What will Australia look like in 2063? The human face of the Intergenerational Report
Go get yourself a cuppa, then settle in while we explore the Intergenerational Report. But not the kibble-dry economic detail. It’s a bit of fun to think about what life might be like in 40 years.
Here’s an idea. Go get yourself a cuppa, then settle in while we explore the Intergenerational Report. But not the kibble-dry economic detail of the 2023 report unveiled by Jim Chalmers this week.
Those accursed three Ps we’ve been hearing about ad nauseam since its first iteration under Peter Costello more than two decades ago – population, productivity and what’s the other one again? Graphs galore. You’ve had plenty of that already, and I’m sure more can be found if you look close by.
No, this is a look at the human side of the IGR. What Treasury’s projections might mean for us, as people, as families or singles, old or young, rich or poor, migrant or non-migrant, Indigenous or non-Indigenous, straight or gay.
It’s all a bit of nonsense of course, the whole concept of trying to project 40 years into the future, underpinned by trends that might be knocked for six by one superbug, mad dictator or scientist coming up with a pill that stops us ageing.
And it is politicised to the nth degree, with governments of both hues progressively rolling out titbits of the report ahead of its formal release as they spruik any and all policy initiatives or spending measures that might be halfway relevant.
But let’s not be too down on the IGR. It’s a bit of fun to think about what we as a society might look like in 2063. Quickly do the maths. Are you dead? Quite possible. Are you relying on your children to support you in old age? Ha! If you’re working or studying, do you think what you’re doing now will bear any resemblance to how you spend your time a couple of decades hence?
We know we’ll be old, but how old?
The nature of IGRs is that they tell us things that are already all too clear. One is that we are on average getting old, and some of us are getting very old. Across the next 40 years the number of people aged 65 and older living in Australia will more than double. For 85 and older its triple. And there will be six times the number of centenarians by 2063 than now.
Average life expectancy is rising, but the rise is expected to slow during coming decades. A little boy born today can expect to live to 81.3 years, and a little girl 85.2. Those same babies born in 2063 could expect to live to 87 and 89.5.
Individually that is great. The IGR practically beams.
“Australians are enjoying more years of full health, allowing older Australians to have better wellbeing, lead fuller lives and continue participating in the labour market and other activities if they choose,” it says.
But there is a darker reality that the IGR touches on. Fewer taxpayers and more tax takers, for one. A crucial ratio. And higher costs for health and aged care, so high that they will become two of the most difficult fiscal challenges for the Treasury to manage.
And there are question marks about whether the current tax settings discourage people receiving the Age Pension to return to work, especially in in-demand parts of the economy such as caring. Steady, this is heading into tax policy territory. Let’s step back to flesh and blood.
Did you know the average Australian man will spend about 88 per cent of their lives in full health, and women 87 per cent, proportions that have remained almost unchanged for two decades? Because we are living longer this means not only do we have more years in good health, we also have more years in poor health. A male baby born today can expect to have 71.6 years in full health and 9.6 years in ill-health. For a little girl it would be 74.1 years of good health and 11.3 years of ill-health.
Little wonder the health and aged care sectors are under their current pressure.
Who will look after us?
If you have kids or grandkids contemplating a future career, suggest the care economy. It may not be the best paid, at least at present, but it will be secure for decades to come. All those oldies are going to need more nurses, carers, cooks and cleaners in aged-care homes.
Why the big gap between demand and supply? In no small part it’s because “informal care” (aka women) has reduced in recent decades as female workforce participation has risen.
The pressure will be on to pay carers more than what they earn currently, as the next generation of the very old, very frail are the Baby Boomers who’ve come to expect a certain standard of living, thank you very much, and won’t be happy if corners are cut when they need help. They want to live in their homes as long as they possibly can, bringing services in until they are all but pulling up stumps.
The care economy is already a huge part of the broader economy, and growing fast, the IGR confirms.
“Under simplified assumptions, the sector would be projected to increase from around 8 per cent of GDP today to around 15 per cent in 2062-63,” it says. That is a stunning projection.
So too this. “Were employment to grow in line with the sector’s GDP share, then this would continue strong growth in care employment, with the number of care workers having more than doubled over the last 20 years and estimated to double again over the next 40 years.”
The federal Treasurer is casting this in its most positive light, saying the care sector “is where the lion’s share of opportunities in our economy will be created.”
