2011 could be a pivotal year for Australia’s ageing workforce.
ARE we in for a self-induced economic shock?
Demographer Bernard Salt thinks this year is the crunch time in a looming societal change brought on by the baby boomer wave entering retirement.
This is the year that the first baby boomers – the post World War II cohort that has been a huge demographic bubble since the 1950s – hit the formal retirement age of 65.
Of course, Australia’s working population does not fall off a cliff overnight.
This is only the first year of baby boomers and in subsequent years, particularly in the 1950s, they were even more plentiful as Australia’s baby production peaked.
And not all of them will retire at age 65. Many will work for years to come as health and medical advances have pushed out the working age.
Nevertheless, there is a counter argument to this. This relatively wealthy cohort also enjoys the pleasures of life and many will retire early or work part time for years before they reach 65.
Worryingly, the number of youngsters coming in to the workforce is not matching this looming drop in productive members of society. For starters there are less of them, and they are studying longer before they enter the workforce. They also intend to retire early.
This issue has been known for a long time and, to a certain degree, has been taking place for decades at lower levels.
The catch is that immigration levels have masked this slow change in our society; as we get richer we had fewer children and retired early, slowly squeezing the natural ability of Australia to look after itself.
As the accompanying graph shows, net growth in the working age population has been fairly consistent since the 1950s – growing to match the relative increase in the population itself.
It could be suggested that we have an economy hooked on this sort of growth and would not have any idea what it will be like if it stopped. The only recent aberration in this growth pattern was during the recession of the early 1990s.
Some could argue that the recent peaks have coincided with higher rates of immigration, but the bar chart shows what happens when immigration is dropped – as both sides of politics demanded in the middle of this year when the ‘big Australia’ concept became a political albatross.
Mr Salt’s work shows that, even with 180,000 immigrants a year, Australia slips below the long-term average increase in net growth in working age population. That is an annual total, not a percentage. In other words, we could have a smaller increase in people of working age than the 1970s and 1980s when our overall population was much smaller.
At 70,000 immigrants a year we see a monumental change in the fundamentals that have driven our economy and population for the past 50 years or more.
This is a shocking change that doesn’t seem to occur to people who want to see lower immigration for reasons as varied as environmental sustainability to concerns about multiculturalism.
Anti-immigration calls will do more than stop boats. It could stop the economy.
This issue will be even greater for Western Australia, which is already challenged by skills and labour shortages.
Language of tax
TAX benefits are clearly in the language of the beholder, if the ongoing debate about the mining tax is anything to go by.
From what I’ve seen, federal Treasury has estimated it has missed out on $60 billion over the next decade because the Resource Super Profits Tax was changed to the still-being-negotiated Minerals Resource Rent Tax.
Some new reports based on recent commodity prices put that figure at $100 billion – clearly optimistically believing mineral prices only ever go up.
But the language around this is remarkable. It is being described as a shortfall, suggesting there was something and we’ve fallen short. The truth is there wasn’t a tax, just an idea, and it was changed.
What it may have theoretically raised is not a shortfall, unless it is compared to real spending decisions, which it was meant to pay for.
Lowering the company tax rate from 30 per cent to 28 per cent is meant to cost the government $2.3 billion by 2013-14. Arguably that number extrapolated out to 2021 could be as much as $25billion to $30 billion. Why isn’t that tax reduction described as a shortfall?
In fact, you could argue that every tax reduction, from individual income tax, reduced corporate tax and even lower land taxes over the past two decades represent a shortfall on what could have been.
Such numbers would be in the hundreds of billions of dollars and dwarf anything mining might contribute if it was taxed differently than any other business in Australia.
The banks are very profitable, so why isn’t the fact that they pay 30 per cent tax instead of 40 per cent tax portrayed as a shortfall?
Language is very powerful and imagining the tax opportunity on a profitable industry and then calling it a shortfall is a very clear message.
The government went into the election very much knowing that it had given up this unfair bounty on one part of the economy. They asked people to vote on that and, barely, received the numbers to take power. The other people voted clearly against that.
Now they are adjusting the language to have another go at this policy.