Today, the Government has released the 2015 Intergenerational Report.
The Intergenerational Report is the social compact between the generations – children, grandchildren, parents, grandparents and each other.
It projects what the Australian population, economy, and budget could look like in 40 years and shows that Australia’s best years are ahead of us.
It provides us with information we need to prepare for the future and ensures we are well placed to address the demographic changes that Australia faces. It helps us identify where the future opportunities will be.
Australians have always looked forward. We are a generous, compassionate people and always willing to take on full responsibility for the future of our families, and our communities.
Australia has witnessed amazing change over the past 40 years, and will witness a transformation based on ideas and opportunities over the next 40 years.
Average incomes have doubled in real terms over the past 40 years and this increased wealth has been broadly shared across the community.
Today, Australians produce twice as much in goods and services for each hour they work compared with around 40 years ago.
Australians are living longer and we have one of the longest life expectancies in the world. Currently Australia ranks equal first along with Iceland in terms of male life expectancy. Australian women have the fifth longest life expectancy after Japan, Spain, France and Italy.
In 1975, there were 122 Australian centenarians. Today there are around 4,000. And in 40 years’ time there will be around 40,000 people aged over 100.
It should be celebrated that Australians are living longer and in better health.
We are on the verge of an ageing population boom, not an ageing bust. This boom will bring many opportunities for Australians that we would never have considered before, and we need to start positioning ourselves now.
The future is what we make it today.
This Government is preparing and planning for the years ahead.
As I said, the Australian population, like so many around the world, is enjoying a longer life.
A boy born today will on average live to over 91 years of age, and slightly longer to over 93 years if a girl.
A child born mid-century is likely to live close to 100.
Indeed, as the front page of Time Magazine highlighted last month, a child born today could live beyond 140 years of age.
Positive actions have increased the life expectancies of Australians. From the 1970s we saw life expectancies increase because we introduced seatbelt laws, and laws about drink driving. We developed treatments for heart disease and reduced the prevalence of smoking.
Our longer lives and demographic shifts mean there will be fewer people of traditional working age as a proportion of the population.
For every person aged 65 and over, there are currently around four people aged between 15 and 64. In 40 years’ time, that number will nearly halve.
Yes our population will grow over the next 40 years, and migration will continue to play an important role in that equation. But the IGR projects that population growth could be slightly slower than the last 40 years.
So what does this mean for Australia?
The change in demographic structure will have important implications for the tax base and how future governments will fund the services the community needs and expects.
It also has important implications for the expected growth in the economy, and therefore our household incomes.
Let me explain.
We can think about our economy’s growth being driven by three main factors – the ‘three Ps’. The growth in population, the participation in the labour force and the productivity of workers.
Population growth is unlikely to contribute to economic growth as much over the next 40 years, as the population growth rate is expected to be slightly less than we have previously witnessed.
The focus then turns to workforce participation and productivity.
Australia’s future growth and prosperity relies on having a sufficient workforce to fill the jobs of tomorrow.
We see in the Intergenerational Report that the workforce participation rate will fall around two percentage points, from nearly 65 per cent today to just over 62 per cent mid-century.
That said, there are clear opportunities to increase workforce participation by supporting Australians to get and keep jobs.
These opportunities include continuing to support increased workforce participation by women, by youth, for people with a disability, and by embracing the potential of older Australians.
The workforce participation rate of people 65 years and over is expected to increase from 13 per cent today, to 17.3 per cent in 2055. This is our new grey army.
The participation of older workers represents a significant opportunity over coming years to benefit from the wisdom and experience of older Australians. But there is more we can do to embrace this!
If more Australians want to work beyond 65, they should have every opportunity to do so. But it is their choice.
Greater female participation in work presents huge benefits to Australia.
By way of example, if Australia lifted its female participation rate to be equal to the rate of say Canada, we could potentially see a $25 billion increase the size of our economy.
The final contributor to growth that the IGR highlights is productivity.
Productivity is about getting more bang for each hour we work.
Since the early 1970s we have doubled our output for every hour we have worked.
Through significant reforms over the last 30 years, and the adoption of innovative and new technologies, productivity growth has been robust, averaging 1.5 per cent per annum over that period.
The big question we have going forward, is what will be the average rate of productivity growth for the next 30 or 40 years?
The Intergenerational Report assumes that productivity growth will continue at 1.5 per cent per annum for the next 40 years. It’s a fair assumption, but it’s a big ask.
Achieving this rate of productivity growth will require the reform agenda to continue. Reforms that make government more efficient, that make our markets more efficient and gives every opportunity to Australians to work smarter, not harder.
It will also require Australian businesses to be prepared to harness the opportunities when they arise, be it technological change or the opening of new markets.
Taking all the assumptions behind population, participation and productivity, means that over the next 40 years the Australian economy is projected grow at 2.8 per cent per annum, slightly less than the 3.1 per cent per annum we saw over the past 40 years – but still a level of growth that would see Australia’s prosperity rise significantly.
Let me put this into context. Australia is in the midst of one of the largest economic expansions in our history. Australia is in its 24th year of continuous economic growth – almost near the record efforts of the Netherlands, which had 26 years of uninterrupted growth until 2008.
The IGR projects another 40 years of average economic growth, consistent with the methodology used in the first three IGRs.
Without doubt, this is a challenge.
We don’t shy from this challenge. We welcome it. We embrace it.
To achieve this level of growth going forward, we must consider what changes will deliver that prosperity. The Intergenerational Report is a tool to start that conversation. It is an information kit that will equip everybody to have a dialogue based on facts.
This Government is focussed on working with the Australian people to build a stronger Australia.
This Government will continue to invest in the key economic drivers of growth. That is why we recognise the importance of small business and how they employ a significant part of the workforce.
This Government recognises the importance of families and the opportunities for women to return to work.
This Government recognises the importance of infrastructure in creating jobs, reducing congestion and improving productivity.
Madam Speaker, we need to ensure that we can pay for today, and we also need to ensure Australians will be able to afford our future.
We are currently living beyond our means.
The Australian Government is spending over $100 million per day more than it collects. Australia is borrowing $100 million every day to pay for this shortfall.
That’s not where we want to be or where we can afford to be.
Ongoing deficits and rising debt is not sustainable. We need to be better placed to respond to the potential for future economic downturns and pressures on the budget as we live longer.
If we made no changes to policies left in place by the former government, the deficit would have been on a path to reach $533 billion in today’s dollars, and net debt would have been almost $5.6 trillion.
However, the IGR shows that the Government has already made considerable progress to repair the budget.
With the measures already legislated, the projected budget deficit and net debt levels in 2055 have been halved.
Continuing to work at keeping spending under control will ensure we can deliver the services the community needs and expects. It also improves Australia’s capacity to respond to the challenges and opportunities outlined in the Intergenerational Report.
The policies proposed by the Government – or alternatives of a similar value – would get us back to living within our means and net debt paid off by 2032.
We are willing to work cooperatively with all to put the budget on a sustainable footing.
We are at a critical juncture in our history.
The Intergenerational Report is an incredibly important document to start a serious conversation about the challenges and opportunities ahead for Australia.
We should welcome the fact we are all living longer.
We also need to ensure that we take the steps now to ensure our prosperity for generations to come, and that we leave nobody behind.
We must take responsibility for how we plan for own future and how we leave things for the next generation.
This is the social compact between the generations.
The 2015 IGR shows that we can have a positive and more prosperous future if we start planning for tomorrow, today.
This is a conversation the nation wants to have.