Australians living longer and in better health, but it comes at a cost
The Federal Government’s Intergenerational Report flags changes to employment and taxation as the number of older Australians is set to double
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Australians are set to live longer and be in better health into their later years, but that means future generations will need to shoulder a bigger tax burden to pay for it.
Those are some of the major findings of the government’s much-anticipated Intergenerational Report, to be released on Thursday by Treasurer Jim Chalmers.
The report, the fifth of its kind produced over the past 20 years, makes key social and economic forecasts about the next four decades – and what needs to be done to sustain those changes.
It will show life expectancy is set to rise to 87 years for men and 89.5 years for women by 2062-63.
The proportion of the population aged over 65 is forecast to double, while the number of people over 85 is set to triple, which the report concedes is “an ongoing economic and fiscal challenge”.
The economic consequences of those changes will be significant, with health spending expected to increase sharply, Dr Chalmers said.
Four other main expenditure areas of the Commonwealth budget, being aged care, the National Disability Insurance Scheme, interest on debt, and defence – will leap from one-third of total government spend to one half.
In particular, the so-called ‘care economy’ will almost double from eight per cent of GDP to about 15 per cent in 2062-63.
“Whether it’s health care, aged care, disabilities or early childhood education – we’ll need more well-trained workers to meet the growing demand for quality care over the next 40 years,” Dr Chalmers said.
“The care sector is where the lion’s share of opportunities in our economy will be created.”
Productivity, which has slumped for several tears now, is expected to remain flat and the report has revised down growth “from its 30-year average of around 1.5% to the recent 20-year average of around 1.2%”.
“Placing more weight on recent history better reflects headwinds to productivity growth, such as continued structural change towards service industries, the costs of climate change, and diminishing returns from past reforms,” it reads.
“This downgrade is consistent with forecasts in other advanced economies.”
Australia’s population in 40 years’ time is projected to hit 40 million, although the rate of growth will slow. The economy will rely more greatly on migration to meet skills shortages.
Dr Chalmers said the Intergenerational Report is a warning of the need to ensure the coming changes “work for us and not against us”.
“We’ve shown and demonstrated a willingness and an ability to make difficult decisions to put the budget on a more sustainable footing,” he said.
The report’s findings will spark renewed debate about the need for broad-based tax reform, forecasting a growing reliance on income tax as other revenue – like company tax and the GST – plateaus in the next decade.
One section of the report reads: “Structural changes to the economy are projected to put pressure on the revenue base over the coming decades.”
But rather than raising the GST, Dr Chalmers has flagged tax reform targeting multinationals, the petroleum resource rent tax, high-balance superannuation and cigarettes as possible areas of focus.
Ahead of the report’s release, the Business Council of Australia this week unveiled its national plan to grow productivity and increase competitiveness via a package of reforms.
“If we want sustained wages growth and to maintain full employment, the nation needs a reinvigorated economic growth agenda driven by large-scale investment, higher productivity and greater innovation,’’ the group’s president Tim Reed said.
“Our [plan] outlines how to deliver that agenda – putting forward the big ideas to dramatically alter Australia’s economic trajectory to deliver higher living standards.’’
Among its proposed policies are calls for microeconomic reform, a 10-year net zero roadmap and an overhaul of taxation.
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The federal budget has rattled property investors. But the biggest mistake isn’t the tax changes, it’s the conclusion many are drawing from them.
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The recent budget has forced a reckoning for property investors.
Negative gearing now restricted to new residential builds, the CGT discount gone and on paper, the numbers look different.
And many investors are responding by pivoting toward yield, prioritising cash flow over capital growth in a way that property strategists say misses the point entirely.
“The debate has shifted to yield versus growth as if they are opposing forces,” says Abdullah Nouh, founder of Melbourne-based buyers’ agency Mecca Property Group. “But that framing is itself the mistake.”
Nouh, who works with high-net-worth families and investors on long-term acquisition strategy, argues that capital growth remains the primary driver of genuine wealth creation and that the post-budget environment has made quality assets more important, not less.
The numbers make his case plainly. An additional $500 per week in rental income is welcome. A prestige asset appreciating by $1 million over a market cycle is transformative.
These are not equivalent outcomes, and portfolios built around yield at the expense of location and land value tend to generate income while wealth stands largely still.
The more nuanced shift Nouh is seeing among sophisticated investors is a move toward assets where both outcomes can be engineered simultaneously – established homes on substantial land in quality locations, where the existing dwelling can be repositioned, rental returns improved, and the underlying land value compounds independent of what sits on it.
For investors with existing equity, commercial property is also entering the conversation in a more serious way.
Prestige industrial assets, medical centres and long-leased essential retail offer income profiles that residential property in most capital city markets cannot currently match: longer lease terms, tenants covering outgoings, and greater predictability than the residential tenancy cycle.
“The investors who build lasting wealth are rarely the ones who chased yield or growth exclusively,” says Nouh.
“They are the ones who built a strategy they could sustain – one that generated enough income to hold quality assets through multiple cycles while those assets compounded in value.”
The budget has changed the settings. It has not changed the fundamentals.
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