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The demographics of a growing (and ageing) Australia

Australia's population grew by 1.6% p.a. over the last 10 years, reaching over 25 million people in 2018. This rapid growth has been concentrated in our major cities with Melbourne, Sydney and Brisbane absorbing 2.2 million of the total 3.7 million population growth over the period. Immigration has been the largest contributor to our population growth, supplying around 60%.

There is currently a lack of effective policies on our future population to address the mix of growth (natural versus immigration), pace of increase and a geopolitical strategy of dispersing population out of the south-eastern corner of the country.

Understanding demographics is vital to successfully planning for the future, including:

  1. Population growth: what it has been and where it is going
  2. Ageing population: who is going to pay for all the retirees
  3. Natural increase: can we encourage copulation
  4. Immigration: the benefits and opportunities migrants bring
  5. Australia in Asia: a small fish in a big, opportunity-laden pond

The beauty of demographics is that the future has already been written.

1. Historical and forecast population growth

Australia has experienced phenomenal population growth over the last 20 years. Since 2008, our population has increased by an average of 375,000 people a year! This has been underpinned by Net Overseas Migration (NOM) which contributed 2.2 million people over the last 10 years. Our 1.6% p.a. growth rate ranks us in the top half of global population growth rates and has supported our record 28 years of unbroken economic growth.

Notably, big advanced nations such as the US, France, United Kingdom and Germany all recorded population growth below 1% over the same period. Some of our big neighbours’ populations are stabilising (China's population is forecast to peak in 2029 and thereafter decline) and others are already experiencing declines (Japan's population declined by around 450,000 people in 2018).

Extrapolating our current growth rate into the future projects a population of 29.2 million in 2028. This assumes a comparable rate of annual natural increase of 0.7% (variations will be driven by fertility rates and life expectancy) and NOM remaining at the 2018 level of around 240,000 people per year.

Where is the growth going? Into the bigger states and predominantly into the capital cities.

The high rates of growth in our major cities are not being matched with appropriate infrastructure which is resulting in increasing congestion, lower livability standards and worsening pollution. Can Sydney and Melbourne really accommodate another 0.9 million and 1.2 million people, respectively, over the next 10 years without impacting the livelihoods of current residents?

2. Ageing population

Added to a growing population we have, like many countries, an ageing population. This will cause imbalances in the fiscal demands on governments (pensions, health, aged care) and infrastructure (schools, hospitals, caravan parks, nursing homes).

Australia's aged dependency ratio (defined here as the number of people over 65 / working age population (20-64) * 100) has been steadily increasing. An increasing dependency ratio indicates more retirees for each worker thus putting an increasing fiscal burden on the current working age population.

In 1970, there were 15.5 people aged over 65 for every 100 working adults (aged 20-64). In 2017, there were 25.8 over 65 for every 100 workers. The ABS has forecast that this trend will continue and the aged dependency ratio will rise to 30.9 by 2030, placing further pressure on government budgets and exacerbating intergenerational inequality.

Part of the rising ratio is simply due to higher life expectancy which has risen from around 70 years in 1970 to 83 today, which is one of the highest in the world. However, a big driver is our fertility rate (births per female) which has declined from around 2.96 in 1970 (the end of the baby boomer period) to 1.79 today. The rate required for a stable population in Australia (ignoring net immigration) is 2.1 births per female.

Without immigration, our population is in decline.

There have been a few positive policies to counter the inevitable impacts our ageing demographics, such as:

1) the introduction of superannuation by the Hawke Government in 1986 to help retirees become financially self-sufficient, and

2) the formation of the Future Fund by Peter Costello in 2006 to cover certain superannuation contributions of public servants.

Understanding the rise in the dependency ratio, governments should be creating surpluses now to mitigate the future impact of lower taxes from a relatively-shrinking workforce. Continued budget deficits only increase the cash crunch for future generations. The government needs to reconsider the tax breaks that currently benefit older generations in the context of the need to lower the national debt or fund infrastructure.

