Australia’s century of old age

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By Leith van Onselen

Yesterday, the Australian Bureau of Statistics (ABS) released its long-term population projections, which provide population projections under three scenarios:

  1. High growth scenario (Series A), which assumes Australia’s future total fertility rates will reach 2.0 babies per woman by 2026 and then remain constant, life expectancy at birth will continue to increase until 2061 (reaching 92.1 years for males and 93.6 years for females), and NOM will reach 280,000 by 2021 and then remain constant.
  2. Medium growth scenario (Series B), which assumes Australia’s future total fertility rates will decrease to 1.8 babies per woman by 2026 and then remain constant, life expectancy at birth will continue to increase each year until 2061, though at a declining rate (reaching 85.2 years for males and 88.3 years for females), and NOM will remain constant at 240,000 per year throughout the projection period.
  3. Low growth scenario (Series C), which assumes Australia’s future total fertility rates will decrease to 1.6 babies per woman by 2026 and then remain constant, life expectancy at birth will continue to increase each year until 2061, though at a declining rate (reaching 85.2 years for males and 88.3 years for females), and NOM will reach 200,000 per year by 2021 and then remain constant.

The assumptions underpinning these projections are provided in the table below:

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Below are some charts summarising the data.

First, consider Australia’s projected population growth under these three scenarios:

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By the year 2100, Australia’s population would be 83% larger under the Low Growth Scenario, 131% larger under the Medium Growth Scenario, and 201% larger under the High Growth Scenario.

Moreover, Australia’s population is projected to age rapidly under all three scenarios.

First, consider the share of Australia’s population aged 65+ and 80+ under the Low Growth Scenario:

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Now consider population ageing under the Medium Growth Scenario:

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And now the High Growth Scenario:

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Incredibly, by the year 2100, Australia’s older population – those aged over 65 years of age – is projected to reach 18 million under the High Growth Scenario, which isn’t that much smaller than Australia’s current population!

Below I have also converted the ABS data under the three scenarios into Dependency Ratios – defined as the ratio of the non-working population, both children (<20 years old) and the elderly (over 65 years old), to the working age population.

First, consider Australia’s dependency ratios under the Low Growth Scenario:

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As you can see, Australia’s total dependency ratio is projected to increase sharply, from around 66% currently to 87% by the end of the century. This increase in the dependency ratio is driven by a steady increase in the proportion of the population aged over 65 (the current standard ‘retirement age’), offset partly by a reduction in the child dependency ratio (i.e. those aged under 20 years of age).

Now consider the projected dependency ratios under the Medium Growth Scenario:

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There is minimal difference under this scenario, with the total dependency ratio increasing to just under 86% by 2100.

Finally, consider Australia’s projected dependency ratio under the High Growth Scenario:

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Amazingly, the high growth scenario provides the worst outcome, with Australia’s total dependency ratio projected to increase to nearly 95% by the end of the century. Although the old age dependency ratio is much the same as under the low growth scenario, the proportion of younger people is significantly higher.

Finally, below are the total dependency ratios charted together on a single graph:

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As well as the ratio of workers per dependent under the three scenarios:

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Based on the ABS’ projections, the calls for Australia to increase its immigration and/or birth rates in order to mitigate the impacts of an ageing population appear to be misguided. And this view is supported by the Productivity Commission in its submission to the former Minister for Population:

…several studies, including some undertaken by the Commission, indicate that policy-induced changes to Australia’s population are unlikely to significantly affect the ageing trends.

Improvements in longevity are the major cause of population ageing over the long run. In recent projections, Commission researchers estimated that an increase in the long-run total fertility rate from 1.85 to 2.10 births per woman — even if it could be achieved — would be associated with only a 1.1 percentage point reduction in the proportion of people aged over 65 by 2051.

Similarly, substantial increases in the level of net overseas migration would have only modest effects on population ageing and the impacts would be temporary, since immigrants themselves age. The Commission has estimated that an increase in annual net migration from 150 000 to 300 000 would lower the proportion of those aged 65 or over by less than 3 percentage points by 2044-45. As an illustration ofthe challenge, the Commission showed that delaying an increase in the dependency ratio by 40 years would require a net migration-to-population ratio of 3 per cent per year, leading to a population of around 85 million by 2044-45.

It follows that, rather than seeking to mitigate the ageing of the population, policy should seek to influence the potential economic and other impacts.

While it is undeniably true that population ageing will have wide ranging impacts on the Australian economy – from reduced consumption expenditure, to slower asset price growth, and reduced government taxation revenue and higher spending on health and aged care – endless population growth and immigration is not a sustainable solution to Australia’s ageing ‘problems’.

In the long-run, the only way to mitigate the effects of population ageing is through: (1) greater productivity growth; (2) higher workforce participation; (3) tightening eligibility requirements for entitlements, such as the aged pension, aged care, and subsidised health care; and (4) reducing superannuation concessions for higher income earners.

