Ruqayyah Snyder
Australia's population is ageing due to increasing life expectancy and declining fertility rates. In 2020, there were an estimated 4.2 million older Australians (aged 65 and over), comprising 16% of the total population. By 2066, it is projected that older people in Australia will make up between 21% and 23% of the total population. This demographic change will have significant implications for Australia's economy, society, and workforce. The ageing population will impact the country's finances, communities, and healthcare system, leading to challenging conversations about the responsibility of Australians for their families and the potential need for increased taxation to support the ageing population.
| Characteristics | Values |
|---|---|
| Percentage of population aged 65+ in 2020 | 16% |
| Percentage of population aged 65+ in 2021 | 16.2% |
| Projected percentage of population aged 65+ in 2026 | 22% |
| Projected percentage of population aged 65+ in 2063 | 21-23% |
| Projected percentage of population aged 85+ in 2066 | 3.6-4.4% |
| Population growth contributors | Immigration |
| Old-age dependency ratio in 2063 | 5:2 |
| Spending pressures areas | Health, age pensions, aged care |
| Fiscal impact over the next 40 years | 4.75% of GDP |
| Per capita growth | Slow |
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What You'll Learn
Rising healthcare costs
Australia's ageing population will have a significant impact on the country's healthcare costs. As the number of older Australians increases, so too will the demand for healthcare services, and this will inevitably lead to rising healthcare expenditure. The issue is twofold: firstly, older Australians require more healthcare, and secondly, keeping people alive longer requires greater resources.
The demographic change in Australia is being driven by increasing life expectancy and declining fertility rates. By 2026, more than 22% of Australians will be aged over 65, up from 16% in 2020 and just 8.3% in the 1970s. This trend is expected to continue, with projections that by 2066, older people in Australia will make up between 21% and 23% of the total population.
The ageing population will result in a higher number of people with chronic and complex health issues, requiring multiple medications and needing specialised care. This will place a strain on the healthcare system, particularly in the areas of aged care and dementia support. Currently, the aged care sector in Australia faces challenges, including staffing irregularities and a fragmented system that can make it difficult to access cost-effective help.
To address the rising healthcare costs associated with an ageing population, Australia will need to make significant changes. This may include increasing taxation to fund the care of older people, although this could raise issues of intergenerational fairness. Another option is to promote economic openness, spending discipline, productivity and labour force participation. However, with a declining labour force due to a lower number of working-age people, this may not be a sustainable solution.
Ultimately, Australia will need to adapt to the challenges posed by its ageing population, and this will likely include a combination of economic and social reforms to ensure the country can support its older citizens.
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Funding models and taxation
Australia's ageing population will have wide-ranging economic impacts, affecting savings behaviour, asset returns, international capital flows, and the supply of labour. As the population ages, the demand for certain services will increase. For example, more health centres may be needed, and more spending will be required on healthcare and aged care. This will place budgets under considerable pressure.
The Australian government currently spends 1.2% of its GDP on aged care, which is low compared to other high-income countries. For example, Denmark spends 4.3% of its GDP on aged care. The cost of aged care to the government has been raised as a concern across multiple intergenerational reports, and it is a priority in discussions about sector reform.
There are several options for funding models and taxation to address the issue of an ageing population. Firstly, the government could increase taxes to better fund the aged care sector. This could include adding to Australia's Medicare levy, with a suggested increase of between 0.65% and 1% to fund aged care. Another option could be to draw on a United States-based approach and solicit greater contributions from those receiving care, depending on their means.
Another approach is to encourage more people to self-fund their retirement during their working lives. This would involve simplifying the rules around superannuation settings to make them more accessible and understandable for people.
The issue of funding aged care is not just economic but also taps into conversations about what Australians value as a society. Questions arise about the responsibility of individuals for their own families and how they should contribute to their aged care. The role of taxation underpins these discussions, and any changes will likely be politically challenging.
To address the economic impacts of an ageing population, measures to raise productivity and participation would enhance income growth and the capacity to 'pay' for the costs of ageing, including through taxation. This could include promoting economic openness, spending discipline, and labour force participation. However, the success of these measures depends on the extent to which service demands and costs continue to rise.
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Labour force participation
Australia's population is ageing, and this has had an impact on labour force participation. An ageing population can reduce labour supply as older workers retire. However, this impact has been mitigated by the increased labour force participation of older Australians, who are remaining in the workforce longer than previous generations.
In April 2021, the workforce participation rate of older Australians (aged 65 and over) was 15%, more than double the rate in 2001 (6.1%). The participation rate for older men was 19%, almost double the 2001 rate (10%), while the rate for older women was 11%, nearly quadrupling the 2001 rate (3%). The labour force participation rate for people aged 55-64 has also increased, rising to 67% from 47% in the early 2000s.
