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The political dilemma of an ageing population

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Thursday, 28 January 2010 20:27 by Ad astra

We all accept that Australia’s population is ageing.  Demographic evidence shows that life expectancy at birth is now 78.9 years for males and 83.6 years for females.  These figures are from the CIA World Factbook 2009 and from the 2006 revision of the United Nations World Population Prospects report for 2005-2010.  Although there is a suggestion that with the growing epidemic of obesity, type II diabetes and cardiovascular disease, future generations may be the first to not enjoy the same longevity as their predecessors, we will have an ageing population for the foreseeable future.

This piece begins to address the ageing issue.  No doubt much will be written about it, although to date the MSM has not given it much attention.  Much of what appears below is drawn from Government documents heralding the Third Intergenerational Report: Australia to 2050: Future Challenges that will soon be released by Wayne Swan.  This post is offered to furnish some facts and figures, to offer some opinions, to encourage debate, and to kindle ideas about how this country should address the ageing challenge.

The First Intergenerational Report 2002-03 was released by Peter Costello in May 2002 with the 2002-03 federal budget.  The Second was released in April 2007.  The Third Report will describe the challenges facing Australia over the next 40 years, the result of the demographic changes resulting from the ageing of our population.  It is hereby acknowledged that much of the following is extracted from an advance notice of that report:

The bare essentials

Today there are 22 million Australians; by 2050 it is estimated there will be 36 million – reflecting natural population growth and a continuation of migration trends of the past forty years.

Today, 14 per cent of Australians - one in seven - are over the age of 65; by 2050, 23 per cent – almost one in four - will be over 65.

The ageing of the population is expected to reduce the workforce participation rate from around 65 per cent now to around 60 per cent by 2050.  This will lead to changes in the ratio of the number of people of working age (and paying taxes) to those aged 65 and over: Forty years ago, in 1970, the ratio was 7.5 people of working age to every person 65 and over. In 2010, the ratio is 5 to 1, and in 40 years' time, in 2050, it is projected to fall to just 2.7 people of working age for each person aged 65 and over.

Thus Australia faces higher costs in catering for the aged, yet slower economic growth as there will be fewer workers.

The report projects that average annual growth in real GDP per person will fall to 1.5 per cent over the next 40 years, in contrast to an average increase in GDP per capita of 1.9 per cent per year over the past 40 years.  Therefore average family incomes will grow at a slower rate than in recent years.

The Government believes it must act now to counter the projected decline in economic growth in the years ahead by enhancing productivity growth and workforce participation.  By lifting productivity and participation, a higher rate of economic growth could be achieved.  A Treasury analysis shows that if average productivity growth was lifted back towards the 1990s mark of an average 2 per cent per year - up from the 1.4 per cent to which it declined in the decade just passed - this would produce enormous benefits: Australia’s economy would be $570 billion bigger in 2050 and on average, every man, woman and child would be $16,000 better off a year in 2050.

The advance report, used by Kevin Rudd in announcing its advent, asserts that: “It is productivity growth that must play the central role in building Australia's future economic growth. Productivity is about how we use labour, capital and technology across the economy. It's about working smarter - rather than working harder, or working longer.  Productivity depends on all of us - workers, businesses and the Government - but the Government plays a vital role in facilitating long-term productivity growth.”

Productivity – the crucial element

The report continues – “To lift productivity we need broad economic reforms” , as follows:

First, Treasury projections suggest we can increase productivity by building 21st century infrastructure.  An increase in the public infrastructure stock by 1 per cent would lead to an increase in output by around 0.2 per cent, and improving the efficiency of our energy and transport infrastructure could increase GDP by nearly 2 per cent, the equivalent of around $75 billion or $2,000 per person in today's dollars.

Second, we can increase productivity by building a highly skilled, highly trained workforce.  Improvements related to education and training - early learning, higher education attainment and increases in numeracy and literacy - could raise aggregate labour productivity by up to 1.2 per cent.  If we could boost GDP in 2050 by 1.2 per cent, that would amount to around $45 billion in today's dollars - or the equivalent of around $1,200 for each Australian.

