workforce decelerates is an issue that many governments must manage in the post-pandemic years. Picture: iStock.

The 2020s decade is shaping to be an era of significant change for Australia, and indeed the world. From an Australian perspective, we kicked off the year with bushfires, then came pandemic, recession, a surge in unemployment, a mountain of debt, the likely collapse of many businesses and — although perhaps more so in the US than here — a worrying breakdown in social cohesion.

And on top of this we now seem to be careening towards open conflict with China, our most important trading partner. What else could go wrong?

How about all this playing out in a decade when the 1950s baby boom morphs into a 2020s baby bust, caused by more workers exiting than entering the workforce?

Retiring baby boomers looking for superannuation, pensions and healthcare in a decade when growth in the taxpaying workforce decelerates is an issue that many governments must manage in the post-pandemic years.

For the past decade, Australia’s response to the looming baby bust has been to lift immigration, especially via the importation of young skilled workers.

But the coming of the corona­virus changes the landscape: the immigrant flow to Australia will diminish, GDP will contract and the rate of growth in the tax base will decelerate. It may be that many baby boomers (now aged 56-74) must now either postpone retirement and/or reduce their ­expectations around support for their post-work lifestyle.

The situation is even more dire in other nations that do not have the luxury of boosting, or the cultural predisposition to boost, their (demographically) sagging workforces by importing young skilled workers. As a consequence, the world will cleave into two blocs this decade: a largely Western developed world where declining birthrates and rising life expectancies are transforming peak taxpaying workers into services-consuming lifestylers; and a developing world where high birth rates and low life expectancies drive growth in the core worker and peak taxpayer base.

In Ethiopia, for example, the share of the population in the productive 25-54 cohort will rise by four percentage points from 31 per cent to 35 per cent between 2020 and 2030. Nepal, Pakistan, Iraq and India (and many other developing nations) are also in this bloc where the core worker base will expand this decade. These countries should experience an ascendant spending capacity (off a low base) in the 2020s.

On the other hand, the core 25-54 cohort share of population in China will contract by six percentage points this decade, a dividend of the One Child policy. Italy, France, Germany, Britain, the US and Australia are also in this bloc because of reduced birthrates and improved life expectancies.

The timing of the baby bust “cliff” varies from country to country. Japan’s core 25-54 cohort increased every year between 1960 and 1996 but is now expected to contract every year for at least a half century. More 55-and-over lifestylers, and fewer young taxpaying workers, is fundamentally problematic for any government.

China’s productive core expanded annually for half a century before flipping into reverse in 2016. Australia’s growing 25-54 cohort will subside during the 2020s, but it won’t actually contract. Our spending capacity will be inclined to decelerate rather than evaporate.

America’s demographic outlook is similar to Australia’s.

So, the 2020s was always going to be a difficult decade for governments to navigate, balancing the expectations of a rising pool of retirees against a shrinking cap­acity to pay. Add in the need to repay debt incurred surviving COVID-19 lockdowns, a reduced income resulting from trade tit-for-tats, perhaps the cost of military adventures and/or mis­adventures and, the maraschino cherry on top, the advent of civil unrest caused by rising unemployment and a culture of simmering discontent.

On these metrics, Australia is in a relatively strong position. Our productive workforce will continue to grow, unlike China’s. Our debt-to-GDP ratio, even allowing for recent borrowings, is unlikely to exceed 50 per cent in the short term, which is still well below that of Japan (closer to 200 per cent, ­according to the International Monetary Fund). And we are not wracked by widespread civil unrest as is the case in the US.

What we require, and what we have less ability to influence, is geopolitical stability in the short- to medium-term. (I would urge every Australian business both large and small to think through the ramifications of a best-case and a most-likely-case scenario ­involving our dealings with China over the next two years.)

On the plus side, if we can navigate the pandemic without significantly ratcheting up the death rate (currently at 7 per million compared with 691 per million for Britain), then Australia will present as a safe (and hygienic) refuge for immigrants, students, visitors and business investors during the 2020s. Indeed, in the post-war era Australia attracted immigrants anxious to escape the calamity of war in Europe. In the 2020s the immigration propellant could be the calamity of contagion.

Oddly, the demographic forces that are forging two global blocs with rising and falling shares of productive-age (25-54) workers are also impacting Australia’s local government area communities.

Between 2020 and 2030, the share of the population aged 25-54 in the City of Melbourne is expected to rise seven percentage points from 55 per cent to 62 per cent. Central Melbourne attracts young workers, students and visitors from the surrounding suburbs, from country Victoria and interstate and also from overseas. But central Melbourne also flings out the retired and the elderly to cheaper and quieter destinations further afield.

Melbourne’s Stonnington (includes Toorak), Monash and even distant Mitchell (includes Kilmore) attract a big share of the lifecycle’s most productive cohort. Sydney’s Burwood and Perth’s Claremont behave similarly. It’s almost as if big-city hubs are “Manhattanising”, which means that they are specialising in the ­delivery of a quality of life for a ­specific time (25-54) in the life cycle. The very old and the very young are scarcely included in these communities.

At the other end of the spectrum are remote communities where the productive cohort (25-54) diminishes during the 2020s as resource workers return to capital cities. The proportion of Karratha’s population in this key age group in 2020 was 50 per cent. By 2030 it will be 42 per cent. Other communities likely to experience a diminution in the productive cohort’s market share include the shire of Ashburton (includes Paraburdoo), the shire of Coolgardie (near Kalgoorlie) and the town of Port Hedland.

The decade ahead was always going to be a doozy, and especially in countries and communities subjected to long-term demographic transformation. Declining birthrates by individual (and state) choice have an impact decades into the future (eg Japan, Italy) but which, with appropriate planning, can be managed. Although I’m not sure that Australia’s resources communities could have anticipated the diminution of local workforces.

The problem for the Western hemisphere is that the timing of the baby bust coincides precisely with a post-coronavirus world framed by ballooning debt, tightening trade, unsettled geopolitics and, in Australia at least, almost 30 years of unbroken prosperity creating a culture of expectation and entitlement.

The problem for China is that its capacity to fund, let’s say, “adventurism” during the 2020s is diminished by the reality of its shrinking middle (25-54) cohort. This doesn’t mean that its adventurism cannot be pursued but ­rather that it will come at a cost of other spending priorities, and that could lead to dissatisfaction and internal dissent.

The key issue for both blocs, I think, isn’t so much debt or disease, which can be managed. It is dissent. A galvanised community that is focused on the collective wellbeing may well turn out to be the most powerful national (and municipal) force enabling communities to navigate the perfect storm of the 2020s.

Bernard Salt is managing director of The Demographics Group. Research by Hari Hara Priya Kannan.