specialty focus
Future focus
The release of the 2023 Intergenerational Report found without any significant action , Australians will face a decline . Picture : NCA NewsWire / Martin Ollman
Treasurer ’ s warning as 40-year economic outlook released
By NCA Newswire
The government will be forced to slash spending or hike taxes for Australians if it wants to avoid a widening hole in the nation ’ s balance sheet over the next 40 years , the latest Intergenerational Report ( IGR ) has revealed .
Released by Treasurer Jim Chalmers on August 24 , it reports on a nation facing slower economic growth , higher spending , chronic deficits and debt , and lower population growth , and shows the long-term issues facing the country ’ s finances .
In a speech to the National Press Club , the Treasurer warned that without significant action Australians will face a decline in living standards , increased geopolitical risk , and the debilitating effects of climate change .
“ This is our blueprint for the future ,” Mr Chalmers said .
“ Not just understanding the big trends and transitions but acting on them . Turning pressures into prescriptions . Options into opportunities .”
“ We can turn these turbulent twenties into the right kind of defining decade . So that in 40 years ’ time , our successors will be able to look back and see that we got it right .”
22 agedcareinsite . com . au
AUSTRALIA FACES 40 YEARS OF BUDGET DEFICITS The IGR forecasts that GDP growth is set to slow to the slowest pace in more than a century as weaker productivity gains pare back projections for the size of Australia ’ s economy .
Over the next 40 years , the economy is expected to grow 2.2 per cent a year in real terms – 0.9 per cent lower than the last 40 .
At the same time , the budget faces a blowout in the five biggest areas of government spending – the NDIS , aged care , health , defence and interest payments on debt – which will cost $ 140 billion a year by 2062-63 in today ’ s dollars .
Currently , the five biggest spending areas cost 8.8 per cent of GDP . By 2062-63 , they will 14.4 per cent .
Government spending will skew towards supporting older Australians , with the funding needed to support aged care forecast to more than double in real terms . At the same time , real funding for education and training is expected to fall more than 0.5 per cent .
Despite a projected surge in government spending , the IGR also reveals that the government ’ s tax take as a proportion of GDP will barely budge , meaning the budget is not expected to return to surplus in the next 40 years .
Changes in consumer behaviour are expected to have a significant impact on the budget . Falling smoking rates and the uptake of electric vehicles will slash the tobacco and fuel excise taxes respectively .
In the absence of policy change , Australia ’ s high reliance on personal income taxes will also become more acute , rising to more than 58.4 per cent in the next 40 years , up from 50.5 per cent currently .
The performance of the Future Fund is also expected to worsen in the coming decades .
AGEING AND CHANGING POPULATION An ageing , slowing population is set to put significant strain on the budget over the next four decades .
Over the next 40 years , life expectancy at birth is projected to increase to 87 years for men ( up from 81.3 years today ) and 89.5 years for women ( up from 85.2 years ).
The report warns that “ population ageing will affect Australia ’ s fiscal outlook ” because a smaller share of working Australians will mean – without tax reform – lower tax revenues , while at the same time , the government ’ s expenditure on services like health and aged care are set to skyrocket .
“ Around 40 per cent of the projected increase in Australian government expenditure from 2022-23 to 2062-63 is estimated to be due to demographic ageing ,” the report says .
The problem will be exacerbated by a projected slow population growth of just