Ageing Australia faces slowing growth: Government report

CANBERRA — Australia faces slowing growth, declining living standards and dwindling productivity without changes to ensure higher workforce participation, according to a report released by the government today (March 5).

Gross domestic product is forecast to grow at an average 2.8 per cent a year in the four decades to 2055, down from an average of 3.1 per cent in the previous 40 years, the Intergenerational Report said. Productivity expansion is projected to remain at about 1.5 per cent a year over the period, down from 2.2 per cent during the 1990s, it said.

“A lower proportion of Australians working will lower economic growth over the projection period,” the report said. Continuing “economic growth and prosperity cannot be taken for granted”, it said.

The Intergenerational Report, released every five years, studies the implications of demographic change for economic growth and uses current policy settings and trends to give financial forecasts for the next four decades. Prime Minister Tony Abbott’s Liberal-National coalition, which was elected 18 months ago promising to end a “debt and deficit disaster”, is using the report to back its bid to pass savings measures through Parliament and tackle economic reform.

“The report highlights that we need to take the steps now to be more productive and encourage greater workforce participation. We need to keep spending under control,” Treasurer Joe Hockey said.

The government has faced Senate opposition to savings measures while falling prices of key exports have cut tax revenue. With legislation blocked in the Upper House, Mr Abbott has abandoned or reworked some of the government’s budget policy, costing about A$20 billion (S$21.2 billion) of savings over the next four years.

The economy is struggling to transition to non-mining drivers of growth as a resources investment boom wanes, even as the central bank cut its benchmark cash rate to a record-low 2.25 per cent last month in a bid to encourage spending by consumers and companies.

The scale of Mr Abbott’s challenge was shown in the mid-year economic and fiscal outlook released in December, which forecast the underlying cash deficit will deteriorate to A$40.4 billion in the fiscal year ending June 30, 2015, from a May estimate of A$29.8 billion.

As the workforce ages, Mr Hockey wants to raise the nation’s retirement age to 70, the highest in the world. Australia is leading the charge for a group of advanced economies from Japan to Germany that are pushing up the retirement age to head off a grey time bomb caused by a growing army of pensioners and a declining pool of taxpayers.

Australia’s ageing population will see the labour force participation rate for people aged over 15 fall to 62.4 per cent by 2055, compared to 64.6 per cent now, according to the report. In four decades’ time, male life expectancy is forecast to increase to 95.1 years and to 96.6 years for females. The ageing demographics mean the ratio of people aged between 15 and 64 for every person aged 65 and over will fall from 4.5:1 now to 2.7:1.

Australia’s population growth rate will fall by 0.1 percentage point over the next 40 years to 1.3 per cent, giving the nation a total population of 39.7 million in 2055 from about 23 million now.

The report also shows that under current legislation, net debt will reach almost 60 per cent of GDP by 2055 and spending will reach 31 per cent of GDP. Should the government’s proposed policy be legislated, Australia would have a surplus of about 0.5 per cent of GDP by 2055 with spending at 26 per cent of GDP, according to the report. BLOOMBERG