Intergenerational Report - what's the truth?

[Rorschach]

It's time to end the demographic pessimism
OPINION
By Jason Collins
Posted Fri at 9:50am

Given we've seen improvements in the very demographic problems the Intergenerational Report was created to address, why does this week's report still point to a fiscal challenge? Jason Collins writes.

When Peter Costello urged Australians to have "one for the father, one for the mother and one for the country", Australia's fertility rate had plunged to new lows.

The 2002 Intergenerational Report had forecast a long-term fertility rate of 1.6 babies per woman, well below the rate required to maintain Australia's population. This sub-replacement fertility would result in a smaller workforce to support a generation of baby boomers in retirement. This smaller taxpayer base and higher pension and health outlays was predicted to cause Government deficits of five per cent of GDP at the end of the IGR's 40-year time horizon.

Turn to 2015 and yet another Intergenerational Report comes with a message of doom and gloom. But underlying the numbers are an astounding fact - there is no longer a ticking demographic time bomb.

Australia's total fertility rate bottomed out at 1.73 babies per woman in 2001. This fed the pessimism in the following year's IGR and forecasts of further decline.

But much of that pessimism was misplaced, with fertility since recovering. The additional 30,000 babies above forecasts when the fertility rate hit 2.02 babies per woman in 2008 caused a different problem - strained childcare and educational resources. Despite today's economic pessimism, normally a recipe for a fertility plunge, the fertility rate still sits at a healthier 1.88. The new IGR forecasts a long-run fertility rate of 1.9 - an increase on previous projections, but still below the replacement rate of 2.1.

The inability of Treasury to forecast fertility accurately is reflected in the upward revisions through successive IGRs. But Australia is not the only country to have been caught by surprise by the recent fertility spike.

Almost every developed country has seen fertility recover from the lows of the late 1990s and early 2000s. Countries as varied as Canada, Switzerland, Japan and France have joined Australia with surprises on the upside.

So what could be driving this increase? There is a temptation to point to policies introduced by the Howard government, such as the baby bonus. Yet these increases were seen across the developed world despite differences in policy and culture. Other forces are likely at work.

In a 2009 Nature paper, Mikko Myrskyla and colleagues proposed that once a country passed a certain level of development, fertility would tick back up. Those rich enough can increase their "consumption" of children.

In research with Oliver Richards, we proposed an alternative evolutionary argument. As fertility is heritable and runs in families, those from larger families have larger families themselves. None of us are children of women who did not reproduce. As a result, evolutionary pressures will tend to increase fertility back up each time social changes push it down.

Massive increases in Australia's migration intake have been an even more important driver of the improved demographic environment. The forecast net overseas migration of 90,000 per year in the 2002 IGR pales into insignificance in comparison with the 2015 IGR forecast of 215,000 per year, or the peak of 300,000 in 2008-09. These predominantly young, skilled migrants are joining the workforce that will support our growing ranks of retirees.

These demographic changes see us heading toward a "Big Australia". Whereas the first IGR forecast a population of 25 million in 2042, the latest iteration forecasts sees us passing that mark around 2020. In 2055, Australia will have a hefty 40 million people.

This leads us to the question of why, despite the improvements in the very problems for which the first IGR was developed, the latest IGR still points to a fiscal challenge.

Despite the political paintbrush with which this report is tarred, the answer is clear. Poor policy can overcome even the most favourable demographic changes. In recent decades, governments of all political stripes have tended to spend any "demographic dividend" in apparent indifference to its temporary nature. Large deficits in the 1970s and 1980s when Australia was benefiting from the massive influx of baby boomers into the workforce are testament to that.

In the case of today's IGR, profligate spending during the boom, a failure to curtail it during the crunch, and the reluctance to embrace tax reform have left the Australian Government unable to capitalise on a demographic shift that even the most optimistic did not foresee in 2002.

On the bright side, it should be much easier to change policy than demographics.

Jason Collins is a PhD student at the University of Western Australia Business School, where he researches the link between human evolution and economic growth. He blogs at Evolving Economics.

[mantra]

Yes it is a political report. I thought this report was prepared externally, but it looks like it's created in Hockey's own department. I saw an article earlier today where it states that it only talks about the future, not what's good for us now. It makes sense. It looks like this report is not only inaccurate, but it has also left out climate change - a serious issue to many Australians.

The 2002 Intergenerational Report had forecast a long-term fertility rate of 1.6 babies per woman, well below the rate required to maintain Australia's population.

I'm sure this number will increase dramatically when the Chinese workers arrive by the millions when the FTA comes into effect. It's also an excuse to increase immigration.

These demographic changes see us heading toward a "Big Australia". Whereas the first IGR forecast a population of 25 million in 2042, the latest iteration forecasts sees us passing that mark around 2020. In 2055, Australia will have a hefty 40 million people.

The Coalition are all for pleasing big business. The larger the population the bigger their profits. The number thrown around 8 years ago was a population of 50 million by 2050, so 40 million is a very conservative figure.

[Rorschach]

Hockey's own department?
You mean the Treasury?

If you read all the commentary you'd realise it is always a "Political" document, just as it was under Labor last time.

As for climate change.... puhlease....
Just a tad political eh?

Rudd and Labor want a BIG Australia too mantra.

ON had a population policy do the Greens have one? I mean after all they are the one's who want an open door immigration/refugee policy right?

[mantra]

Rudd and Labor want a BIG Australia too mantra.

Yes I know. Is there a political party out there who isn't in the pocket of the global corporations? I feel sorry for future generations who will have to live with the ever increasing overcrowding and serious competition for housing, work and probably food. I detest both the major political parties. Even the Greens have strayed away from their grassroot values.

[boxy]

This whole "big Australia" lark seems to hinge on creating full time and well paid jobs for all these new taxees they are encouraging to be birthed. Business knows that productivity comes from mechanisation, technology keeps rolling on...

A human labour force isn't the future, surely, unless there are so many of them, they can be exploited like 3rd world slum dwellers?

[Rorschach]

Unfortunately Big Business do not
1/ Want to train people
or
2/ Invest in technology infrastructure.

Nor does the government