EXPERT REACTION: Australian Government's 2023 Intergenerational Report shows growing economic and societal pressures

The assumption of long-term migration remaining constant at 235,000 annually relies inherently on the premise that future migration policies and economic conditions in Australia and migrant-sending countries will remain unchanged, which is contrary to historical evidence. Additionally, the assumption of a constant total fertility rate (TFR) of 1.6 babies per woman from 2030-31 onwards is improbable as Australia might follow a similar fertility pattern to Europe's very low TFR of around 1.5. Given the escalating ageing population and the prospect of extremely low fertility, it seems improbable for Australia to maintain a steady population growth, albeit at declining rates with a constant migration volume over the next three decades.

The 2023 Inter-Generational Report (IGR) is based on a balance of emerging demographic, economic, structural and climate-related scenarios. The proportionately less (not less in absolute terms) spending on aged care and related issues are justified on higher superannuation returns of retirees and the larger projected number of the aged. Incidentally, the age-pension age would be 66 years and more for a very large number of retirees, so the emphasis on the projected number of 65-plus-year-olds in this context needs reconsideration. Pension-age and older persons are projected to live 3.5 years longer in 2063, adding to payments of eligible age pensions, but many of the elderly would remain healthy to actively contribute to the economy if appropriate jobs are provided to those willing to work.

The expected shortfall in petrol excise in view of people’s increased reliance on EVs should be weighed against the ability of the nation to produce clean electricity to power the EVs. The broadened purview of the IGR to tackle effects of climate change is commendable.

The Intergenerational Report is useful because it helps us to focus on the factors that will affect Australian’s living standards in the longer term. That helps us make better decisions about how to respond to the challenges and choices that we face as a nation.

One of the most important drivers of Australia’s living standards going forward is growth in the economy as a whole. From a high-level perspective, that growth depends on population growth and changes in the age structure, participation in work and changes in productivity.

We don’t have certainty over how these factors will evolve over the next 40 years. The authors of the IGR develop a plausible scenario so as to better understand what may happen. They highlight five important factors.

Firstly, Australia’s population will age further as the number of people in retirement age groups rises strongly. This tends to undermine participation. But that can be offset by increases in age-specific participation rates, especially for older age groups. We need to ask how we can appropriately foster that.

Secondly, the arrival of new data and digital technologies such as AI has the potential to raise productivity. We will need to respond to the challenges and risks in those new technologies, but we need to do it in a way that means that we do not miss out on the opportunities that they bring. AI has the potential to raise productivity and service quality in service sectors that have in the past been very difficult to improve.

Thirdly, the IGR takes explicit account of the negative impact of climate change on productivity. Productivity in sectors like agriculture and construction is damaged at higher temperatures. And increased frequency of natural disaster events also undermines living standards more broadly. We will need to adapt to these changes, but we also still have a chance to support a global approach which limits the extent of damaging climate change.

As part of Australia’s contribution to the control of climate change, we are transitioning towards a net zero economy. This transition brings costs of its own and it is important that we set a net zero pathway that minimises the whole of economy costs of getting there.

Fourthly, Australia faces a rising demand for care and support services and these services are costly. Some of the rises in demand may be met with increased resourcing. But Australian Governments will not be able to meet every expectation, and difficult choices must be faced about what can be covered.

Fifthly, geopolitical risk and fragmentation create challenges for Australia. We are at risk of losing markets in which we have strong comparative advantage and having to turn to less lucrative alternatives. Australian Governments need to challenge costly measures in the name of security and determine that those measures really do justify the costs that they bring.

The IGR is valuable because it makes us think about these interacting trends in a holistic way. There are powerful changes in progress that we don’t have much capacity to stop. But we do have the ability to choose how we as a nation respond and we do have the choice about how we cooperate with our international partners to get better outcomes.

The central scenario in the IGR is by no means certain – a lot can change in 40 years. But the challenges that it identifies are real and their consequences are significant. If the IGR makes us think about our policy responses in a more coherent and realistic way then it will have done its job.

