As a result of decreased labour participation, poorer productivity, and population growth, Australia’s growth rate will slow from its long-run average of 3.1% to 2.2%. This will have a negative impact on the country’s economic prosperity.
This is the conclusion that is reached in the intergenerational report (IGR), which was released on Thursday by the treasurer, Jim Chalmers. The treasurer will argue that the government is still “optimistic” that Australia can “own the future” through investments to improve productivity, particularly investments in renewable energy.
Chalmers is going to tell the National Press Club that Australia needs to “take the big shifts seriously” and that “dealing with climate change is a global environmental and economic imperative” because the report notes that there will be “significant real, tangible, and direct impacts” if the global temperature increases by over 2 degrees Celsius above pre-industrial times.
According to him, in order to decarbonize heavy industries and transform our energy system, Australia would need an additional investment of $225 billion. This will help unleash opportunities “with more clean, cheap, renewable power creating cumulative comparative advantages in the new industries of the net zero economy.”
Chalmers claims that the IGR gives a hopeful picture of “Australians living longer and healthier lives, in a country powered by renewables and transformed by technology, with care and compassion at the core” in an advance draft of the speech that was seen by mediaa.
According to the projections made by the IGR, by 2062–1963, the size of the economy will have increased by two and a half times, while real incomes will have increased by fifty percent.
However, if population growth is factored in, the average annual growth rate of income per person is anticipated to be 1%, which is lower than the average growth rate of 2.1% during the course of the previous 40 years.
According to the report, “Just like other advanced economies, Australia’s economic growth is projected to be slower than it was in the preceding 40 years.”
“This is driven by lower projected population growth and reduced participation due to ageing,” as well as an estimate of slower long-run productivity development, according to the article.
The IGR made the assumption that productivity will increase at a rate of 1.2%, which is in line with the average over the past 20 years. However, it was emphasized that this rate might be improved upon through changes in policy or other economic movements “such as the expanded use of digital technology… net zero transformation or changes in industry composition.”
involvement in the labor force in the Australian economy is currently at a “near record high,” which is being driven by an increase in the number of women entering the workforce. However, it is expected that overall involvement will decrease from 66.6% in 2022-2023 to 63.8% in 2062-2063.
It is anticipated that the participation difference between men and women will continue to diminish, with men’s participation in 2062-63 being only seven percentage points greater than women’s participation.
It is anticipated that the annual growth rate of the population would reduce to 1.1%, which is a decrease from 1.4% during the past 40 years, and that the total population will reach 40.5 million in 2062–63.
According to what was found in the study, “Australians are expected to continue living longer and remain healthier into older age, while at the same time having fewer children.” This will ultimately result in a population that is both older and one that grows at a more glacial pace.
The number of elderly people in Australia will more than quadruple in the next four decades, and the number of elderly people aged 85 and older will more than triple in that same time period.
Chalmers agrees that an aging population “will create some challenges” for the budget and growth. This is because there will be a “smaller share of working-age people,” which will result in “pressure on our tax base.”
Chalmers responded to queries over the loss in gasoline excise owing to the increased usage of electric vehicles by leaving the door open to the possibility of charging road users. He described the income challenge as a “increasing focus” of Labor and future governments.
Chalmers also stated that pensioners are “more frugal than they need to be” with their superannuation, and he described this as a “big problem” that could be handled by a policy that addressed the “absence of literacy and options” around taking down more on superannuation and leaving less in inheritance. Chalmers was referring to the fact that retirees are “more frugal than they need to be” with their superannuation.
The average age of the population is expected to account for two-fifths of the growth in total government spending, which is anticipated to climb by 3.8% of GDP over the next 40 years.
Earlier parts of the IGR have showed that the five fastest rising categories of government spending — health, aged care, NDIS, defense, and interest payments – will increase to climb to 50% of the budget by 2062-2063. This is what Chalmers meant when he said that this “could keep us in deficit and put debt back on the rise.”
The IGR projects that the gross government debt will decrease to 22.5% of GDP in 2048–49, and then it is anticipated to rise to 32.1% of GDP by 2062–63.
According to the findings of the IGR, the “gross debt-to-GDP is projected to be 11.3%” lower in 2060-61 than what was anticipated in the study from 2021.
“faster-than-expected recovery from the Covid-19 pandemic, and disciplined fiscal policy including decisions in recent budgets to direct tax upgrades to budget repair” was cited as the reason for this success.
Earlier on Thursday, the shadow treasurer, Angus Taylor, stated that people and small companies are “struggling with the cost of living” as a result of rising power prices, 11 interest rate rises in a row, and a 4.6% loss in labor productivity in the year leading up to March 2023. All of these factors contributed to the situation.
“They’re not thinking about 40 years from now,” he said in an interview with media. “They’re thinking about 40 days from now, [but] [they’re also thinking about] how to get through the next 40 hours.”
In response to the criticism, Chalmers acknowledges that “this IGR comes at a difficult moment for Australians all across the country.”
According to him, the “immediate obligation” of the government is to “do what we can to ease the pressures of cost-of-living increases without adding to inflation.”
On the other hand, Chalmers contends that “there will never be a quiet time to think about the future… there will always be competing pressures and urgent calls on our attention.”
According to Chalmers, the estimate of a 1.2% increase in productivity is “more realistic” than the Coalition’s most recent IGR in 2021, which projected a 1.5% increase in productivity. He concedes that this “means that overall real GDP projections are down from the report released a couple of years ago”