Five key takeouts from the recently released intergenerational report
The life expectancy of Australians is already one of the highest in the world, and it is projected to continue rising. According to the intergenerational report, a boy born in 2062-63 can expect to live an average of 87 years, which is a new record. Meanwhile, a baby girl born in the same year can expect to live for 89.5 years.
With the passage of time, a diminishing number of individuals in Australia of working age will provide financial support for their older counterparts. The old-age dependency ratio, which is a comparison of the number of individuals over the age of 65 against those between the ages of 15 and 65, provides insight into the number of taxpayers as opposed to those who will avail themselves of publicly funded services, such as health and aged care. The report points out that Australia, like many Western countries, benefited from a sizeable cohort of Baby Boomers born between 1946 and the mid-1960s.
With the onset of the retirement of the Baby Boomer generation in the 2010s, the demand for expensive government-provided services for elderly individuals has increased. The old-age dependency ratio experienced a rise in the previous decade, reaching 26.6 per 100 working-age individuals. It is projected to decrease slightly before rising again in the 2040s, when Gen Xers begin to retire. By the year 2062-63, the old-age dependency rate is expected to reach 38.8 per 100 working-age people, which will pose a challenge for Gen Z to determine how to support the needs of retiring Millennials.
The report has raised concerns regarding the issue of home ownership, particularly for individuals under the age of 40. The escalating property prices and larger mortgage requirements have made it increasingly difficult for people to become homeowners, resulting in a longer acquisition period. The graph clearly illustrates that the percentage of individuals in their late twenties who own homes has decreased by 17 points since 1981. Delaying the home purchasing process also enhances the likelihood of carrying a mortgage into retirement, while those who are unable to purchase homes will have to rent for an extended period. The report has emphasized that if this trend continues, it could pose a fiscal risk to the financial support systems of older Australians, including age pension spending and superannuation withdrawals.
Climate change and productivity
The report indicates that climate change is likely to result in a considerable loss of labor productivity, with estimates ranging from $135 billion to $423 billion over the next four decades. This estimate accounts for the value of work performed and does not factor in additional costs linked to reduced crop yields or natural disasters. The graph presented illustrates that as temperatures rise, Australians’ work output is expected to decline. The failure of governments worldwide to take appropriate action on climate change will lead to more severe negative effects on productivity. Outdoor workers, such as machine operators and laborers, are likely to be the most affected. The southern United States has already experienced the consequences of this impact this year.
Government spending per person
The federal budget for the current year includes a significant allocation of funds amounting to $680 billion. To facilitate a comprehensive understanding of this staggering figure, the intergenerational report has calculated the spending per capita. In the preceding fiscal year, the government disbursed $23,808 for each person in the country. However, this amount is projected to increase to $40,162 by the year 2062-63, taking inflation into account.
Although the current spending rate is slightly higher than what was estimated in the previous two intergenerational reports, it is not as high as what former Treasurer Peter Costello had anticipated in his own two reports, which constituted the initial ones in the series. The largest expenditure is in the healthcare sector, which is expected to exceed double the current amount and reach $8677 per individual in four decades. As a percentage of the overall spending, it is projected to escalate from 16.8% to over 21%.
Aged care is expected to be the second-largest expense, rising from 4.5% to 8.7% of all disbursements. The defence sector will be close behind, accounting for 8.1%, followed by the National Disability Insurance Scheme at 7.2%.
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