Australian population aging and the third Intergenerational Report

The Australian Government is about to release the third Intergenerational Report into the impact of population aging in Australia.

I covered the release of the second report Back in April 2007 in a brief note, Australia's Aging Population - Treasurer Costello releases second Intergenerational Report. The links in that post to both the 2007 report and then Treasurer Costello's speech still work.

The main difference between the first report in 2002 and the 2007 report is that a combination of higher than expected births and immigration had slightly reduced the aging impact. While this effect has continued, the projected aging is still dramatic. The Sydney Morning Herald's Dan Harrison writes:

Australia must dramatically raise productivity if it to meet the challenges of an ageing population, the Prime Minister, Kevin Rudd, said last night.

Speaking in Melbourne on the first day of a national tour in the lead-up to Australia Day, Mr Rudd said by 2050, there would be only 2.7 working-age Australians for every one aged 65 or more. There are now about five working-age Australians for each citizen over 65. Four decades ago there were 7.5.

The report's expected release comes at a time of renewed debate about the projected size of the Australian population, with many arguing that Australia simply cannot sustain a population of the size now projected. The word "sustain", by the way, is a slippery one when used in this context because it means different things to different people.

Given demographic trends, Mr Rudd argues (as did the previous Government) that productivity growth is the only way that Australia can manage such a shift in the proportion of working and non-working Australians.

In some of my past posts and in my professional advice, I have tried to point to the implications of an aging population in general and in specific sectors. I must say that I have found it difficult to get people to focus on the issues involved.

Mr Rudd's emphasis on the need for productivity improvement is important, although I am sceptical about the country's capacity to achieve this within current policy and institutional settings. However,we also need to recognise that the aggregate data used in the Intergenerational Reports actually conceals distributional impacts that are already with us. There is remarkably little discussion on those impacts.

Starting with a simple statistic, the NSW public sector workforce (public servants, nurses, teachers, police etc) has been getting older quite rapidly. Now, some fifty per cent are due to retire over the next ten years. That's a huge number. It cannot be accommodated through people working past the traditional retirement age (60 for women, 65 for men).

Compulsory retirement was abolished in the NSW public service some time ago. Many public sector workers (I am not sure of the exact proportion) are over 60, a growing number over 65. The effect of later retirement has just pushed the NSW public sector demographic time bomb a little to the right.

Many of the professions such as dentistry, law and medicine display a similar if less pronounced age skew. Here, as with the NSW public sector, past workforce planning decisions created an age skew. We simply didn't train enough people.

There are major geographic differences in the age structure of populations across Australia. At local and regional level, the projected national 2050 structures are already emerging. In some cases they have emerged. 

Back in November 2006 in  NSW Ten Year Plan - New England's needs I looked at some demographic trends from a purely regional perspective. Just to quote a few statistics from that post:

Taking NSW as a whole, between 1998 and 2003 the workforce of Greater Sydney grew by 205,000, the rest of NSW by just 18,000. In New England, the workforce increased by 0.7 per cent in the Hunter and Mid North Coast, 0.5 per cent in Richmond-Tweed, but actually declined in Northern (Northern Tablelands, North West) by 1.7 per cent. This low workforce growth has created a very real choke point for economic development. In simplest terms, it means that economic growth especially in inland regions will hit capacity constraints very quickly. There are already significant problems in filling skilled vacancies especially in high growth areas.

Population growth in New England as a whole has been greater than workforce growth. The difference is largely but not completely explained by the movement of retirees into in areas like the Mid North Coast. Northern has been losing young people, Richmond-Tweed and the Mid North Coast lost young but gained working age people and retirees. The Hunter gained young and working age, but experienced proportionately greater gains among seniors. Retention of young people is a key issue for much of New England.

The New England population is aging and aging faster than the Sydney population. In 1954, the proportion of over 55s ranged from 13 per cent in the Hunter to 15 per cent in other regions. In 2001, the proportion of over 55s ranged from 25 per cent in the Hunter to 30 per cent in the Mid North Coast. In 2021, the range is projected to be from 37 per cent in the Hunter to 47 per cent on the Mid North Coast.

Using another measure of aging, elderly (over 70) people living alone already constitute more than 6.1 per cent of households in Richmond-Tweed and Mid North Coast, 5.6 to 6.1 in Hunter and Northern. With aging, the proportion of elderly will continue to increase, with (in the absence of change) the highest impact in those areas already aging fastest. This has significant implications for local council operations in terms of the rate base (down) and the required scale of council support operations (up). Population aging is probably the greatest single public policy challenge facing New England over the next twenty years.

In the three and a bit years since that post was written, the trends identified have continued. As a simple example, we need to build age care facilities to meet immediate and emerging needs knowing that the facilities constructed may become redundant within decades.

As I write, Mr Rudd's speech on this issue is being reported on radio. He is again emphasising the need for improved national productivity. My argument is that while this is important, we have to drop below the macro aggregates to analyse the actual effects that are already on us.