Third, we can increase productivity through microeconomic reforms - such as the reforms the Government is prosecuting to build a seamless national economy.  National Competition Policy and related reforms during the 1990s increased Australia's GDP by 2.5 per cent.  Further microeconomic reforms can build on this achievement and continue to lift GDP and productivity.  Tackling social exclusion can also contribute to increasing workforce participation and productivity growth by removing barriers to work and improving skills among the most disadvantaged, such as Indigenous Australians, unemployed youth and the homeless. These measures would also help the 2.6 per cent of Australians - around 570,000 - who were left out while the nation reaped the benefits of the mining boom in the past decade.

The downside of an ageing population

The report then sounds a more sombre note: the challenge of the ageing of our population to the sustainability of future budgets. Unless the Government can achieve higher levels of productivity growth and workforce participation, we face either generating large, unsustainable budget deficits into the second quarter of the century, or reducing government services.  The report asserts that the task has been made more difficult by the aftermath of higher budget expenditure during the past decade, which has locked in a permanently higher spending base.  During the growth period of the 2000s, the average real growth in government spending increased to 3.8 per cent compared to an average 2.5 per cent annual real growth in spending during the growth period of the 1990s.

The Government insists that it is committed to a medium-term fiscal strategy that will deliver a permanent structural improvement in Australia's public finances so that by 2049-50, the Budget outcome is projected to be around 3.5 per cent of GDP better off – that is $130 billion in today's dollar terms.

Let’s look at some of these data:

The projected population growth to 36 million is applauded by some but others are appalled and assert that Australia cannot support that number.  But to restrict population growth, natural growth would need to be discouraged, not something some religious groups would approve, or migration restricted.  Since immigration has given this country great impetus and prosperity, restricting it sharply might prove to be counterproductive.  You can see fertile grounds here for partisan conflict.

The uncomfortable truth about which little can be done is that the proportion of those over 65 will jump from one in seven to one in four by 2050, and that for everyone over 65 there will be only 2.7 wage earning tax payers in 2050, whereas now there are 5. 

Clearly the productivity of those who are working will need to rise to support the over 65s, many or most of whom will be retired and on welfare.

Improving productivity

Hoping to avoid criticism for expecting people to work harder and longer, the Government suggests instead that they work smarter.  That is good advice, and is one way of lifting productivity.  Another is to have more people participating in productive work.

Retirement age

Australia would have more people in work if we had a higher retirement age.  Can we afford to have a retirement age of 65?  Already there are moves to lift it to 67, starting in 2017 and completing the change by 2023, a very modest rise over a long period.  Since 65 was set as a retirement age a century ago when longevity was much less than it is now, would it not be reasonable to raise it to say, 70, and to raise it faster.  For those doing heavy physical work that might be a big ask, but if graded diminution in physical effort was accompanied by shorter working hours or a shorter working week towards the end of the working life, would there not be many who would welcome the opportunity of continuing to be productive and earning.  During the GFC business showed it was willing to make such flexible working arrangements to avoid sacking workers.  Those doing less arduous work might leap at the opportunity of avoiding retirement for a few more years.  Many professionals are already working well beyond the statutory retiring age and loving it.  Governments are too reluctant to address this issue; the fact that Tony Abbott has given some support to it might embolden Kevin Rudd to re-consider this matter.

Up-skilling the workforce

Productivity can also be raised by up-skilling the workforce.  This needs to begin in pre-school and continue as far as each individual wishes to, and is capable of going.  That will lead to smarter working.  The advent of super fast broadband will open up opportunities for smarter working, and possible vastly different working opportunities. Could not more opportunity be taken for working at home some or all days of the week, using fast broadband for rapid communication?  Videoconferencing is becoming commonplace; it could substitute for workplace meetings and conferences.  This would reduce wasteful travel time, unclog our roads and reduce air travel.