3. Natural increase

We predominantly rely on immigration to boost our population. If we want to change the mix, we need policies that encourage a higher birth rate.

Millennials (now aged 23-39) are the current baby-producing generation. As 62% of the population live in our five largest cities, Millennials face uncomfortable choices between children and lifestyle. I don't mean missing out on smashed avocado on the weekend, but between living in cities where opportunities exist (which entails high mortgages) and having bigger families.

We all know how high the cost of living is in our major cities. How many under 40's can afford a four-bedroom house in a major city to support a three-child family? It should be obvious to governments that the stretching of family budgets impacts the options of family size and consequently the birth rate.

The Federal Government claims that natural increases (births over deaths) is largely out of its control. This is not true. If we want higher natural increases, we need policies that encourage Australians to have larger families, such as effective parental leave, affordable and accessible childcare and housing, family financial support, parental return to work schemes, quality state education and flexible career options. Simple policy changes such as replacing stamp duty on property transactions (which disincentivise potential downsizers from selling their family home) with a comprehensive annual land tax could make a difference. Governments and companies should be collaborating on this together.

4. Immigration

Australia is a successful multicultural society. Around 7 million of our current residents were born overseas. However, immigration has become unpopular amongst many people in the West.

It shouldn't be. We need debate, not demonisation. Governments are not spending enough money on infrastructure (schools, hospitals, transport etc) in high growth areas. We must review how immigration impacts the social construct of existing communities. Both issues are under-addressed in high immigration countries. The left and right of politics both have a role to play in fixing how immigration impacts everyone.

The simplest economic impact of immigration is the incremental GDP a new arrival brings to the country and the additional tax they pay. IMF estimates show that Australia’s current migration programme will add between 0.5% – 1% to annual GDP growth from 2020-2050. Non-humanitarian immigration (which accounts for around 70% of migrants) should focus on bringing positive outcomes to Australia:

  • greater population (a given)
  • positive fiscal impact (highly likely with skilled migration)
  • improved productivity and innovation (highly likely with skilled migration)
  • improved diversity and social cohesiveness (more likely with targeted policies).

Immigrants often play an outsized contribution to business development and enrich cultural diversity which should be celebrated. Successful Australians who are immigrants or children of immigrants include Frank Lowy, Dr Karl Kruszelnicki, Harry Triguboff, Tan Le, Majak Daw, Anthony Pratt, Justin Hemmes and Huy Truong ... the list is endless. There is a positive correlation between migration and lower government spending per capita as migrants are predominantly of working age and therefore are more likely to contribute towards tax revenue than be dependent on social services.

The US is renowned for the number and size of successful businesses that have been developed by immigrants or their first-generation children. Here is a table of some companies and their famous founders. This analysis suggests 216 of current Fortune 500 companies have been started by immigrants or their children. That is a phenomenal economic contribution!

We are the lucky country as foreigners want to live in our modern, democratic, liberal society. With such significant levels of immigration, we need to ensure that it does not adversely impact the social cohesion of the country and the people we attract add to the brain gain.

Policies such as continuing to attract skilled migrants, providing a path to residency, sensible infrastructure and showcasing Australia as innovative to attract the most ambitious should be pursued.

5. Australia in Asia

Australia's place in rising Asia again reinforces our lucky country status and the opportunities that it presents. However, it also brings into focus the planning we need in order to secure our prosperity and future. Geopolitical shifts are forcing us to consider strategic and economic partnerships. Regardless of the population growth Australia achieves, we are a blip in the Asian region which is currently estimated at 4.6 billion people.

China’s and other Asian countries' middle class continues to expand rapidly. The Brookings Institute estimates that the global middle class will rise from 3.2 billion (2016) to 4.2 billion (2022) to 5.2 billion (2028). About 80% of this increase is forecast to come from Asian nations, meaning around 1.6 billion additional higher-spending middle-class consumers on Australia’s doorstep by 2028.

