Australia must dramatically raise productivity if it to meet the challenges of an ageing population, the Prime Minister, Kevin Rudd, said last night.
Speaking in Melbourne on the first day of a national tour in the lead-up to Australia Day, Mr Rudd said by 2050, there would be only 2.7 working-age Australians for every one aged 65 or more. There are now about five working-age Australians for each citizen over 65. Four decades ago there were 7.5.
The grim predictions come from the third intergenerational report, to be released by the Treasurer, Wayne Swan, in coming weeks. The report predicts the proportion of the population aged 65 and over will jump from about 14 per cent now to about 23 per cent by 2050.
''Unless we make big changes, we will either generate large, unsustainable budget deficits in the second quarter of the century, or else we'll need to reduce government services, including health services, as the needs of an ageing population become greater,'' Mr Rudd said.''
This is not just a challenge for future governments,'' he said.
''It will also become a challenge for working families, because with a smaller proportion of Australians in the workforce, the size of the national economic pie will grow more slowly and, as a result, average family incomes will grow at a slower rate than we've become accustomed to.''
The predictions, while dire, are slightly less pessimistic than those in the second such report, released by the then treasurer, Peter Costello, in April 2007. That projected there would be only 2.4 Australians of working age for every one over 65 by 2047, and a quarter of the population would be 65 or more by then.
Mr Rudd said three sources could strengthen the economy - population, workforce participation and productivity growth.The report predicts the population will grow from 22 million now to 36 million by 2050.
But Mr Rudd said with lower fertility rates and stable migration ratios, population policy would form only a small part of the solution. And even with lower barriers to women's working, Treasury predicts workforce participation will fall from about 65 per cent now to about 60 per cent by 2050. This meant productivity growth would be central to generating economic growth, he said.
Mr Rudd said the rate of productivity growth had hit 2 per cent in the 1990s, after the reforms of the Hawke-Keating governments.
But in the past decade it dropped to 1.4 per cent.He said without a concerted effort to increase productivity, annual productivity growth would be only 1.6 per cent over 40 years. This meant annual economic growth would fall to 2.7 per cent, below the historical average of 3.3 per cent for the past 40 years.
But, he said, a determined push could lift annual productivity growth to 2 per cent, which would raise average annual economic growth above 3 per cent. ''The high productivity path would result in our economy growing an extra 15 per cent by 2050,'' Mr Rudd said.
This would add about $570 billion to annual economic output in today's dollar terms, leaving, on average, each person $16,000 a year better off.The director of Access Economics, Chris Richardson, said the speech was a ''scene-setter'' for the coming Henry review of the tax system, which is expected to propose potentially unpopular changes.
''If you are going to convince people to do difficult stuff, you have to explain why,'' he said.
Mr Richardson said a 2 per cent productivity growth would be ''marvellous'' but would require a unified government and Opposition committed to economic reform.
''I agree with the Government's plans for achieving productivity growth. Things like education revolution, infrastructure are very important. But we have to pay for it.''
with Jonathan Pearlman
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