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Intergenerational Report tips Australia to be smaller, older as deficits predicted for 40 years

A 40-year projection unveiled by Treasurer Josh Frydenberg has provided a grim view of what post-Covid Australia could look like.

Australia will be smaller and older than previously predicted, and the aftershocks of Covid-19 will reverberate through the economy into the 2060s, the Treasurer predicts.

Unveiling Australia’s Intergenerational Report (IGR) on Monday, Treasurer Josh Frydenberg predicted budget deficits for at least the next 40 years and warned the impacts of the pandemic would not be short-lived.

Mr Frydenberg argued “hard and contested” economic reform was necessary to mitigate the effects of the crisis, which he described as the “most severe global economic shock since the Great Depression”.

“(It) means that the economy will be smaller and Australia’s population will be older than it otherwise would have been, with flow-on implications for our economic and fiscal outcomes,” Mr Frydenberg told the Committee for the Economic Development of Australia.

The IGR, released every five years and projecting four decades into the future, has for the first time revised down its population growth projection.

Australia’s population is now projected to reach 38.8m by 2060-61, having been tipped to reach 39.7m by 2054-55 in the 2015 report.

Mr Frydenberg said a smaller, older population would place added pressure on government coffers by necessitating a “dramatic increase” in health and aged care spending.

The record $161b budget deficit was projected to narrow slightly in the 2030s but widen again as the population aged.

“The fact that we are living longer is to be welcomed, but the impacts on our economy and our budget are profound,” Mr Frydenberg said.

“It is a warning sign and underlines why growing the economy is so important. Only by growing the economy can we continue to guarantee the essential services Australians rely on.”

The 2015 IGR was based on an assumption of a 1.9 fertility rate, though that was revised down to 1.65 in Monday’s report.

That “exacerbated” a dramatic drop in migration brought on by the Covid-19 pandemic, which had put population growth “at least six years behind” where it otherwise would be, Mr Frydenberg said.

The Treasurer confirmed migrants would “continue to be our largest source” of population growth going forward, revealing the government was “thinking through” avenues for skilled migrants to arrive in the short-term.

“I think Australia has a really good opportunity, given how well how the nation has responded to this pandemic, to go and attract the best and the brightest from around the world,” he said.

Monday’s report was a dramatic shift from the 2015 IGR, delivered by then-Treasurer Joe Hockey, which made bullish projections of ongoing budget surpluses.

With Australia plunged into its first recession in almost four decades, Mr Frydenberg conceded long-term projections were “inherently uncertain”.

But he described reform aimed at productivity as the “vital ingredient” to Australia’s long-term recovery.

“If we want to maintain our living standards, generate higher wages, and create more jobs, Australia has no alternative than to pursue economic reform, much of which is hard and contested. It is a national imperative,” he said.

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