These customers offer us a tremendous opportunity. Australia can provide high value goods, services and experiences not available within their economies.

Conclusion

What is a sensible population for Australia? I don't know. However, I do believe if we continue a 'business as usual' approach (increasingly, a two-city nation), our population ceiling is close. Our sustainable population could be significantly higher if we consider some radical new approaches to infrastructure, environmental impact and immigration. If we want to rely more on natural increases to underpin population growth, we will need to re-imagine how our big cities operate and the support we provide families.

Most importantly, we need our politicians to start publicly discussing our future demographics.

 

David James is an Associate Director at Alpin Advisory, an investment and advisory firm based in Sydney.

 

20 Comments
Darina Confidus
March 18, 2020

The total population of Australia is 24,772,247 people.The median age is approximately 38.3 years. Life expectancy in Australia is 82.1. The female fertility rate in Australia is 1.9. Around 27% of the population of Australia are obese.

Simon
February 07, 2020

he says :
Extrapolating our current growth rate ... projects a population of 29.2 million in 2028. This assumes a comparable rate of annual natural increase of 0.7% and ...

and then later about fertility rates:
Without immigration, our population is in decline.

which seems inconsistent!?

Ray
January 30, 2020

With regard point 2, reconsidering tax breaks for us older citizens. Please remember that a baby boomer born in the later 40's early 1950's missed out on 30 years of compulsary superannuation and many still have to work. The opinion has merits, but let's set a low bar for any reduction of benefits, say to those who cannot retire until they are 67?

C
January 25, 2020

Ross Gittins wrote a very good article last year about how our infrastructure would never be able to catch up with the needs of our ever increasing population. I question the desirability of a rapidly growing population in Australia. I can see that it’s wonderful for businesses that get all these new consumers and it’s great for keeping wages low which is LNP policy ( according to Mattius Corman) and it’s wonderful for politicians to keep us out of a recession ( the per capita in GDP). The idea that we need to keep adding more young people to pay taxes to support retirees who don’t pay tax is just a population ponzi. All these people will age too. Should we just keep expanding our population exponentially? The idea that we can just move everyone to the regions has been promoted for decades. Unfortunately, all the small town railway stations were closed down and l’m not sure that high speed rail will ever be built as the rewards won’t go to the party that commission it. .Looking at the current water restrictions in many of the regions; l have to ask, can they support more people? Worldwide, the movement of people has been to cities. More people means more competition for resources. Is it a surprise that the birthrate per woman is shrinking? Women are educated and expected to contribute to the workforce ( and be good little consumers). They have to find a suitable partner, pay off an education debt, pay off housing debt, establish a career and somehow find time to have children as well.( and find the time off work/ childcare costs) ( oh, and do most of the cooking and cleaning ) Something has got to give. The debate l would like to see is what size population we should be aiming for? Australia has a moral obligation to take in our neighbouring Islanders when rising sea levels destroy their homes. What about Bangladesh? Climate change will lead to the massive dislocation and movement of people. We can’t have infinite growth on a finite planet. Budget surpluses are the last thing we need. Governments should be preparing , or prepare to fail.

David James
January 26, 2020

A lot of interesting points in there C. I am generally less concerned with GDP. It's time for a new measure of progress that is far more encompassing (longer commute times use more resources, like petrol, should that really be a positive outcome?!). My wife and I have recently been debating the impact of rising female participation in the workforce, a complex transition. We fear two parent working households has negative societal impacts (however GDP positive...).

I didn't read RGs article but generally agree. All our infrastructure today is playing catch up. To my mind it comes down to politics. Politicians get points for fixing problems, not preventing potential ones (especially beyond their election cycle). But there are solutions. I have written about them elsewhere. Critically, Australia is in a unique position to solve them - we just need to plan!

