Australia will rely on a migration-driven recovery from COVID-19 to rein in deficits for decades against the backdrop of an ageing population, according to latest forecasts from Treasury.
The 2021 Intergenerational Report (IGR) was released by Treasurer Josh Frydenberg on Monday, providing an outlook for the country’s future over the next 40 years.
The report is released every five years and considered a crucial document for guiding long-term government spending decisions.
This year’s report shows Australia’s population is now predicted to age more rapidly because of sliding birth rates and COVID-19’s derailing of the migration program.
The country’s population is anticipated to reach 38.8 million in 2060-61, a revision from the last IGR released in 2015, which forecast a population of almost 40 million by 2054-55.
Mr Frydenberg on Monday delivered a speech recognising the future challenges of a “smaller and older population” as he released the report.
“The most enduring economic effect of COVID-19 is likely to be smaller population growth,” Mr Frydenberg said.
“This means the economy will be smaller and Australia’s population will be older than it otherwise would have been, with flow-on implications for our economic and fiscal outcomes.”
What does an ageing population mean for the economy?
The latest report shows Australia is facing the prospect of the budget deficits for at least the next 40 years as the nation grapples with the higher expense demands of an ageing population.
The budget position will come close to balance with a projected deficit of 0.7 per cent in 2036-37, before falling away to 2.3 per cent by 2060-61 as these impacts take hold more profoundly.
The report has also downgraded economic growth forecasts from a three per cent average annual rate over the past 40 years to 2.6 per cent over the next four decades.
Meanwhile, the report says the country’s ratio of working age to retirement age people will continue to drop. There is currently just four workers to every Australian aged over 65, with this figure expected to fall to less than three workers by 2060.
Former deputy secretary of the immigration department, Abul Rizvi, said the report’s findings are designed to help governments determine what policies are sustainable in the long-term against these challenges.
“It’s about trying to forecast what government policies are going to sustainable long-term into the future,” Mr Rizvi told SBS News.
“The challenge will be to work out which policies to change to accommodate that very different world that we are now entering. We are certainly not alone in facing a ageing population.”
Skills migration to be harnessed for lasting recovery
The closure of Australia’s borders to international arrivals has rocked migration to Australia, with the program going into negative levels for the first time since World War II.
The report forecasts that migration levels will recover to 235,000 arrivals per year by 2024-25 and remain at this level until 2060-61.
Migration is expected to account for 74 per cent of population growth by 2060-61, up from 60 per cent over the last decade, showing its importance to long-term recovery.
“As migrants on average are younger than the overall Australian population, increasing the level of migration increases the working-age population and delays the effects of population ageing,” Treasury’s report says.
Mr Frydenberg said the government is focused on using skilled migration to head off the challenges posed by a smaller and ageing population to workforce participation and productivity.
Source: SBS news