Healthy, old and poor — Australia in 2055

LIVING standards are under threat from faltering growth that will deprive the next generation of soaring incomes.

AUSTRALIAN living standards are under threat from faltering growth that will deprive the next generation of the soaring incomes enjoyed in the past, foreshadowing a future where people live longer and the commonwealth struggles to deal with the change.

Ringing the alarm on the coming shift, a landmark government report finds that Australians will be healthier and more productive in 2055 but the lifestyle will come with risky levels of public spending that will burden the nation with mounting debts.

The population will rise from 23.9 million today to 39.7 million by mid-century and migration will settle at 215,000 new arrivals every year, sparking warnings yesterday that the trend would leave younger Australians worse off.

Millions of Australians will work for more of their lives and women will join the workforce in record numbers, as life expectancy for people born in 2055 rises to 95 years for men and close to 97 for women — about three years longer than today.

INTERACTIVE: The InterGenerational Report

Joe Hockey pointed to the forecasts as proof of a brighter fut­ure for the nation, but the Treas­urer’s Intergenerational Report triggered a backlash from lobby groups worried about an increase in the pension age, cuts to welfare and other reforms that will be needed to confront the looming pressures.

While Australians have enjoyed strong income growth over the past four decades, the nation’s fortunes will sink unless governments make hard decisions to transform the economy for a new era. National income will rise from $66,400 per person today to $117,300 on average in today’s ­dollars by 2055, but this reflects slower growth compared with the boom times of the past.

Deloitte Access Economics direc­tor Chris Richardson said the forecasts showed a worrying slip in real economic output per ­capita, which would grow at a diminished rate of 1.5 per cent a year compared with 1.7 per cent over the past four decades.

GRAPHIC: Our changing population

Mr Richardson said this meant a slowdown in the growth of living standards unless governments embarked on major economic reforms­ as well as budget repair.

“Productivity is driven by new technologies but also by new reforms, and we have a history of those reforms but where are the new competition reforms, where are the industrial relations reforms and the rest of it?” he asked.

ANZ Group senior economist Cherelle Murphy also noted the slower rate of GDP growth per person in the next 40 years.

“So we can still expect our living standards to increase, just at a slower rate because our demographic profile is working against us,” Ms Murphy said.

“There is room for improvement, though. Doing things in a smarter way — that is, increasing our productivity by getting more output for every unit of input — is the key to better living standards.”

GRAPHIC: InterGenerational Report

Mr Richardson nominated the tax system, the structure of the federation and privatisations, as well as industrial relations and comp­etition policy, as targets for change to lift growth.

Mr Hockey’s message was that the ageing of the population was a blessing, not a curse, as a “grey army” keeps working and contributing to society.

But as people live longer, outlays on age and service pensions will grow by more than 50 per cent in real terms per person, from $2000 today to $3200 by 2055. This assumes the government gets Senate approval for highly controversial reforms such as the increase in the pension age to 70 for those born after 1966 and the change to indexation of the Age Pension.

National Seniors Australia chief Michael O’Neill said the government was in “dreamland” if it thought Australians would accept a pension age of 70, up from the increase to 67 already legislated by Labor. The Intergenerational Repor­t shows that deficits will reach 6 per cent of GDP by 2055, even after the impact of savings already legislated from last year’s budget, making it clear that further savings are needed.

If all the government’s reforms were passed by the Senate, however, the deficits would turn into surpluses from early next decade.

Opposition treasury spokesman Chris Bowen disputed the analysis and said Mr Hockey was using the warnings about debt to justify “unfair” spending cuts, while some ­economists also questioned the ­assumptions.

Grattan Institute chief John Daley noted that healthcare spending was likely to be even bigger than the Intergenerational Report forecast.

The new report assumes GDP will grow at 2.8 per cent each year on average, slightly higher than the 2.7 per cent assumed in Labor’s Intergenerational Report in 2010 when Wayne Swan was treasurer.

Mr Hockey’s report assumes tax revenue will be 23.9 per cent of GDP, slightly above Mr Swan’s assumption of 23.5 per cent and thereby countering any claim that the tax take is being kept low to make future deficits seem worse.

The report assumes population growth of 1.3 per cent a year, slightly more than the 1.2 per cent assum­ed in Mr Swan’s report.

Fewer taxpayers will be supporting more pensioners as a result of the combined changes, highlighting the argument for pension reforms to ease the cost over time. By 2055 there will be only 2.7 workers for every person older than 65, compared with 4.5 today and 7.3 four decades ago.

While there will be $9 trillion in superannuation accounts by mid-century, this will not cut the number of people who need a pension from the government.

“The proportion of retirees receiving any pension is not projected to decline,” says the report. Instead, it assumes there will be more part-pensions as older Australians draw on their own savings.