Richie Rich
January 24, 2020

"The government needs to reconsider the tax breaks that currently benefit older generations in the context of the need to lower the national debt or fund infrastructure" Franking credits?

#Ok
January 26, 2020

Let's be honest here. When you say tax on older ppl, you mean tax free superannuation pension accounts, and the effect of this in combo with Franking Credits. The former is a primary driver I suggest of ppl contributing extra cash to their superannuation funds.

There's a conflict here. Leaving aside for the moment the debate of who actually **pays the tax, companies or their owners, one of the very few gov initiatives to address aging population has been superannuation. You dont have to be good with numbers to realise employer contributions are not sufficient to provide the lifestyle to which we are accustomed* in retirement, and not enough even to keep ppl off a gov age pension. The incentives for ppl to make additional contributions are those that many, yourself included and the author suggest need to be unwound.
I agree, to an extent. If the likes of Dick Smith get $1/2 million in cashed out franking credits per annum, something is wrong. Although, I suspect DS is deluded on that front.
Clearly there is a balance to be struck between killing the goose that keeps ppl of age pensions and over incentivising participation in super.
Eg, perhaps
- a death duty like tax should be imposed on super balances being inherited by ppl other than a spouse.
- honouring FCs in cash should be capped.
-along with superannuation pension accounts being capped, a cap of accumulation accounts that are treated to concession tax of 15%.
- It could even make sense to have a sliding scale of tsx on accumulation and pension accounts with a certain low level of earnings tax free, losses carried forward

** even the ALP believed that honouring franking credits in full, ie, in cash where net tax liabity was less than $0 was fair and made sense. It effectively agreed that company tax was paid by its owners. This was ALP policy in 2000 when Costello implemented it, so the ALP said at the time, and "it was our policy too".
It would not have been its policy that this should be gamed by people with excessive superannuation accounts in low tax accumulation accounts, or non taxable pension phase accounts. The Liberal government did do something about this by restricting pension accounts to $1.6m in 2015, something that the ALP missed in its initital shock and awe statistics when announcing its FC policy by deceptively using pre 2015 numbers.
It is a nonsense to suggest that individual shareholders are attributed with paying the company tax but only to the extent they have a net tax liability, and then even without any net tax liability particular classes of ppl and entities are considered to have paid the tax but not others.
Labor's policy was flawed on logic and hopefully can do better next time.
It seems obvious, that the amount of cashed out FCs needs to be capped, perhaps only for tax free entities, pension phase super accounts, charities, the Future Fund, part aged pensioners everyone and everything that is a tax free. No exceptions. If it seems sensible to make an exception for anything, anyone, this could indicate there is something wrong with the logic of it overall.


*even in the article there is an assumption that parents need a bedroom for every baby, child in the houshold. Part of the issue seems to be the expectation of children of baby boomers. If the Boomers have been the true lucky Australians, their children have grown up in an advantaged comfortable environment and carried those expectations forward. The life of boomers, pre working age, would mostly have be, for eg, sharing a bedroom with 1 or 2 sibblings, and 1 bathroom between 5 or 6 people, walking a few klms to school, no public transport from the outer suburb they lived in. Am not suggesting this what current generations MUST suffer. But it has perhaps created an unrealistic expectation for early adulthood.

Tim
January 24, 2020

Decentralisation from the capitals is a must in order to give opportunities to what were once important regional centres, this will then flow to creating growing communities (rather than shrinking) and maybe engage families (if they choose to have more than 1.9 kids).

Living on the financial edge will not encourage families to have more children or get the time to engage in the ‘community’.

Although this needs to be a balanced approach for the type of incentives to have companies or departments move or stay in these areas.
Having been a business owner, father of 2 kids under 10yrs and having lived in the North for +15 years I can give a good overview of the challenges of retaining people in a northern capital so the opportunities have to be long term in order to create generational length stays.

