What will be the future of the Australian community in 40 years? Let’s look at important factors from the Intergenerational Report (IGR). The 2023 IGR is a crystal ball insight into what we can expect the Australian community to look like in 40 years and the requirements of the community as we grow. It helps us to predict structural trends about what we should be doing now to shape the future successfully.
Who Bears the Burden of an Ageing Population?
Australia’s low birth rate, restricted immigration, and longer life expectancy all have an impact. The proportion of adults 65 and older to all people in the population in the conventional working age (15 to 64) will rise from 26.6% to 38.2%. From a tax viewpoint, Australia’s reliance on personal tax means that under the present fiscal policy, workers will shoulder an increasing amount of the tax burden. Former Treasury Secretary Ken Henry has called it an “intergenerational tragedy” since, under the current approach, personal tax will rise from 11.7% of GDP to 13.5%. Only 12% of Australians aged 70 and older, who now make up 12.2% of the population overall, the research claims, pay income taxes. It is expected that this age group will increase to 18.1% of the total population in 2062-63. To keep the economy from being negatively impacted by the rising tax burden on individuals, comprehensive tax reform will be necessary. The answer won’t appear out of thin air from corporate Australia, since it’s predicted that over the next 40 years, economic growth will decrease to 2.2% from 3.1%. You would believe that a GST hike is coming soon if it weren’t for the high rate of inflation in our country.
Services and Who Pays
It is predicted that demographic ageing alone will account for 40% of the increase in Government spending more than 40 years. The result of an ageing population is increased demand for support and care services that will push the Federal Budget back to a point where shortages are the norm in case the existing policies remain in place. According to the consumer point of view, it means that the trend of user-keys will only increase.
As individuals, we are required to make sure that we have the means to fund our old age because government resources will be restricted because of increasing demands. It also means that we need to look at how we make money. For some that might mean working for a long time, for others, it is value-adding – creating, buying, and selling assets in some form.
Superannuation the Size of a Nation
In Australia, retirement assets are currently the fourth largest in the world. Superannuation balances are expected to increase from 116% of GDP in 2022-23 to approximately 218% by 2062-63. For most Australians, the superannuation system will be the foundation for their retirement. Currently, around 70% of individuals over the pension age receive some sort of Government income support. As our superannuation system matures, this percentage is expected to decrease significantly as a percentage of GDP, with Government support supplementing, rather than providing for retirement. The first generation of employees with a superannuation guarantee throughout their working lives will reach retirement age around 2058.
The IGR does, however, note that “superannuation concessions cost will increase, driven by earnings on the larger superannuation balances held by Australians.” It’s possible that this will not be the final tax on future earnings on super balances over $3 million.
You may anticipate that the government would prioritise managing superannuation to maximise retirement savings, reduce reliance on government assistance, and ensure that this sizable pool is used for the benefit of not only members but the entire country.
Growth of Services
Global competition has caused Australia’s economic base to change from the production of goods to the provision of services, similar to most industrialised nations. Currently, services account for 90% of all occupations.
Demand for health and care services is anticipated to increase as the population ages. Despite making up only approximately 16% of the population, seniors today contribute to about 40% of all Australian health spending. According to the IGR, in order to meet demand by 2049–50, the workforce needed to support this industry will need to be twice as large as it is today. The biggest spending pressure on the government will be aged care, health, defence, NDIS, and interest payments on government debt.
The Role of Technology
It is difficult to predict the speed of technological change and the IGR doesn’t try to make estimations. On labour productivity, technology has had a transformational impact. Over the last 30 years, labour has reported around 70% of the growth in Australia’s real gross national income.
The debate regarding the role of artificial intelligence is just starting because technological disruption is coming. Our future will be divided between those who have profited from technological advancement and those who have not, we are also aware of this.
Climate Change Transformation
The cost of rising temperatures and the opportunity presented by the switch to renewable energy sources are the two main effects of climate change. It is predicted that temperatures will rise by 1.5 degrees by 2100, possibly even before 2040.
From 1960 to 2018, climate disasters in industrialised economies decreased yearly labour productivity in the year they occurred by around 0.5%. However, it is predicted that three years following a major climate disaster, labour productivity will be about 7% lower. Floods, bushfires, and other extreme weather events are anticipated to occur more frequently and with greater severity as global temperatures rise. The research outlines the serious effects of climate change, including disruptions and shifting patterns that affect industries including agriculture, tourism, recreation, and those that depend on physically demanding outdoor jobs.
On the other hand, new “green” industries can benefit Australia, such as hydrogen and other clean energy exports. It intends to drive innovative ideas as businesses invest in and grow low emissions technologies, offering a source of future productivity growth in a sustainable economy. The potential of Australia to generate renewable energy more cheaply as compared to many countries could also minimise costs for both new and traditional sectors, related to the expenses experienced by other countries.
Australia is based on open international markets. Military conflicts and trade disputes cause an external threat to the economy and well-being of Australia. While the nature of geopolitical events can’t be predicted by the IGR, it notices the significance of investing in national security, ensuring access to international markets, and strong regional partnerships to minimise supply chain vulnerabilities.
Legislating the Objective of Super
The objective of the superannuation recently released is to keep savings to produce income for a dignified retirement, alongside the support from the government sustainably and equitably. The importance of legislating the objective of superannuation is that any future legislated modifications to the superannuation system must align with this objective. For instance, “equitable” intends to identify the distributional impact of superannuation policy, i.e. latitude for the government to aim tax concessions to identify differences in demographic factors and structural inequities and results for different groups, including First Nations Australians, low-income earners, and vulnerable members.
“Sustainable” includes the changing requirements of ageing people, including minimising reliance on the Age Pension. The draft also refers to the viability of tax concessions’ cost utilised to incentivise Australians to save more for retirement.
“Deliver income” intends to reinforce the superannuation savings concept “must be drawn down to offer individuals an income source during their retirement.”
Over 15 million Australians have a superannuation account. The superannuation pool of Australia has increased from around $148 billion to $3.5 trillion in 1992 and 2023, respectively, and it will grow continuously. As a proportion of GDP, total superannuation balances are estimated to be almost twice from 116% in 2022-23 to approximately 218% of GDP by 2062-63.
The consultation also identifies the value of the superannuation system as a capital source that can support investment in the areas of capacity-building of the economy where there is in line between the best financial interests of members and national economic priorities.