Health | Ageing

We need to prepare the economy for ageing population: Federal Treasurer

Federal Treasurer of Australia, the Hon. Josh Frydenberg, told an audience in Sydney at CEDA’s 2019 Annual Dinner that we need to develop policies that respond to the pressures that the ageing population will place on our health, aged care and pension systems.

“It is a great development that people are living longer but we must be prepared for the implications,” he said.

The Treasurer foregrounded his reflections on this topic with a discussion about the state of the domestic economy.

“With the budget back in balance for the first time in 11 years and on track to return to surplus, it’s important that we focus not just on the what but the why,” he said.

“At $19 billion per annum, our interest bill is more than double what we invest in childcare and nearly as much as we spend on schools. Our debt burden represents not just a cost to the budget and therefore every taxpayer, but also an opportunity cost as it constrains the Government’s ability to invest in other areas.

“If we don’t remain fiscally disciplined today, the next generation will have to pick up the bill tomorrow.”
Mr Frydenberg spoke about the Government’s efforts to return the budget to surplus while maintaining funding for services and supports.

“When we came to Government, we inherited a budget deficit of $48.5 billion or three per cent of GDP; the second highest in Australia’s history even though five-years had elapsed since the GFC.

“Since then, we have steadily improved the bottom line with real spending growth halved to two per cent per annum, the lowest level of any government in 50 years.

“While we have benefited from a positive terms of trade, we have been prudent in our budget forecasts. For example, the spot price of our largest export, iron ore, is today trading around US$70 per tonne, whereas it’s in the Budget at US$55 per tonne.

“This conservative approach has ensured our record spending on health, education and disability support is not contingent on high commodity prices.”

The Treasurer said that the government’s budget position has also allowed them to urgent demands for further funding.

“The Morrison Government has committed over $1 billion of additional funding since the election to provide much-needed support to farmers and local communities…In addition to our drought response, we have also said we will also be providing more funding for aged-care, in light of the findings in the interim report of the Royal Commission,”he said.

Mr Frydenberg also discussed the state of the global economy.

“The economy is confronting significant global economic headwinds. In recent months, the IMF, World Bank and OECD have all downgraded their economic forecasts for global growth,” he said.

“A principal driver of these revisions has been the flow on effect of the US-China trade dispute,” he said.

“Now nearly two years on, hundreds of billions of dollars of reciprocal tariffs have been placed on each other’s goods.

“In trade wars, there are no winners, only losers.”

Mr Frydenberg highlighted the flow on effects of this ongoing conflict.

“As a result of the uncertainty and instability caused by the tariff war, confidence has been hit, investment decisions have been deferred, capital flows reduced and the growth in global trade volumes severely curtailed,” he said.

Mr Frydenberg also discussed the impact of low interest rates on the global economy.

“Unconventional monetary policy is already underway in Europe and Japan and, remarkably, one quarter of all government bonds are trading at negative yields,” he said.

“In effect, investors are paying governments to hold their money as they expect interest rates to stay lower for longer and they look for the stability and certainty that sovereign bonds offer.

“Australia is not immune from these global forces. At 0.75 per cent, our cash rate is at a historic low.”

Mr Frydenberg then turned to the challenges that the ageing population presents for the Australian economy.

“While we navigate our way through these choppy international waters, Australia like many other countries around the world, is working through longer-term structural economic challenges, in particular, that posed by the ageing of the population,” he said.

“In 1950, five per cent of the world’s population was aged 65 or over. In 2015, it was eight per cent. By 2050, it will double to 16 per cent.

“As more Australians live longer, the number of working age Australians for every person aged over sixty-five diminishes…As this trend plays out, the impact on the budget will be felt on both the revenue and spending side.

“When it comes to workforce participation, we are at record highs and the participation rate for those aged 65 and over has increased from 12.3 per cent to 14.6 per cent over the last five years.

“However, with Australians in work currently undertaking 80 per cent of their training before the age of 21, this will have to change if we want to continue to see more Australians stay engaged in work for longer.”

The Treasurer stressed that he did not want to compel people to keep working past retirement age

“It is not about forcing people to stay in the workforce, but rather giving them the opportunity and the choice to pursue life-long learning and skills training if they so choose,” he said.

Mr Frydenberg highlighted reforms to the Pension Work Bonus and the announcement of a National Skills Commission as ways the government has encouraged this shift.

The Treasurer also discussed the role that immigration can play in alleviating the pressures brought about by the ageing population

“Population factors are critical in how we meet the ageing challenge. Our migration program has served us well,” he said.

“With the median age of new migrants being between 20 to 25, or 10 years younger than that of the broader population, immigration has helped to soften the economic impacts of an ageing population.”

Mr Frydenberg said that stagnating productivity growth is a crucial concern for the Government, calling it an “area where we must do better.”

“Productivity is the most important source of income growth over the long-run — contributing three-quarters of real gross national income growth over the past 30 years,” he said.

“With productivity tracking at less than half the long-term average, our focus is on deregulation, skills, industrial relations and other micro-economic reforms to improve service delivery.”

Concluding, the Treasurer spoke about the challenges facing the Government.

“As we implement our economic plan to repair the budget, grow the economy and guarantee spending on essential services, we do face some significant domestic and global economic headwinds,” he said.

“This will require calm and considered decision-making and not engage in knee-jerk reactions to every economic event or request for more government spending.

“Our ability to effectively manage these short-term challenges as well as the longer-term challenge of an ageing population will depend on it.”