Australia needs to prepare for an ageing population


With the
budget back in balance for the first time in 11 years and on track to
return to surplus, it’s important that we focus not just on the ‘‘what”
but the ‘‘why”.

At $19 billion per annum, our interest bill is
more than double what we invest in childcare and nearly as much as we
spend on schools.

Our debt burden represents not just a cost to
the budget and therefore every taxpayer, but also an opportunity cost as
it constrains the government’s ability to invest in other areas.

If we don’t remain fiscally disciplined today, the next generation will have to pick up the bill tomorrow.

The return to surplus will have been hard-fought.

we came to government, we inherited a budget deficit of $48.5 billion
or 3 per cent of gross domestic product, the second highest in
Australia’s history even though five years had elapsed since the global
financial crisis.

Since then, we have steadily improved the
bottom line, with real spending growth halved to 2 per cent of GDP, the
lowest level of any government in 50 years.

While we have
benefited from positive terms of trade, we have been prudent in our
budget forecasts. This has ensured our record spending on health,
education and disability support is not contingent on high commodity

The strength of the labour market, with more than 1.4
million new jobs being created since September 2013, has been a real
driver of our improved budget position.

Last financial year, more
than 300,000 jobs were created, which was 100,000 more than Treasury
had forecast. Unemployment is at 5.3 per cent compared with 5.7 per cent
when we came to government, and employment growth remains at 2 per cent
compared with the OECD average of 0.9 per cent and the 0.7 per cent we

This stronger budget position has allowed us to cut
taxes for income earners and small and medium-sized businesses while
keeping our tax-to-GDP ratio below our self-imposed cap of 23.9 per

It has also given us the fiscal capacity to respond to significant calls on the budget, like the drought.

a government, we have committed over $1 billion of additional funding
since the election to provide much-needed support to farmers and local

We have also said we will be providing more funding
for aged-care, in light of the findings in the interim report of the
royal commission.

These immediate spending pressures are not the only challenges facing the budget. There is a longer-term trend we need to face.

Our population is ageing and this will place new demands on our health, aged care and pension systems.

the first Intergenerational Report was released in 2002, we have gone
from 13 per cent, or 2.5 million people, being aged 65 and over, to 16
per cent, or 4 million people, today.

Our median age, now 37, has increased by two years since then and life expectancy has gone to 81 for males and 85 for females.

With the sixth highest life expectancy in the world, we are seeing an increase of almost one year every four years.

more Australians live longer, the number of working-age Australians for
every person aged over 65 diminishes; whereas in 1974-75 it was 7.4 to 1
and 40 years later, in 2014-15, it was 4.5 to 1, it’s estimated over
the next four decades to fall to just 2.7 to 1.

This new dynamic,
which is already playing out, will require a range of policy responses.
As a nation, we need to effectively leverage the three P’s: population,
participation and productivity to meet this challenge.

When it
comes to workforce participation, we are at record highs and the
participation rate for those aged 65 and over has increased from 12.3
per cent to 14.6 per cent over the past five years.

The participation rate for this cohort was less than 6 per cent 20 years ago.

with Australians in work currently undertaking 80 per cent of their
training before the age of 21, this will have to change if we want to
continue to see more Australians stay engaged in work for longer.

When it comes to population, our migration program has served us well.

the median age of migrants being 20 to 25, or 10 years less than that
of the broader population, immigration has helped to soften the economic
impacts of an ageing population.

Productivity is, however, one
area where we must do better. Tracking at less than half the long-term
average, our focus is on deregulation, skills, industrial relations and
other microeconomic reforms to improve service delivery.

is another key area where the Prime Minister announced yesterday a $400
million-plus package which involves new money as well as bringing
forward spending on six projects in South Australia.

As we
implement our economic plan to repair the budget, grow the economy and
guarantee spending on essential services, we do face some significant
domestic and global economic headwinds.

This will require calm
and considered decision-making instead of engaging in knee-jerk
reactions to every economic event, or requests for more government

Our ability to effectively manage these short-term as well as the longer-term challenges depends on it.

Originally published in The Australian Financial Review.

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