Implications of the 2015
Intergenerational Report
Peter McDonald
Crawford School of Public Policy
The Australian National University
and
ARC Centre of Excellence in Population Ageing Research (CEPAR)
Rationale of the Intergenerational Reports
• As required by the Government’s Charter of Budget Honesty Act
1998:
• ‘An intergenerational report is to assess the long term
sustainability of current Government policies over 40 years
by taking account of the financial implications of
demographic change.’
• IGR1 narrowed this to: The report provides a basis for
considering the Commonwealth’s fiscal outlook over the
long term, and identifying emerging issues associated with
an ageing population.
2015 IGR, p.13
What causes population ageing?
• Population ageing is the product of the past, long-term
history of births. Current ageing is due to the baby boom
generation entering the older ages and replacing the small
generation born during the depression.
• But, in addition, there are quite remarkable changes in
mortality rates at older ages and this contributes greatly to
the growth of the population aged 80+.
The chance of dying over the next year
Australia, 1921-2011 (per cent)
Why is ageing a fiscal issue and whose
issue is it?
Average per person
Mainly an issue for the national government
Not all bad news (1)
• The 2015 IGR projects that GDP per capita will rise by
1.5% per annum in real terms over the next 40 years (or by
82 per cent).
• On average, Australians will have a living standard that is
82% higher than it is now.
• Might we be willing to give up a little of this additional living
standard to support the needs of older people?
Not all bad news (2)
Source
Projected fiscal balance
after 40 years as % of GDP
IGR1: 2002-03
-5.0
IGR2: 2007
-2.7
IGR3: 2010
-1.3
IGR4: 2015
0.5*
* Not comparable with earlier years because of the politicisation of the 2015 IGR.
The balance shown is based on the ‘proposed policy’ model.
The outcome gets better and better with each successive IGR
Changes in the demographic assumptions of
the model contribute to the improvement in
outcomes over time
Long-Term Demographic Assumptions
in the 2003 and 2015 IGRs
IGR 2003
IGR 2015
(Period)
Average
Number of
Births per
Woman
1.6
1.9
Source. IGR. 2015
Annual Net
Migration
(000’s)
90
215
(Period) Expectation of Life
at Birth in 2050 (years)
Males
Females
83.2
87.5
88.2
90.1
% Difference in the 2051 Population Projected by ABS
in its 2003 and 2013 Projections, by Age Group
%
90
80
70
60
50
40
30
20
10
0
0-9
25-34
35-44
65-79
Age Group
80+
Total
Impact of migration on population ageing
Level of Net Per cent of
Overseas
Population
Aged 65
Migration
and Over,
2053 (%)
0
28.4
100,000
25.2
180,000
23.4
300,000
21.2
Current
level
14.0
Labour force outcomes for Australia with
varying levels of net overseas migration
25000000
300
180
100
0
23000000
21000000
19000000
17000000
15000000
13000000
Migrants assumed to have Australian labour characteristics
2060
2057
2054
2051
2048
2045
2042
2039
2036
2033
2030
2027
2024
2021
2018
2015
2012
11000000
GDP per capita growth rate
under different levels of net overseas migration
1.9
0
100
180
300
1.8
1.7
1.6
1.5
1.4
1.3
2053
2051
2049
2047
2045
2043
2041
2039
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
2017
2015
2013
1.2
Assumes migrants have same productivity as other Australians: 1.6%
Australia’s Age Distribution in 2011 and 2061
Source: ABS 2013. Population Projections, Australia. ABS Catalogue No. 3222.0
Our major trading partners, in 2060:
Japan
China
Source: Wittgenstein Centre for Demography and Global Human Capital
Ratio of Population Aged 15-24 in 2050 to
Population Aged 15-24 in 2010, 14 countries
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Source: United Nations Population Division. 2012 Revision
Australia’s relatively favourable situation in
relation to population ageing is not grounds for
complacency.
We still need to consider policy options that are
efficient and fair.
The First of the Three Ps
Try to maintain demographic settings around those projected
in the IGR.
The Second of the Three Ps
• Incentives and disincentives for working at older ages.
– Increasing the age pension eligibility age
– Equalise the tax-free superannuation age with the age
pension eligibility age
– A higher tax threshold for those aged 60 years and over
– Wage subsidies for employment of older persons
– Transition to retirement arrangements (eg. part-time
work that does not affect super entitlements, part-time
work and part pension arrangements.
– et al.
Labour force participation rates(%),
Australia, 2000-2015, and New Zealand 2014
Males
Females
55-59 60-64
65+
55-59 60-64
65+
2000
71.6
46.5
10.1
48.0
21.7
2.9
2010
81.0
61.7
15.3
63.5
43.2
6.7
2015
81.1
64.0
15.8
66.6
47.2
8.5
NZ 2014
89.3
77.8
27.7
80.6
66.8
15.6
Australia’s rates are still way below those of New Zealand
The Third of the Three Ps
• Increase labour productivity, always the most important of
all.
• Just a small increase in the growth of labour productivity
would relieve the fiscal situation – so long as the benefits
are redistributed.
• Easier said than done
Innumerable revenue and expenditure options
• A central issue here is the variability of experience at
older ages.
• Some people are able to look after themselves to a ripe
old age with little recourse to the health system.
• Others become dependent early and continue in a
dependent and expensive state for many years.
• Others die relatively young suddenly.
• Some have a relative who is able to care for them and
keep them out of aged care for longer.
• The individual in advance does not know which of these
will apply to them.