The increase in labour force participation among older Australians has helped to offset the economic impact of an ageing population. Older worker participation is expected to continue rising due to a gradual increase in the retirement age from 65.5 to 67 by 2023. Other factors contributing to the increasing labour force participation of older Australians include improved health, more jobs in the service sector, favourable tax treatment of superannuation contributions, and a rise in flexible work options.
However, the health profile of employed older workers has not improved, indicating that increased labour force participation may be driven by financial needs. Health gaps between employed and unemployed older Australians have widened, accompanied by widening income, superannuation, and net financial asset gaps.
While the ageing population has impacted labour force participation, strong migration to Australia has helped to offset this effect. Australia has one of the youngest populations among advanced economies, and migration has contributed to its high population growth rate.
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Aged care workforce
Australia's ageing population will reshape Australian society, workplaces, national and household finances, and communities. This will lead to a significant increase in the demand for healthcare services, with health spending projected to more than double to AUD$270 billion (USD$174 billion).
The aged care workforce is critical to ensuring quality care for older Australians. However, there are several issues within the sector that need to be addressed. Firstly, there is a need to improve the perception and value of aged care work. Aged care workers play a vital role in caring for older Australians, yet their contributions are often overlooked. This can discourage people from joining the aged care workforce, leading to labour shortages.
Additionally, there is a need to address the undervaluing of aged care skills. The complexity of caring for older people with chronic health issues and multiple medications is not always recognised, and aged care is sometimes not seen as a desirable specialty within the nursing profession. This further contributes to the challenge of attracting and retaining a skilled workforce.
To address these issues, the Australian government has acknowledged the need for systemic changes and made recommendations in the final report of the Royal Commission into Aged Care Quality and Safety. These include initiatives to upskill the workforce, improve workforce management and culture, and develop evidence-based programs and policies. There is also a recognition that better data on the aged care workforce is needed to understand labour shortages and improve workforce planning.
Furthermore, policy reforms are required to improve labour force participation and productivity to support an ageing population. This includes promoting economic openness, spending discipline, and labour force participation, particularly for older workers. Australia's participation rate for those of traditional working age has improved in recent years, but there is still potential for growth.
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Immigration
Australia's population is growing, ageing, and becoming more ethnically diverse, with migration being a significant contributor to this growth. From 2006 to 2015, migration had a more consistent impact on population growth than natural increases (the number of births minus the number of deaths). Multiculturalism as an official policy dates back to the 1970s, resulting in diverse immigration and a shift in source countries.
Recent migration trends in Australia show a significant influx from Asian countries like China, India, the Philippines, Vietnam, Malaysia, and Sri Lanka. This has led to a substantial presence of older adults from culturally and linguistically diverse (CALD) backgrounds, with over 2 million in the country. As of June 30, 2020, nearly 30% of Australia's population was born overseas.
The changing demographics of Australia's older population present challenges in various sectors. One critical issue is the accessibility of aged care and health-related services for older migrants from CALD backgrounds. Language barriers and a lack of English proficiency among this population hinder their ability to access necessary services. This issue is particularly notable given Australia's long history of immigration.
Additionally, the ageing population will impact the economy and labour force. As the demand for paediatric services declines, there will be a significant increase in the need for aged care and geriatric services. The fertility rate in Australia is currently below the replacement rate, and natural increase is projected to turn negative in the 2050s. Consequently, population growth will rely even more on net immigration.
The ageing population will also influence the financial landscape, with an increased demand for products that assist in managing retirement incomes, such as annuities and long-term indexed bonds. The Australian government will need to ensure that markets remain open and supportive of innovation in this regard.
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Frequently asked questions
Australia's ageing population is an issue because it affects the country's economy, social engagement, and workforce. The median age of Australians has increased from 34 twenty years ago to 37 today. This ageing demographic impacts the Australian budget as there is a reduction in revenue due to a declining working population, and an increase in spending due to a larger demand for elderly support.
The ageing population in Australia is impacting the economy through increased spending and decreased cash flow revenue. The elderly population is predicted to deduct 0.4 percentage points from the annual real growth in revenue and add 0.3 percentage points to the annual real growth in spending. This will result in a $36 billion added cost to the yearly Australian budget by 2029.
The ageing population in Australia is impacting the workforce as the rate at which citizens work is impacted by their age. When people reach the age of 55 in Australia, their working participation begins to reduce, and as such, the Australian elderly population has low working rates compared to those aged under 55.
The Australian government is addressing the issues arising from the ageing population through policy reforms to improve labour force participation and productivity. Additionally, discussions are being had regarding increasing taxes to better fund the aged care sector.
