Anticipating Australia’s Evolution: Insights from the 2023 Intergenerational Report
The 2023 Intergenerational Report (IGR) serves as a valuable glimpse into what Australian society may resemble four decades from now, shedding light on the evolving needs of the community.
While it may not chart the course to flying cars or Jetsons-style robotic assistants (regrettably), it does forecast structural trends that might instill a degree of concern about the proactive measures needed to navigate the impending future successfully.
This report links Australia’s continued growth and prosperity to five pivotal areas of influence:
1. The Aging Population: The report underscores the demographic shift towards an aging population. The number of individuals aged 65 and over is expected to more than double, with those aged 85 and over more than tripling.
Australians are projected to live longer, with men’s life expectancy increasing from 81.3 to 87 years and women’s from 85.2 to 89.5 by 2062-63. This demographic shift poses challenges for younger generations.
2. Tax Burden of Aging: Factors such as Australia’s low birth rate, limited migration, and increased longevity contribute to this aging population. The proportion of the elderly (aged 65 and over) relative to the working-age population (15 to 64) is set to rise significantly from 26.6% to 38.2%.
The tax landscape reflects this shift, with personal income tax becoming a heavier burden on workers under current fiscal policies. The report highlights that “only 12% of Australians aged 70 and over pay income tax,” a group expected to grow to 18.1% of the total population by 2062-63. Addressing this growing tax burden on individuals will necessitate comprehensive tax reform.
3. Growing Demand for Services: The demographic shift toward an aging population will lead to increased demand for care and support services. This demand is expected to strain the Federal Budget, potentially leading to deficits if current policies remain unchanged.
Consequently, individuals will likely experience a greater shift towards a user-pays model for these services. Planning for personal financial stability in old age becomes crucial as government resources face constraints due to the diminishing proportion of workers contributing to tax revenue.
4. Diversifying Income Streams: Australians may need to explore alternative income sources as part of their retirement planning. For some, this may entail extending their working years, while others may engage in value-adding activities such as business ventures, innovations, or traditional asset investments like property and financial products.
5. Superannuation’s Role: Australia’s superannuation system is expected to play a pivotal role in supporting retirement. With total superannuation balances projected to grow significantly, the system is set to underpin the financial security of most Australians during their retirement.
However, the report cautions that “the cost of superannuation concessions will increase,” prompting potential tax measures on future earnings from super balances exceeding certain thresholds.
6. Service-Oriented Economy: Similar to many developed nations’ economies, Australia’s industrial landscape has shifted from goods production to services. Approximately 90% of jobs are now within the services sector.
The aging population will result in heightened demand for healthcare and care services. The report predicts that the workforce required to meet this demand in the sector may need to double its current size by 2049-50.
7. Technology’s Impact: While the report refrains from making explicit technological predictions, it acknowledges the transformative effect of technology on labor productivity. Over the past three decades, labor productivity has significantly contributed to Australia’s economic growth. Nevertheless, it notes a slowdown in labor productivity growth since the mid-2000s.
The report emphasizes the potential for technological disruption and highlights the ongoing debate regarding the role of artificial intelligence. It also underscores the importance of ensuring technology accessibility to prevent societal polarization.
In summary, the 2023 Intergenerational Report offers a valuable glimpse into Australia’s future, highlighting demographic shifts, tax challenges, service demands, diversification of income sources, superannuation’s role, the dominance of services, and the impact of technology.
It underscores the need for forward-thinking strategies to navigate the evolving landscape effectively.