The ageing of the Australian population: triumph or disaster

Monday 28 April 2014

A low angle photograph of Swinburne University of Technology signage on the Advanced Technologies Centre building in Hawthorn.

The ageing of the Australian population does not, and will not, impose unmanageable strains on society, according to a new study.

Written by Swinburne University of Technology Adjunct Associate Professor Katharine Betts, the report finds Australia is coping well with its ageing population and should be able to keep on doing so throughout the 21st century. It found:

  • The average age of Australians increased from 28.9 in 1978 to 37.3 in 2013. Despite this, the proportion aged 15 plus and in the labour force grew from 61.7 per cent in February 1978 to 64.2 per cent in January 2014.
  • Despite the increase in the average age, the number of people aged 15 plus who were not in the labour force, for every 10 who were, fell from 6.2 in February 1978 to 5.6 in January 2014.
  • If present rates of labour-force participation continue, the proportion of the total population in the labour force will fall from its current, unprecedented, level of 53 per cent to around 44 per cent in 2061. In 1966 the proportion was lower—42 per cent—and still the nation prospered.
  • There is scope for age-specific labour-force participation rates to rise; in 2012 the Netherlands, Switzerland, Norway and Canada all had older populations than Australia together with higher labour-force participation rates. A comparison of data from 31 OECD countries in 2012 shows no association between their age structure and rates of labour-force participation, so a range of futures is possible.
  • Baby-boomers do not form a unique bulge in the population python. There are more baby-boomers (born between 1946 and 1961) than there are people born between 1930 and 1945, but the 16-year cohorts younger than the baby boomers (Generation X, Generation Y, and Generation Z) are larger.
  • Fears that a dwindling proportion of tax-paying workers will be unable to support a growing proportion of age pensioners are unfounded. Even with no further growth in labour-force participation rates, the proportion of workers will not fall as low as it was in the 1960s. Moreover, only 39 per cent of all taxes are based on paid labour. The remaining 61 per cent are unlikely to be affected by demographic ageing.
  • The cost of the age pension has been growing faster than GDP but this is not due to demographic ageing. It is due to successive government changes in the size of the pension and in access to it. Today a couple aged 65 plus can have an annual income of up to $72,000 plus $1.1 million in assets (apart from the family home) and still be eligible for a part pension.
  • Data on 31 OECD countries in 2011 show no association between the proportion of a country’s population aged 65 plus and the percentage of GDP spent on health care. The US has one of the younger populations in the OECD but spends 18 per cent of its GDP on health care; Japan has the oldest population in the OECD but spends only nine per cent of its GDP on health care.
  • Population growth exacts infrastructure costs. The Productivity Commission finds that, given the population growth it anticipates, Australia will need to spend five times as much on infrastructure over the next 50 years as it has spent over the last 50 years. This investment in capital widening could crowd out investments in capital deepening thus depressing growth in productivity. Comparative data on 32 OECD countries from 2009 to 2012 shows no positive association between population growth and labour productivity.

Can mass immigration cure ageing? Mass immigration leads to a temporary marginal decrease in the average age. It does, however, add large numbers of extra people: as many as an extra 21 million by 2061 or an extra 44 million by 2101 (taking the total to 70 million). This total would include an extra 10 million older people (18 million instead of eight million).

“Demographic ageing results from family planning and better health. The only way to avoid it over the long term is to have large families and die young,” Adjunct Associate Professor Katharine Betts said.

“Attempts to make Australia younger by making it bigger are no more rational than a middle-aged person trying to look younger by gaining 40 kilos.”

The report is published by the Monash Centre for Population and Urban Research. It can be downloaded from http://artsonline.monash.edu.au/cpur/