Workplace patterns

Although politicians will be unwilling to even mention these measures, could not work patterns be made more efficient by restricting such time-wasting habits as attending to personal email and engaging in social networking during working time, having frequent smokos that now requires workers to leave the workplace, spending too much time chatting around the coffee machine (not about work, but cricket and football), partaking in long lunches that sometimes leave employees alcohol affected, taking ‘sickies’ simply to use up sick leave, something the self-employed eschew.  This might sound rather puritanical, but can we afford to preserve such workplace ‘sacred cows’ when we’re facing the crisis of an ageing population.  Many workers really do need to work harder and longer.

Infrastructure

Infrastructure improvements in rail, roads and ports will improve efficiency and productivity by removing bottlenecks, something the Government keeps emphasizing.  This takes time to stoke up, so the faster these progress the better. 

Microeconomic reforms

The microeconomic reforms that are underway are designed to make business more efficient by removing red-tape, unnecessary restrictions, conflicting rules and interstate blocks, and streamlining business across states and regions.  COAG is already addressing this, but as is the rule with bureaucracies, progress is slow.

Health care reform

The health care system is another major area where improved efficiency is needed and where major cost saving could occur.  After sixteen months of data gathering and deliberation the Hospitals and Health Reform Commission has delivered a report with over a hundred recommendations that will be implemented starting this year.  Nicola Roxon says she has almost completed negotiations with the states.  Hopefully state bureaucrats will not obstruct progress.

Tax reform

The Henry review of taxation promises to reduce the complexity of taxation and transfer payments, and thereby reduce the cost of administering them.

The consequences of failure

Unless these measures can improve productivity, increase participation and lower costs, all those who pay tax will be faced with higher taxes, or reduction of government-provided services, neither of which anyone would applaud.  The alternative – increasingly large budget deficits, is unacceptable.

The object of this piece is to stimulate debate on the crucial issue of how to cope with Australia’s ageing population.

Please tell us what you think.  Let us have your ideas.

 

Comments (16) -

January 29. 2010 07:41 AM

Ad astra reply

Peter Martin has an interesting graph in his short piece Expect the third Intergenerational Report Monday petermartin.blogspot.com/.../...tional-report.html  He also has links to the First Intergenerational Report 2002 and the Second 2007.

Ad astra reply

January 29. 2010 10:19 AM

Bilko

Heavy reading but very worthwhile.
Gradually raising the retirement age is a first step, retiring at 55 to cease unless for health reasons coupled with super not available until 65 or whatever the retirement age has risen to for all. This should reduce the age pension recipients considerably as they will have better super pensions. Streamline the super industry, at the moment everyman and his dog seems to be able to create a super fund. I took up casual employment for financial reasons and lose 50% of my age pension quite rightly so but more encouragement is needed to brings us oldies back into the workforce if we are able and willing. Cease the healthfund rebate plow it into the health service. Even with a health fund I now have to wait 3yrs to replace my upper dentures having had the lower already replaced. Old age does have its downside and as for glasses thats another story. To offset the weak eyes I now have a bigger monitor and larger resolution adding to green issues. Mind you my grandsons both run 32inch tv's as their monitors for their games etc, more green issues where will it all end,over to the wiser ones for further comment.

Bilko

January 30. 2010 08:20 AM

Sir Ian Crisp

Card games, puzzle games, ultimate bike stand etc. What happened to the penis enhancement and viagra offers?

