Intergenerational Report: Population projected to near 40 million in 'ageing boom'

A Federal Government glimpse into the future shows a growing and ageing population of 40 million Australians, facing ballooning budget deficits and increased pressure on health services, aged care and the environment.

That is the picture drawn by the Abbott Government as it attempts to peer four decades down the track, in the fourth Intergenerational Report released in Canberra on Thursday.

Treasurer Joe Hockey delivered the long-range forecast with less than 10 weeks before he hands down his second federal budget.

In keeping with his early messages about the budget, Mr Hockey emphasised the need to encourage more people to work more – harnessing an "ageing boom" of older workers, putting more women in paid work, and getting younger Australians into a job.

The report predicts the population will hit 39.7 million in 2055, and 40,000 people will celebrate their 100th birthday that year.

It also shows that babies born in 2055 will expect to live well into their nineties, with men living until 95 and women to 96.

The number of Australians aged 65 and over is projected to more than double.

The Government is concerned about the implications for workforce productivity, with the projections showing far fewer working-age Australians – just 2.7 for everyone over 65.

The report says there are "important implications for the tax base and ability of future governments to deliver services".

The proportion of people in the labour force is expected to fall to 62.4 per cent compared to the current rate of 64.6.

However, 70 per cent of women will be doing paid work and the workforce participation of older Australians will increase from 12.9 to 17.3 per cent.

Acknowledging that "all projections are inherently uncertain" in the report, it predicts the economy will grow by 2.8 per cent on average over the next four decades, and that annual average income will increase from $66,400 today to $117,300.

Tax receipts for federal coffers are not expected to recover to pre-global financial crisis levels until 2020-21, "largely because individuals will pay increasing average tax rates on personal income over time owing to bracket creep" – which occurs when tax thresholds do not keep pace with inflation or wage growth.

Health spending has been identified as the continuing big-ticket item for the budget, with a spend per person of $670 climbing to nearly 10 times that in 2055, at $6,460 or overall 5.5 per cent of GDP.

Spending on aged care and pensions is predicted to jump – from 2.9 per cent of GDP to 3.6 per cent for the age pension. With the number of people aged 70 years and over expected to almost triple (to about 7 million people), carer payments are also set to rise markedly.

But other payments, including the disability support pension, family and child care payments, and the unemployment benefit are all set to drop.

Report also plots course charted by previous government

Billed by the Treasurer as a report that would cause people to "fall off their chairs" at a business briefing last week, the Intergenerational Report sets the scene for the May budget.

Mr Hockey said the Goverment would shortly announce a families package to address rising child care costs and the difficulty families faced in accessing appropriate care for their children.

For the first time, this report also charted the course for Australia under the previous Labor government's policies and spending levels.

While current policy settings show the budget will be in the red to the tune of 6 per cent of GDP by 2055, the report said under Labor the deficit would be almost twice that at 11.7 per cent of GDP.

Pressing its argument for those policies still lacking support in the Senate, the Government said if all of its proposals from last year's budget were passed, Australia would be on course to hit a surplus in five years.

"Without the Government's proposed policies, or alternative measures with an equivalent fiscal impact, the budget will not return to surplus at any point over the next 40 years," it states.

However, those projections have not caught up with recent political developments, with the scrapping of the GP co-payment – worth $1 billion just over four years – not taken into account.

The inclusion of Labor policies elicited criticism from the Opposition.

"This is a highly political document which is a massive missed opportunity," shadow treasurer Chris Bowen said.

Mr Bowen said if Labor won government it would hand over responsibility for the Intergenerational Report to the independent Parliamentary Budget Office.