We need to move away from the traditional age dependency ratios that assume everyone under the age of 15 and over the age of 65 is a burden on society and the tax system. Children are more often dependents a lot longer as years of education increase and adults continue to contribute to society and the tax system for the rest of their lives (think GST, taxes on fuel etc.).

Older Australians are increasingly remaining in the workforce longer than they ever have before, in 1983, only 5% of Australians aged 65+ were employed; whereas at the 2021 Census it was over 11%.  With no compulsory retirement age, an increased pension age and the end of defined-benefit superannuation, we can expect that trend to continue. Particularly as we shift to more desk-based work practices and more automation in industry – although we can acknowledge that it is not possible for everyone to continue working beyond the current pension eligibility age, for many it is possible.

So, we need to ask what stops us increasing this work rate beyond 65 years of age to perhaps 50%? Raising this rate is one area Australia can, and should, do better. This is going to be critical – for the economy and for society - if we are not going to consider a substantial lift in the migration rate. We need to have a deeper exploration of the ageist attitudes that make work unappealing or unattainable for people over the age of 65. Where are the flexible work options, the re-skilling and re-training options? What is being done to entice more older people to remain at work?

But we should also not forget that a lot of people aged 65+ leave the workforce and remain productive in other ways. For example, caring for their very old parents; their grandchildren, their partners and other older family members; they volunteer; they undertake environmental rehabilitation; they help out the younger generations financially, emotionally and with tangible things like housing. Even those that are not earning a wage and paying income tax are contributing to society in a hundred other ways that we fail to account for or measure.

Critically, while we do have an increasing need for a ‘care economy’, including aged care options as our 80+ population grows over the next few decades; in fact most people aged 65+ are not in aged care. Aged care and end of life is very expensive, but it is usually compressed into the very last year or two of life for most of us. We are living longer, often with (managed) chronic conditions, but overall we are healthier too. In fact, less than 6% of all older people are actually in aged care, a slightly larger percentage (about 11 - 15%) are accessing a small amount of care at home (a much cheaper option for the government) and the remainder manage perfectly well at home independently. If we maintain independence and improve health through access to good public health programs, implementing smart home technology for health monitoring and assistance we can keep older people out of the “care economy” for a lot longer.
 
It is time we stopped this myth of later life being a burden on the community and in need of expensive aged care and realised that older people are net contributors to the economy and the community given the right supports and opportunities.

There are no big surprises in this report. Though the numbers are large, the key message is 'don't panic'; these reports include many assumptions in their forecasts.

Many areas such as aged care and NDIS are undergoing reform at the moment, which will help to make them more sustainable into the future, and which are not reflected in forecasts in the report.

Though there will be more older people in the future, they will also be healthier due to continuous improvements in technology to treat chronic disease.

Behind such a fiscal prediction drawn from the ageing demographic, we may further consider other trends on the population level. A gap between life expectancy and healthy life expectancy in an ageing population implies a certain level of continuous care required from the health sector and aged care. 

Besides planning ahead for the care of older adults, it’s important to think about what kind of social infrastructure we can design to sustain the necessary social engagement among older people, reduce the ageism towards older adults, and improve financial well-being of older adults. Social and financial well-being of older adults will be crucial to empower the agency of this population group.

It is exciting to think how far we have come in terms of life expectancy. In the 1900s Australians may have only expected to live until the age of 55. In the 1950s Australians expected to live to about 70. Now life expectancy is in our early 80s. 

It is no longer about how long we live, but how long we live in good health. While some people live in good health well into later life, others are negatively impacted earlier in life. We know that different social and economic groups have varying access to quality healthcare, resources and opportunities, creating disparities in well-being. Our next step is ensuring fairer health longevity. Fairer health will involve implementing a combination of strategies, policies and initiatives to address disparities.

Our ageing population is a public health success story. We have prevention and treatment for many diseases that have led to people living longer and living well. However, the systems of care across health and social care need to be reimagined to make sure we are addressing the needs of our older adults. 

This includes better and timely access to health and social care across state and federal government boundaries to enable older people to live at home for longer, educating and attracting the next generation of the aged care workforce and ensuring we have processes in place to respond to innovations in drug discovery and diagnosis, in for example Alzheimer’s disease.