Sir Ian Crisp

January 30. 2010 09:14 AM

HillbillySkeleton

  All fine points Ad Astra, but I feel that you have missed an elephant in the room.
What occurred to me upon reading this blog post was...what are the Mental Health implications for our society? Naming Prof. McGorry as Australian of the Year is keeping the issue fresh in my mind, and so it should be for us all.
  For what is increased productivity worth if it comes hand-in-hand with increased Burn-Out and other Mental illnesses?
  When we look at the increased expectations placed on our young ones it is no wonder that there is an increase in the number of them that can't cope and end up in our institutions, ably run by those such as Ian Hickie and Prof. McGorry. Of course, we must also keep working on solutions for their ills, so that they too can return to the workforce, or study, and become contributors to the increased productivity that is required to advance Australia fairly. I just can't help reflecting on the aim of about 20 years ago, wherein a 30-35 hour working week, with more time for leisure and family was the goal because it would engender the ideal Work/Life balance, and thus save us as workers from burning out, and our families from the depredations of never seeing each other and being able to interact healthily. Of course, I will admit that a large number of working Australians took it upon themselves to work longer and harder in the 90s and Naughties, despite the best efforts of the Unions and the progressive social democrats to make them do otherwise. Ably abetted by the denizens of the Howard government and their confreres in institutions and Think Tanks like the H.R.Nicholls Society, the I.P.A. etc.
  I just think that, if we are going to be pushing the working population of Australian society to increase their levels of productivity that we should aim to do as the PM says, and make sure we work smarter, not harder. Also that we should be alive to the signs of Burn-Out and other Stress Disorders, and make the appropriate accomodations.
  As you said, AA, maybe greater flexibility in how much work each employee does throughout their working life might be the answer. I just know that some people can cope with a lot, others with not so much, before they reach breaking point. Implementing those sort of policies equals working smarter in my book.

HillbillySkeleton

January 30. 2010 11:21 AM

Ad astra reply

Bilko
Thank you for your interesting comments.  There are obviously many aspects of ageing that need addressing; you have covered several of them.

HillbillySkeleton
You make a good point about overwork, burnout and mental illness.  Since individuals vary greatly in what they can cope with at work, it is management that needs to take more responsibility for caring for the workers.  With a profile of a worker’s capabilities, attitude and resilience in hand, it should be possible to tailor work responsibilities and schedules to match these attributes.  Where this is done higher productivity and a more contented workplace is to be expected.  Unions too need to change from an attitude of relentlessly squeezing management to facilitating productivity among its members.  Some now do this.  Think tanks that take a heavily pro-management, anti-worker posture need to rethink their attitude.  Workers are not commodities to be bought for the cheapest price and squeezed until their last drop of productivity exudes.

All involved in the workplace will need to review entrenched attitudes, ‘sacred cows’ and outdated habits, and seek a more collaborative arrangement between workers and management.  They ought not to be at war.  With the ageing crisis upon us, war cannot be tolerated.

Sir Ian,
As I was on the road all day yesterday I did not get to my computer until this morning.  That is why so much irritating spam accumulated.  I usually kill it quickly but yesterday that was not possible.  

Over the Christmas break I investigated how I might avoid it, and checked out the advice given by a visitor about how it might be blocked.  But no solution was found that could be applied to this off-the-shelf blog engine.  So I guess I’m just going to have to wear it.  I don’t like it any more than you do, and don’t need you to draw my attention to it as I do delete such irritations regularly when I can.

Please do me a favour – ignore the spam until I kill it.  You usually won’t have long to wait.

Ad astra reply

January 30. 2010 11:58 AM

Sir Ian Crisp

AA, to hear is to obey.

Sir Ian Crisp

January 31. 2010 09:32 AM

janice

I feel for you Ad astra as you try to deal with the spammers.  SIC just likes to complain I think.

The problem of an ageing population is a huge one and it seems to me that society as a whole, not just governments, must face it head on and understand that each and every one of us has to put in the effort to solve it.  Playing politics with such an issue and whining selfishly is not the way to go.

The Rudd Government has already seen the 'great big' (Abbott's words of description) elephant swinging its trunk menacingly in the not too distant future, hence the Henry report on taxation reform.  There needs to be sweeping reform right across the spectrum and community expectations need to move to more realistic levels in keeping with the size of the public purse.  

