The report projects an outlook for the economy and the Australian Government’s budget over the next 40 years. It examines the long-term sustainability of current policies and how demographic, technological and other structural trends may affect the economy and the budget. This project that the Australian Treasury embarks on every five years is a fascinating forecasting exercise. I am pleased to summarise a few interesting points from this year’s report.

Population predictions decline

Australia has the lowest population growth rate it has seen in over a century. The restrictions to migration due to the pandemic has meant a 0.1% growth rate over 2020-21 compared to the annual average growth rate over the past 40 years which has been 1.4%. Current projections have Australia’s population reaching 38.8 million by 2060-61 compared with the 2015 report which was 39.7 million by mid-century. The lower rate is a combination of lower fertility rates and the assumption that even when international borders reopen, existing caps on migration will remain the same over the next 40 years.

Aged care sees major reforms

The baby boomer generation is a key driver of the predicted growth in aged care spending, with the number of people aged 70 and over expected to more than double over the next 40 years, reaching around 6.9 million people by 2060-61. Real per person, aged care spending is also projected to increase from $5,460 to $12,500 for people aged 65 and over. Currently, the government pays 80 percent of the total aged care spending; a 40 percent increase in real terms since 2012-13.

Spending on the Age Pension to reduce

Spending on the age/service pension is projected to fall from 2.5% GDP in 2021-22 to 2.1% of GDP in 2060-61. This is because younger generations are expected to retire with greater superannuation savings through rising compulsory superannuation which should result in a reduced reliance on government welfare payments.

Life expectancies revised down

Mortality improvements have slowed down since the 2015 IGR resulting in lower life expectancy than predicted in the last report. That said, life expectancy at birth is expected to continue to increase from 80.9 years for men and 85.0 years for women in 2018, to 86.8 years for men and 89.3 years for women by 2061.

Impact of climate change

Australia’s prosperity has for long been and still is reliant on carbon-intensive sectors such as mining and resources. Treasury notes Australia’s resources sector is now facing the reality that 129 countries have committed to net-zero emissions by 2050, “including key trading partners such as Japan and South Korea, while China has committed to carbon neutrality by 2060”. As Treasury notes, in 2019-20, these three countries accounted for 87% of Australia’s LNG export value, 74% of Australia’s thermal coal export value, and 55% of Australia’s metallurgical coal export value. This is a meaningful development and will have significant implications for Australia’s long-term export income. Although it predicts demand for clean energy, critical minerals, hydrogen, and abatement technology like carbon capture and storage will increase, creating “new opportunities for Australia”.