Generally regional centres have existing infrastructure although will require updating to meet the unaccommodating level of ratings required by gov departments.
I don’t know the imports Vs exports with shipping containers but I’m fairly certain most containers go out of Oz empty; why there isn’t large logistics hubs in northern Australia with then linking rail branching out? Maybe just cost control over the end product?

It must appear many planning decisions are micro sighted in terms of balancing our nation long term.

As I write this on the train on my 2 hour commute each way to a current job in Brisbane...........things need to change

Angela
January 24, 2020

Interesting read, thanks David. I wonder if past generations considered financial circumstances when planning their families. It is the prime barrier for most of my city based friends when deciding family size. When you hear of families of 5+ in previous generations, one of my first thoughts is - wow that would be so expensive!

Emma
January 23, 2020

David, an excellent, well researched and laid out article, thank you for taking the time.

As a mother of two under 3's, I would love a 3rd and even a 4th child but it simply isn't affordable as you say, especially not if we want to give the two we have the opportunities we had.

G Hyde
January 23, 2020

We had a government that paid back debt and got the country into a good space. Unfortunately he was beaten by a politician who promised to spend the bank account and then some, he eventually outdid himself to condemn us to the current poor state.

Peter
January 23, 2020

Great article. Thought provoking. We need to come to an understanding of the efficient but liveable city to strike the balance between the large productive population centre and the requirement for affordability. High cost of living discourages breeding. 

Brian Halstead
January 23, 2020

Good to have the discussion started and agree with business as usual we are near our population ceiling.

However the point about the successful migrants ignores the fact that they arrived when migration was under 100,000 not the 250,000 today.

No discussion of the impact of reducing level to 100,000 just the impact of no migration

Can some work be done on this alternative scenario with impact on housing demand, water, hospitals, jobs etc



John Lorenz
January 23, 2020

It truly amazes me that with all this talk on climate change etc, I find the root cause is over population of the planet. Why are the Governments and economists so focused on population growth? One good reason is money and greed. Should the Government be focusing on stabilizing the population and the budget accordingly. Let's fix the identified problems, drought proofing, our dwindling manufacturing sector to name a few, that the people of Australia keep asking for instead of how can we increase the population.

Peter
January 23, 2020

The trouble I have with over population of the planet debate is who wants to first leave to reduce the problem. If it is not me, then who?

deb
January 23, 2020

"Natural increase: can we encourage copulation?"
Although there is plenty of copulation going on, it doesn't necessarily lead to an increase in the population.

David James
January 23, 2020

It was a tongue-in-cheek comment Deb. I don't believe the govt should interfere in the bedroom... the wider point is it is expensive to have larger familes in our major cities (ie. 2.1 kids per female). That's where the govt should focus their efforts.

Chris
January 24, 2020

It's even more expensive to do so as a migrant here, when you leave your family behind, often long distances away (hence, no "Grandma and Grandad" free childcare like many of the 'home grown' Australians enjoy) and by the time that you actually establish yourself, you're in your late 20s to early 30s. You're already 5-10 years behind someone who entered the local workforce (and excluding trades, have you ever tried getting a job in the local workforce with no local track record, and as a skilled migrant, even with Australian qualifications ? It's hard, which is why so many are driving Ubers or working other jobs before they can get a job they were actually trained in).

I speak from personal experience as a former postgraduate international student who came here from Europe with a bag and a suitcase, $10k in life savings (that I'd made over four years by myself) with no family help to buy a house, get a job or pay for a wedding when I'd finished my study. I'm lucky that I'm even able to afford ONE child, let alone two.

George
January 23, 2020

Hard to see how we can build the big surpluses as suggested. There's always a 'bushfire' that needs money spent on it, and transport gets worse - we can't even build a train from Sydney to Melbourne while the Japanese and Chinese cover their countries. Heaven help us if China stops buying our stuff.

Chris
January 26, 2020

Maybe stop sending so much aid overseas to countries that don't really like us; on a plane, you put your own oxygen mask on first before you help others. "You can't help the poor by being one of them".

 

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