IMHO we have become a selfish society with ever increasing demands on the public purse.  We really do need to open our eyes and look at the whole picture rather than just what is beyond our own backyard.  We need to cease the incessant 'I want for me' and start thinking about what 'we want for us'.  It is time to downgrade our expectations and cease the endless struggle to have more than our neighbour.  It is time to dedicate our entire working hour day to earn our remuneration (work smarter) rather than doing as little as we can get away with, which on its own will increase productivity.

Of course all this is only a small part of the whole but it all adds up to addressing the whole problem as we move ahead step by step.





  

janice

January 31. 2010 01:36 PM

lyn1

Hi Ad

Another piece of excellent reading for us. I agree with Bilko it is heavy reading but worthwhile.

Bilko, HillbillySkeleton and Janice have raised some very interesting points.

Ad I think you are doing a very good job with the spammers and like Janice said SIC does like to complain.

lyn1

January 31. 2010 08:21 PM

Ad astra reply

janice
Thank you for your thoughtful comments.  I agree that “...we have become a selfish society with ever increasing demands on the public purse...”.  This is not sustainable.  Yet we have Tony Abbott promising to do what the Government wishes to do but without a tax – carbon mitigation is an example.  Abbott is reinforcing the public expectation that you can have what you want but you don’t have to pay.  The opposite message is needed – that we should expect to pay for what is needed to secure our country’s future.

Today John Brogden, CEO of the Investment and Financial Services Association said that “...the savings gap - the difference between savings and the amount needed in retirement - is continuing to grow.  The savings gap has increased from national levels of about $452 billion in 2004 to $695 billion dollars as at June 2008.” He is advocating that the 9% compulsory superannuation payment by employers be raised to at least 12%.  This sounds sensible.  Paul Keating has always advocated 15%.  This one of the many moves that can be made to manage the ageing population crisis.

Lyn1
Thank you for your comments.  It is a heavy subject,and of major import.  Tomorrow Wayne Swan is due to launch the Third Intergenerational Report.  It will be interesting reading, but even more interesting will be the reaction of Tony Abbott and the Opposition, and the way the MSM handles it.

Ad astra reply

January 31. 2010 11:32 PM

HillbillySkeleton

  Oops! Some more spam got through!

HillbillySkeleton

February 1. 2010 07:22 AM

janice

I also think compulsory superannuation should be increased to 12% and lifted gradually to the 15% PJK saw as necessary.

The real problem in this country is a political one where the big issues facing the nation are not able to be debated honestly to get outcomes that benefit the nation as a whole.  Too much mis-information and scuttlebutt is used to polarise the community and litter the road the ahead with obstacles and potholes, and all to gain one side or the other the power to rule.  The media could play an important role in guiding the community to focus on how best to solve the problems we face, but the media has become part of the problem because it has become politically biased one way or the other and publishes biased political opinion rather than cold hard facts.

It has always irked me that after a budget is delivered, the main question asked over the next hours/days/weeks is 'what is in it for you?'.  The population has been conditioned to believe that government revenue is a piggy bank to be raided each year and dished out like lottery funds.  Costello used to annoy the hell out of me when he stated it is taxpayers money and surpluses should be returned to them.  I always thought taxes were paid to enable governments to provide infrastructure and services, and if this was done properly and frugally there should not be huge surpluses but good infrastructure and services would be in place for the benefit of the nation's people and its economy.  Maybe it is just that my thinking is awry?  

janice

February 1. 2010 09:45 AM

Ad astra reply

HillbillySkeleton
Yes another bit of spam crept though, and no doubt as I'm on the road for the next few days and can only access this blog site overnight, more will.  Still I'll leave this item open for a while as Wayne Swan is due to launch the Third Intergenerational Report today.

janice
You're right - the media is part of the problem.  Its inability or unwillingness to report accurately and responsibly creates confusion and engenders bias towards the party it currently favours.

A delightful piece by Bushfire Bill So you think you can dance? has just been posted.  You'll enjoy it.

