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Migration recovery ‘crucial’ in fight against COVID-19 recession and ageing population

Australia will rely on a migration-driven recovery from COVID-19 to rein in deficits for decades against the backdrop of an ageing population, according to latest forecasts from Treasury.

The 2021 Intergenerational Report (IGR) was released by Treasurer Josh Frydenberg on Monday, providing an outlook for the country’s future over the next 40 years.

The report is released every five years and considered a crucial document for guiding long-term government spending decisions.

This year’s report shows Australia’s population is now predicted to age more rapidly because of sliding birth rates and COVID-19’s derailing of the migration program. 

The country’s population is anticipated to reach 38.8 million in 2060-61, a revision from the last IGR released in 2015, which forecast a population of almost 40 million by 2054-55.

Mr Frydenberg on Monday delivered a speech recognising the future challenges of a “smaller and older population” as he released the report. 

“The most enduring economic effect of COVID-19 is likely to be smaller population growth,” Mr Frydenberg said.

“This means 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.”

What does an ageing population mean for the economy?

The latest report shows Australia is facing the prospect of the budget deficits for at least the next 40 years as the nation grapples with the higher expense demands of an ageing population.  

The budget position will come close to balance with a projected deficit of 0.7 per cent in 2036-37, before falling away to 2.3 per cent by 2060-61 as these impacts take hold more profoundly.

The report has also downgraded economic growth forecasts from a three per cent average annual rate over the past 40 years to 2.6 per cent over the next four decades. 

Meanwhile, the report says the country’s ratio of working age to retirement age people will continue to drop. There is currently just four workers to every Australian aged over 65, with this figure expected to fall to less than three workers by 2060. 

Former deputy secretary of the immigration department, Abul Rizvi, said the report’s findings are designed to help governments determine what policies are sustainable in the long-term against these challenges.

“It’s about trying to forecast what government policies are going to sustainable long-term into the future,” Mr Rizvi told SBS News.

“The challenge will be to work out which policies to change to accommodate that very different world that we are now entering. We are certainly not alone in facing a ageing population.”

Skills migration to be harnessed for lasting recovery

The closure of Australia’s borders to international arrivals has rocked migration to Australia, with the program going into negative levels for the first time since World War II.

The report forecasts that migration levels will recover to 235,000 arrivals per year by 2024-25 and remain at this level until 2060-61.

Migration is expected to account for 74 per cent of population growth by 2060-61, up from 60 per cent over the last decade, showing its importance to long-term recovery.

“As migrants on average are younger than the overall Australian population, increasing the level of migration increases the working-age population and delays the effects of population ageing,” Treasury’s report says.

Mr Frydenberg said the government is focused on using skilled migration to head off the challenges posed by a smaller and ageing population to workforce participation and productivity.

“A well-targeted, skills-focussed migration program can supplement our stock of working age people, slow the transition to an older population and improve Australia’s economic and fiscal outcomes.”

Mr Rizvi said the government’s approach appeared to be following the right philosophy.

“Well-targeted and well-designed and well-driven immigration is crucial – absolutely,” Mr Rizvi said.

“[But] at the moment the government has not worked out how it is going to deliver the increased migration, it’s merely assumed it.”

Increasing demand for government services

The IGR report says that Australia’s greatest demographic challenge is the ageing population and the pressure it will place on demand for government services.

The health and aged care sectors are projected to be the fastest growing areas of spending over this period.

“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.

Health will comprise the single largest component of spending, accounting for 26 per cent in 2060-61. 

Aged care spending is also expected to increase substantially, from 1.2 per cent of GDP in 2020-21 to 2.1 per cent of GDP in 2060-61. 

Average spending per participant on the National Disability Insurance Scheme is also expected to surge from $56,620 in 2020-21 to $80,830 in 2060-61. 

Economic reform agenda will be ‘hard and contested’

Mr Frydenberg has outlined the need to pursue “hard and contested” economic reform to maintain living standards, generate higher wages and create jobs against the backdrop of these challenges.

He has ruled out austerity, instead saying reforms should be adopted practically in a manner that also maintains fiscal discipline.

“I understand there will always be calls for big-bang economic reforms and grand bargains but we should never let that blind us to other important reform opportunities,” Mr Frydenberg said.

Opposition Leader Anthony Albanese has accused the government of not having a plan for the future.

“This government has no positive plan going forward,” he told reporters.

“They didn’t have one prior to the pandemic and they still don’t have one now.” 

The report’s original release was delayed for 12 months last year because of the impact of the coronavirus pandemic.

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