“Whether it’s healthcare, aged care, disabilities or early childhood education, we’ll need more well-trained workers to meet the growing demand for quality care over the next 40 years,” Chalmers says.
The IGR calls out the challenge. “Appropriate skills and training pathways, plus wages that reflect the value of care work appropriately, will be critical to encourage workers to join and stay in the care and support sector.”
Given the scale of the demand, and the current levels of pay many caring roles attract, this will likely play into the nation’s migration settings in coming decades as well.
Can we afford our long lives?
The IGR reports that the number of Australians reaching pension age will double by 2063 to around nine million. Given we are living longer on average, this sounds expensive, and it will be, but there is a silver lining. Our super is coming to the rescue.
Australia’s superannuation stockpile, at $3.5 trillion and counting, is the fourth largest pool of retirement assets in the world, and super savings as a proportion of gross domestic product will nearly double across the next 40 years as all workers will have been collecting it through their full working lives.
“As balances increase, superannuation will become the primary source of retirement income for many future retirees,” the IGR says. “Drawdowns from superannuation are estimated to increase over time from around 2.4 per cent of GDP in 2022-23 to 5.6 per cent of GDP in 2062-63.”
The consequence is a smaller proportion of older people qualifying for the Age Pension, a 15 percentage point drop by 2063. In turn, the Age Pension will fall from 2.3 per cent of GDP now to 2 per cent in 2063, which is significant given it is one of the government’s largest spending programs.
This of course is a story of averages. The older you are, the more likely you are to have a low super balance, or no super balance at all, especially if you are female. And with life expectancies as they are, managing money through to the end of one’s life is a trickier proposition for those in older age now than retirees in the future.
Are we having enough babies?
Australia will manage to stay in positive territory for “natural increase”, which is births minus deaths in a given year, the IGR says, though it is tightening up.
Natural increase will decline from 123,000 in 2022-23 to 80,000 in 2063 as more Baby Boomers fall off the twig. Like many developed countries we aren’t hitting the replacement rate of 2.1 births per woman, and haven’t since the 1970s. The IGR notes in recent times the total fertility rate had fallen from 1.93 babies per woman in 1983 to 1.66 this year before it is expected to stabilise at 1.62 babies per woman from 2031. IGR projections out to 2063 are based on that future. This is due to the ageing population, and also to the fact migrants, the other part of the population story, tend to have slightly lower fertility rates than those born in Australia.
Despite a slowing birthrate, births overall are projected to continue to increase. “This is due to Australia having a relatively large cohort of women in their 20s and 30s, including the adult children of the baby boomer generation, and overseas migrants,” the IGR says.
It’s worth noting that Australia’s fertility rate sits well above other developed countries such as Japan, Italy and South Korea.
Where will we come from?
If you add net migration to natural increase, you come up with population growth. The IGR points out annual population growth will be slower in the next 40 years than it was across the past four decades, due to that slowdown in the birthrate. What exactly happens with the migration side of the equation is difficult to project, given it depends on settings imposed by the government of the day.
The 2023 IGR population projections are based on maintaining annual migration at its current 235,000, but it is in instances such as this when the folly of forecasting is laid bare.
In any event the Albanese government has flagged future reforms to the migration system to ensure it is targeted, serves the national interest and complements the skills and capabilities of Australian workers. What exactly this looks like in practice remains unclear. A review is under way.
How will we work?
Less, for a start. The proportion of people in the labour force is near record highs, but employed people are starting to work fewer hours on average. Population ageing will presage a gradual decline in the participation rate through to 2063, and average hours worked per week are projected to fall slightly from 32 hours a week to 31.
The IGR calls out “profound changes” in the type of work Australians currently do and will do in the future. “Population ageing, rising demand for care and support services, increased use of data and digital technology, and climate change and the net-zero transformation will all influence the demand for various types of work,” it says. It highlights the opportunities increasingly sophisticated jobs create for certain cohorts.
“The shift towards higher skilled service jobs will likely provide women and older Australians with more options to participate in paid work should they wish to, as it has done in the past,” the IGR says.
“For example, many higher skilled jobs tend to be less physically demanding. A growing care and support sector will also support labour force participation for people with caring responsibilities by providing more formal care options.”
If you make it to 2063 as one of the new centenarians, congratulations. If you are just starting out on your adult journey, enjoy your big stash of super in 40 years or so.
And if you have raised an eyebrow at any of the IGR’s projections, don’t worry, there’ll be a new batch in just a few years.
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