Think about these facts the next time a population booster argues for a higher immigration intake to alleviate pressures arising from an ageing population.

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Comments

  1. We could fix this high average-age problem by encouraging-in many immigrants who smoke. They would be less likely to grow old and become part of the “problem”.

  2. Looking at selected graphs from a politicians viewpoint. No issue until the very distant future, 2020. Certainly no problem to be seen before the next election.

  3. The projections are wrong. No consideration given in the current health of the population which is more or less the most obese in the world. In the US there are states that are already having the current generation dying younger than the last – particularly women. Australia will also face this issue with the current generation dying younger than the last and it will only get worse. There is no cure for heart disease, diabetes, stroke and other obese related illnesses. So its all good in that we will save on funding the ever dwindling number of retirees. Even the ones we do fund – they wont live long anyway. Imagine all the left over super!! Health costs however…..

    • The only problem with your argument is that longevity has been rising at the same time as obesity levels. Medicine is capable of treating most of the problems you mention, contrary to your assertion. Even obesity itself can be corrected via gastric banding. Willingness of people to listen to their doctors and take the appropriate measures is usually the main barrier to successful treatment.

      Disclosure: I have researched these topics more than most because I am personally battling the diseases of late middle age. Obesity, diabetes and hypertension, the classic trio.

    • It doesn’t make sense – if rising obesity is hurting the health of the nation, then why does average life expectancy continue to rise?

      Obesity would probably reduce the quality of life over the long term (more time required in medical care), but it seemingly doesn’t stem longevity.

    • Worse. A change in diet has greatly affected those coming and their children. Four Corners recently aired a program that examined the change in diet of Indian children and obesity and already, within the last 5 to 10yrs, it has greatly affected the health of the current generation. They will die younger than their parents. Some wont even last long enough to see their parents die.

      • Have neighbours: Indian couple: wife 75, husband 82. Full of energy – walking everyday, gardening, travelling, doing yoga in the morning. Sometimes we play ping-pong. Their food is typical Inidian (though vegetarian): full of gluten, fried, sugar food.

      • Some people are lucky and have won the gene lottery. Others aren’t so lucky and have genes that predispose them to diabetes. Southern India has the highest incidence of diabetes in the world.

  4. The ABS math does not add up!

    “Almost 10 million migrants over the next 50 years would swell Australia’s population to more than 40 million people by 2060 and more than 50 million by 2100, under dramatically higher new projections by the Bureau of Statistics.”

    Read more: http://www.smh.com.au/national/australian-population-to-exceed-40-million-by-2060-20131126-2y7w0.html#ixzz2lnTuLhwF

    So 7 million through natural growth?
    140,000 per year, when we know deaths are going to double and natural growth will drop considerably? Once again, I can not reconcile the math and there is no way that our NOM will double or treble to compensate.

  5. Since 1970 Aus pop growth is up 50% whereas Germany has 6% more population.
    German is a powerhouse economy that exports more than imports.
    Yet housing, both to buy and rent, is much more affordable in Germany.
    Aust fascination with pretending pop growth is going to save us is a transparent lie.
    Ramping pop growth is all about pressurizing RE prices.
    Japan is surviving an aging pop with negative pop growth.
    This is not to say that there is no role for an immigration program, just fund it and straighten out the other systems in a co-ordinated and planned manner.
    Aust seems to be creating even bigger problems (housing costs, additional infrastructure needs, environmental damage, overcrowding and loss of personal space, etc) to solve costs associated with aged care.
    The Medical Industry and Fear:
    In USA about one-third of all healthcare spending – is wasted in unnecessary diagnostic tests, procedures and extra days in the hospital. Aust probably wastes about the same amount.
    It is as if medical industry are preying on the almost all-pervasive personal concern of living longer at any cost. Underlying this fear is an egoic malfunction where man identifies narrowly with the body and then mistakes death for failure. This failed thought system seems connected with growing atheism and the belief that man can combat and overcome nature.
    If any govt is sincere about cutting aged care costs, have a good look at the cost to society of legal drugs such as alcohol & tobacco or look at fast food-diabetes nexus. There are a lot of ways to trim aged care costs, but adding to the pool of future aged is not one of them.

    • +INF. We said sir.

      Underlying this fear is an egoic malfunction where man identifies narrowly with the body and then mistakes death for failure.

      Big thumbs up!

    • “It is as if medical industry are preying on the almost all-pervasive personal concern of living longer at any cost.”

      We can see this in the strategy for treating prostate cancer, i.e. a large number of prostatectomies (48 in one study) have to be performed in order to save one life within 10 years.

      At some point in time this may be extended to giving all 50 year old men a prostatectomy because that would save one life for every 23 prostatectomies (a higher success rate than the above).

      Who cares about quality of life.

  6. HnH, what assumptions did you make about how old the immigrants were who came here? A 21 year old immigrant would be less of a burden on the dependency ratio than a 41 year old immigrant.