La Trobe University’s Care Economy Research Institute is leading the solution to the problems. We are trialling innovations around care workforce, care delivery, care experience and care technology, including the use of AI, underpinned by the social, policy and economics of care, to intersect and synergise these separate care sectors. On the back of the Intergenerational report, where the care economy is set to nearly double to 15% by 2063, details on the government’s investment to build a resilient care economy are yet to be made.

The Intergenerational Report provides a snapshot of Australia’s current population and the implications of this for Australia’s economy. It is the sixth report since 2002 and while this report is broader in scope, the reports have always highlighted the ‘growing pressures’ of a population that is ageing.

We have had ample time to plan for this, 20 years in the case of the Intergenerational Report and more than 40 years since the ageing of the population was raised as an area that would require forward planning and a policy focus and lens. For its impact on society, ageing is still often couched in negative terms, especially in terms of aged care support and health costs but ageing of the population needs to be viewed positively and as a major achievement of modern societies – longer life expectancy, ongoing participation in the workforce, supporting younger cohorts through intergenerational living, providing a volunteer workforce, care within families, and life-long experiences.

Older people are adaptable and wish to contribute to the communities in which they live for as long as they can. While yes there may be some costs involved in caring respectfully for this cohort, particularly in the very later years of life, it is just as important to recognise and value the amazing contributions older people have made to society and continue to do so and plan the structures and supports needed to support them in these endeavours.

The 2023 Intergenerational report talks about challenges and opportunities. Opportunities as possibilities are important to emphasise in relation to our ageing population and this was noted by the Royal Commission on Ageing, which commented on the limited possibilities for people in aged care.

Staying healthy and continuing to contribute to society are key points in this report which acknowledges the potential wisdom and support of younger generations that elders offer (p.50). The report also highlights the importance of people being able to access services and having the information they require to take action to improve their health (p.5).

But here there is a significant gap in knowledge. While well-educated middle-class users are generally well-informed about how to age healthily and positively, other communities are not. They may be confused by the plethora of different services and service providers out there and lack that necessary information the report refers to.

The early uptake of physical, creative and intellectual activities, summed up as lifelong learning and an active lifestyle, are key to maintaining cognitive health and quality of life. Therefore, developing strategies and mechanisms (culturally sensitive as appropriate) to inform and educate communities on how to age well and where to go for help is critical.

The Intergenerational Report highlights the growing economic and societal pressures of Australia’s ageing populations; the number of people over 65 will double and those over 85 will triple under current projections, increasing pressure on health, aged care and disability services. Less attention is given to the impacts of hotter temperatures and extreme weather on the health and well-being of future generations.
 
The elderly and people with existing health conditions are already at greater risk of physical and mental health impacts from hotter temperatures and extreme weather, including heatstroke and heat-exacerbated chronic conditions such as heart disease, diabetes, hypertension and mental health conditions. Bushfires and air pollution will exacerbate pre-existing heart and lung conditions.
 
These effects will not be distributed evenly: people living in the Northwest of Australia, such as Broome and Darwin, will experience more and longer periods of extreme heat. Food and water security will be threatened by declining rainfall trends, disproportionately impacting those in regional and rural agricultural hubs. Adaptation planning will need to rapidly accelerate to deal with projected impacts of climate change on health, and strengthen resilience and preparedness of health systems to cope with growing demand.
 
Australia will likely face increasing pressure to support vulnerable communities in neighbouring Pacific Island countries, who are more vulnerable to the impacts of climate change. Voluntary and involuntary climate change-related migration will likely increase over coming decades. Climate-displaced migrants are at greater risk of adverse health outcomes – and may require additional support from health services in destination countries.
 
This has significant implications for Australia’s leadership and role in the Indo-Pacific region. Last week’s International Development policy embeds climate change as a cross-cutting priority – but will require a significant scale-up in foreign aid funding to match its ambition.

The number of Australians aged 65 and over will more than double, and the number aged 85 and over will more than triple, over the next 40 years. The report projects consistent increases in health spending because of this shift in population demographics. 

