Australia’s population might be getting older but government spending on the age pension will fall over the next 40 years as more people retire with a lifetime of superannuation.
Treasurer Jim Chalmers will release the intergenerational report on Thursday against a backdrop of sluggish growth in the short term and significant concerns about the state of China’s economy.
The report, which examines demographic changes between now and 2063 and the economic implications of how these interact with government policies, is the next block in the Treasurer’s reshaping of the national conversation.
The Government also intends to release its planned overhaul of competition laws in the near future, along with moves to streamline the foreign investment review board.
An employment white paper that may flag changes to work incentives and effective taxation rates will follow within the next couple of months.
However, there is little appetite within the Government for wholesale tax reform.
Nor is it likely to heed calls from the business community for further cuts to company tax rates, which would further erode the ability to fund services.
The intergenerational report will lay out the stark budgetary task governments will have to grapple with in coming decades.
Spending on health, aged care, the NDIS, defence and interest payments will grow from a third to half the size of the budget as an ageing population puts more strain on services.
However, the report will show that spending on the age pension – currently the single largest budget item – will decline over the next 40 years even as the number of people aged over 65 doubles.
“By the mid-2040s most people retiring will have been receiving the superannuation guarantee at 9 per cent or more for the duration of their working lives,” the report states.
That means a smaller proportion of retirees will be eligible for the full pension.
Spending on the age pension is projected to fall from 2.3 per cent of GDP now to 2 per cent in 2062-63, a trend the report says “will contribute significantly to the sustainability of the budget”.
“Our population is ageing but our spending on the age pension will fall – that’s the intergenerational genius of super,” Dr Chalmers said.
“Super is delivering on its promise: providing a better retirement for more Australians and a better outcome for the budget over the next 40 years.”
However, superannuation tax concessions are projected to increase significantly and overtake spending on age pensions in the 2040s.
In the near term, China’s slowing economic situation is one of the things that has officials most nervous in the global outlook. It has a weaker outlook than anticipated earlier in the year and is now seen as a more significant risk than the US.
Australia’s own economic direction is seen as being driven by a combination of what happens in China, as the largest customer for many of our commodities, and the lagging effect of the 4 percentage points of interest rate rises domestically.
The economy is forecast to slow substantially over the next couple of years before picking up again.
While the Government still doesn’t expect it to tip into recession or for the jobless rate to spike, a soft landing is not assured.
However, it is encouraged by the moderating inflation figures and the fact that wages, while growing faster than before, don’t appear to be spiralling upwards.