Home > Our Publications > Australian Outlook> 2004 > July

AUSTRALIA will probably have to increase its intake of young, child-baring migrants to overcome its ageing population and prevent huge increases in taxation.
Living standards will be squeezed by 27 per cent - the equivalent of $6500 a year for every person in Australia - due to the ageing of the population over the next 40 years.
The impact of ageing on households and the States has been overlooked in economic modelling conducted by Canberra's Intergenerational Taskforce, which was simply interested in the consequences for the federal budget, say economic consultants Access Economics.
Increased health costs, higher taxes, fewer government services and a smaller share of the population working would result in much slower improvements in living standards in future than has been the case for the past two decades.
The firm has modelled ageing for the Australian Superannuation Funds Association, and shown that increasing workforce participation and improving productivity will not be enough to cover the cost of ageing to Australian households.
It argues that the savings rate must also be increased.
This conclusion was underlined in the International Monetary Fund's comments about Australia in its world economic outlook.
It said that while medium-term prospects for Australia's economy were favourable, "reforms to the pension and health systems will be necessary to contain fiscal pressures arising from ageing populations."
Coupled with the commonwealth deficit of 5 per cent of GDP something would have to give. "No government can run deficits of 7 per cent for any length of time. Either spending will be cut or taxes raised," he said.
The firm calculates that the number of adult Australians in the workforce will fall from 64 per cent to 55 per cent over the next 40 years.
Mr Richardson said the average level of tax would have to rise from about 24 per cent of CIDP to about 30 per cent.
The loss of income from paid work would cut discretionary income by $70 billion a year.
The federal Government faces a deficit of $39 billion. It could cut capital spending, but cuts and higher taxes would cost consumers at least $32 billion. State governments would pass on costs to private pockets of $6 billion.
There would be a further $22 billion slug on standards of living resulting from rising health costs and higher levels of tax which would discourage economic activity.