Although many Australians are anticipated to live with full health for longer, increasing age is associated with a substantially increased risk for chronic health conditions, such as dementia. Alongside the personal impact to individuals living with dementia and their families, there will be considerable economic and healthcare spend associated with dementia in the coming decades. Nevertheless, we know there are things that people can do to reduce their own risk of dementia. 

Dementia risk factors such as age cannot be altered, but may be mitigated by participating in behaviours that reduce the risk of dementia. For example, staying physically and mentally active, adhering to a Mediterranean-style diet, sleeping well, and managing other chronic health conditions, are all associated with reduced dementia risk, even late in life. An increase in uptake of these behaviours will reduce individual risk of dementia, and decrease dementia prevalence, contributing to reduced government spend in this area.

Hidden Finding: Is Female Time the Critical Bottleneck of Economic Growth?

Are we asking women to juggle too many roles simultaneously? Recent intergenerational reports have highlighted two seemingly unrelated trends: lower fertility rates and higher labour force participation among women. However, upon closer examination, it becomes clear that both trends are a result of the choices women are making. The report indicates that women are delaying or reducing fertility due to increased opportunities in employment and education. At the same time, the highest-ever rates of labour force participation are being driven by more women entering the workforce over the past decades.

Gender Economist Leonora Risse pointed out at the 2022 Job Summit that stay-at-home moms could potentially join the workforce, contributing further to labour participation. While this seems like a sound idea, it's important to note that most women find it difficult to manage both a demanding career and a larger family—particularly one with three children, when 2.1 is the replacement rate. Policymakers need to acknowledge that both labour force participation and fertility place substantial demands on women. This is becoming a scarce resource and a bottleneck affecting Australia's economic prosperity.

Policymakers have been encouraging women to pursue careers during their most fertile years, through mechanisms like superannuation design and youth allowance education funding. However, they have overlooked the long-term implications: the more women work and pay taxes now, the fewer people there will be to support the tax base in the future. Adding to these constraints, fertility-delay treatments are not publicly funded unless medically prescribed, thereby imposing a harsh deadline and forcing women to make difficult trade-offs.

It's time to create attractive care sector employment opportunities to support an ageing population.

Today’s Intergenerational Report highlights both challenges and opportunities of an ageing population. Aged care and health services are areas of government spending projected to increase most rapidly as we can all expect to live longer lives into older age.

Rather than seeing this as a fiscal burden for Treasury, we should see this necessary expansion of aged care services as an opportunity to build a vibrant care workforce – comprising people who are engaged, professional and secure in their work.

However, the Royal Commission highlighted inadequate training, precarious and poorly paid conditions, and insufficient levels of staffing as critical barriers to secure employment and quality care.
By investing in a world-class care sector, Australian governments can improve the quality of life of older Australians, something that should matter to us all as we are all ageing every day.

Equally important, improving care sector employment will deliver a more diversified and sustainable economic future, improve gender equality by supporting a heavily feminized workforce, and reduce pressure on hard-working families, particularly for women who disproportionately provide unpaid care to ageing relatives.

It is time to focus on creating attractive care work careers. This will involve better training and career development opportunities, and well-implemented visa streams to attract and retain care professionals from around the world.

The Social Revolution need to safeguard our ageing futures

The Intergenerational Report released today reveals a staggering demographic prediction that should make us all sit up and take notice: The number of people over the age of 65 in Australia is expected to more than double, while the number over 85 is tipped to more than triple. 

The good news is we all have a higher chance of living longer. The bad news is that many of us are likely to spend increasing amounts of time in states of care dependency, and our aged care workforce – and care economy in general – is woefully unprepared and inadequate. 

To prepare for this impending ageing and care crisis, we need to radically change our relationship to ageing. In particular, we need to embrace the World Health Organisation’s definition of ageing as “ageing at every age” and stop thinking about ageing as something that only happens to old people. We have to ask hard questions about how what happens in pregnancy, childhood, adolescence, middle age impacts our health in advanced age. This change in mindset requires a social revolution in our approach to understanding ageing. A good place to start is tackling ageism, which, according to the WHO, is our biggest barrier to ageing well.