Ad astra reply

February 1. 2010 04:32 PM

bilgedigger

I'm not so sure about the categorizing of population ageing as a "problem" so constantly. There IS another side to the ledger you know. A large number of older people do voluntary work that would otherwise cost the nation mega dollars. Then there is the childcare provided which enables workers to participate in the paid workforce. These savings need to be included in the full picture.  Not everyone over the age of 60 (or even 55 as the current trend would indicate) is immediately going to become a "burden" on the remaining few workers, nor is everyone over the age of 55 or 60 physically unable to continue contributing in some form or another to the nation's wealth - however that is counted. What measures could be introduced to reduce health care costs, for example by forcing pharmaceutical companies to subject their prices to honest costings or by putting a cap on exorbitant charges by health professionals over and above the costs of new equipment and advances in techniques?  I'm not denying that there are avenues to explore so that the cake is more evenly divided into the future but there needs to be some balance introduced before older people are demonised even more than they are now.

bilgedigger

February 1. 2010 09:40 PM

Ad astra reply

bilgedigger
The only ones claiming that the Government is ‘blaming older people for the economic situation’ are Opposition speakers – Tony Abbott, Joe Hockey and Bronwyn Bishop.  This is disingenuous nonsense.  I am unaware of anyone who is demonizing older people or even labelling them a problem.  I certainly do not; I’m one of them.

The ‘problem’ is that by 2050, for every person over 65 it is estimated that there will be only 2.7 workers paying taxes to fund those who need social support.  We can ignore this until it becomes a serious budgetary problem, or we can begin to plan for it now.

The points you make are valid, as are your suggestions.  By 2050 many will have made provision for their retirement, probably many more than now.  If the compulsory super payments are upped to 12%, those seeking an aged pension will be more readily accommodated.  The longer people who wish to, and are able to work longer, the better the situation will be.  And voluntary work, which you mention, will continue to be a contribution to society that older people make.

My point in posting this piece is to draw attention to the facts and projected figures and urge action now to provide for the population forty years hence.  Several respondents have made sensible suggestions, which is what the Government needs to plan for 2050.  We can compensate, but only if we get cracking now.  Let’s not take a head in the sand approach, like so many are taking over climate change, just because the consequences seem so far away.

Ad astra reply

February 2. 2010 06:58 PM

LEX

The solution to an aging population increase is surely very simple -introduce euthanasia for all unproductive citizens- including many members of parliament.
problem solved!!

LEX

February 2. 2010 09:48 PM

Ad astra reply

Folks
The Third Intergenerational Report has been released.  It has attracted disingenuous, nonsensical comments from the Opposition and some heart-tugging newspaper articles bemoaning the prospect of some workers having to work beyond 65 after a lifetime of toil.  Melbourne’s Herald Sun featured an archetypical article from Terry McCrann, the source of all wisdom, truth and penetrating insight into both the economics of ageing and carbon mitigation which he combined in what he passes off as a considered analysis.  It is full of arrogance and explosive condemnation of Kevin Rudd and Ken Henry whom he believes have no insight, no understanding, and no capacity to address the problems of ageing and carbon mitigation at the same time.

If only they had McCrann’s knowledge, intelligence and profound insight!  If you’ve got a strong stomach you might like to read about our PM ‘...who hasn't got a clue’. www.heraldsun.com.au/.../story-e6frfh4f-1225825686283

If you wish to read the 2010 Intergenerational Report, it’s here. http://www.treasury.gov.au/igr/igr2010/

I couldn’t find much of substance in the MSM on the Report; maybe we’ll have to wait for the weekend Op/Ed pieces, but I suspect this subject will quickly fade from the public consciousness, as did the first two Reports, simply because ‘it’s all so far away’, just as many believe are the catastrophic effects of climate change.

How on earth can Governments govern prospectively when despite projections of dangers ahead, the public, the media and many politicians themselves can’t bring themselves to even begin to address them.  Is long term planning dead – are we stuck in the politics of the present – tomorrow’s headlines, the next poll, the next election?  If so God help us.

I’ll leave this piece open for a little longer, but if all we get is silly spam, I’ll close it for further comments.

Ad astra reply

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