    Can you please explain your methodology?

    • You’d also expect the fact that there are much higher participation rates now than in 1970 to have a very significant effect as well.

      On the bald figures, it looks like we are not going to be any worse off than we were in 1970. Was that such a disastrous time for the economy?

      In fact, given that we have put in place many economic reforms since 1970 and we have a greater participation rate, and that life was not a complete social and economic armageddon in 1970, it would seem we might need a bit more analysis to claim anything other than there might be a problem. That is not to say there is no problem, merely that any conclusions would really benefit from knowing the effects of having higher participation rates and much improved financial systems in place – on the bald figures, it would seem that we should expect to be better off than we were in 1970 if those were factored in. To what extent is that a problem? Without those figures, and some analysis of their effects, people are just guessing. A guess is better than nothing, but hardly a persuasive case for specific policies, and no substitute for decent analysis.

      The other question is to look at it glass half full and say rather than we will have a problem in the future, that we have had a pretty good run since 1970 due to demographic good luck. So, is not the issue rather that we have let our private debt rack up and it is that which we should be attacking as the demographic good times unwind?

      Consideration of that may end us up needing to delay retirement, perhaps more than any other consideration.

    • All discussion sounds too analytical for me. I see few problems, which needs to be taken into analysis:
      A) Immigrants skills vs age. If we bring 21 years old – they will have t study for about 5-10 years for simple professions, and about 10-15 for more sophisticated. Less adding value to economy. Probably the best way is to take Uni students – which Australia already doing or take students from abroad on the same conditions as Aus graduated, but only certain professions/quality (list of int’l unis etc). While high qualified 40 years old can bring a lot of value, teach young and their high salary level will help to lhave decent super by the retirement age. It is all about details.
      B) If retirement age will be extended and aged would nto have access to their super till 70, we will still have to deal with the stigma of the productivity of the aged people and inspiration from private and public sector to employ them. Otherwise they will sit on Centerlink (even having big super savings). Does it help to the budget?

      • @Tandem Some good points. Makes you wonder why hairdressers were getting PR’s and PhD’s were not (arguable whether there are too many PhDs).

        The problem I see is that how do you recruit and keep these people here. A chap I know in passing is going back home to India over staying here or going to Europe. Has a PhD. His salary, dollar for dollar will be half back home than here.

        His reason? I will live like a king on my half salary … my wife will not have to work and because I have a foreign education, I will be promoted easily.

        This guy will start on above average income here if he decided to get a job here.

    • I think this is an important point to make. Are we talking about “Skilled Migration” which does have age limits or migration in general. We do not only have young migrants, but also Parents, Aged Parents and Dependent Parent visas. There are many visa subclasses that do not have age or skill limitations, so some of our migrants are actually already retired.

      http://www.immi.gov.au/about/reports/annual/2012-13/html/performance/outcome_1/family_migration.htm

      And BTW if you migrate as a Parent, you are eligible for the Aged Pension after 10 years

  7. Easy fix:

    1) Introduce policies which increase TFR to above 3.

    2) Introduce policies which reduce NOM to below zero, but maintain median migrant age above 30

    Then there will be a growing pool of young workers who f— off before they draw retirement pensions. Get the ratio rate, and the population will stay in equilibrium whilst young worker pool increases and retirees pool decreases.

    • TFR – needs:
      A) people to feel secure about their future to make decision to marry and have kids
      B) affordable housing
      C) support the females who are looking after babies: affordable, long hours kindergardens, allow bring babysitters from abroad until baby gets, say, 5, tax deduct babysitting services and kindergardens.
      On C) I am not originally from Australia, I got my son when I was 18, my parents helped me a lot to study and work, baby sitters services were cheap, kindergardens worked till 7 pm. I was without education, without work and I felt much more secure than now, being well above 30, paying mortagage and having decent salary in Australia. As I cant imagine that I will have to work when baby is below 5. It will be nightmare for me.

  8. UE you didnt model in any increase in the retirement age into your analysis of dependency ratios.

    You should factor it in by anchoring it to the lift in life expectancy. maybe not by 1 but 0.7.

    You are probably over cooking the ratios

  9. I find it hard to believe that bringing in younger people rather than letting everyone age in situ is not going to change the old age dependency ratio. Australia has continued to have one of the youngest populations in the OECD because of immigration.

    Please explain!!

  10. Ok Ive looked at the Productivity Commission thing. They are basically saying that the immigration is too puny to have much effect, even under the High Growth scenario. In other words, you would need to step immigration up to 800 000 per year to stop the decline.

    But just because we are not prepared to do this *does not mean* that we should drop the whole programme. The marginal benefit of adding another immigrant is obviously a lot better at 180 000 than it would be at 800 000.

    Sorry Leith but you are wrong on this one.

    • The question is are we going to develop the infrastructure to and industries to cater for “Big Australia”? If yes then we can have even the high growth scenario.

      If no then who is this benefiting?