The latest intergenerational report,delayed by more than a year and to be released by Mr Frydenberg in Melbourne on Monday,shows the coronavirus pandemic plus more realistic assumptions around fertility rates has wiped almost four million people from the nation’s future.
The last intergenerational report,released in 2015,projected Australia would be home to 39.7 million people in 2054-55. Mr Frydenberg’s report instead shows the population reaching 38.8 million in 2060-61.
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The smaller population,with fewer children,means the working age population will grey rapidly over coming decades. At present there are four working age people for every person over 65,but this is expected to fall to 2.7 working people in four decades’ time.
Instead of ongoing budget surpluses as envisaged by former treasurer Joe Hockey in his 2015 report,Mr Frydenberg will show the budget to be in deficit every year until at least 2060-61.
The deficit,forecast to reach a record $161 billion this year,is tipped to narrow to 0.7 per cent of GDP or about $25 billion (in 2036-37 dollars) in the mid-2030s. From then,it is expected the deficit will widen to 2.3 per cent of GDP.
Mr Frydenberg,in an address to the Committee for the Economic Development of Australia,will reveal the deficits are driven by a drop in revenue and an increase in spending,especially in health,aged care,child care and interest on government debt.
He will argue the forecasts are a projection of policy today,signalling changes will be necessary to bring the budget back to surplus.
“This is a projection of what could be,not what will be,” he is expected to say.
“But once our economic recovery is secure,we have a responsibility to again do the work necessary to restore our finances and re-build our fiscal buffers.”
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In 2015,the government hoped to have negative net debt. Mr Frydenberg’s report shows net debt at just under 30 per cent in the mid-2040s before increasing again.
Mr Frydenberg will argue one area of change may be around migration,which has collapsed due to COVID-19 restrictions. After net 194,400 migrants entered the country in 2019-20,a net 77,400 migrants are expected to leave in 2021-22.
“A well-targeted,skills-focused migration program can supplement our stock of working age people,
slow the transition to an older population and improve Australia’s economic and fiscal outlook,” he will say.
The Treasurer will also argue productivity growth will have to lift.
But the report is based on an assumption that Australia’s average productivity growth rate of the past 30 years,of 1.5 per cent,will be replicated over the next four decades.
![Mr Frydenberg selling this year’s budget. His intergenerational report shows the budget will not return to surplus for at least 40 years.](https://static.ffx.io/images/$width_300%2C$height_150/t_crop_auto/t_sharpen%2Cq_auto%2Cf_auto/c0056807177329395a563a0c1545790c9309b82e)
Mr Frydenberg selling this year’s budget. His intergenerational report shows the budget will not return to surplus for at least 40 years.Jessica Hromas
Productivity has slowed over the past 15 years,falling short of 1.5 per cent over that period. Since the 2015 intergenerational report it has averaged 0.5 per cent.
The government has a self-imposed limit of tax to GDP of 23.9 per cent. The report shows the pandemic has hit total tax revenues,with the 23.9 per cent limit not reached until 2035-36,four years later than expected in 2015.
Treasury warns personal tax receipts will grow faster than others,such as company tax,until the mid-2030s.
“Without raising additional revenue from existing taxes or imposing taxes on new sources,personal
income tax receipts will form a greater proportion of total tax receipts in the long term as a result of
bracket creep,” it said.
“Company tax receipts will likely continue to be volatile,while indirect and consumption based tax receipts will form a smaller proportion of total tax receipts than in the past.”
The report takes into account the federal government’s stage three tax cuts which were partly put in place to deal with bracket creep,suggesting Treasury believes other tax changes will be necessary.
The combination of slower population growth,workforce participation changes and productivity means the economy is expected to grow at 2.6 per cent a year for the next four decades. Over the past 40 years,the economy has grown on average by 3 per cent a year.
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