Economic damage from coronavirus pandemic to hit government coffers through to 2060
Australia’s economy will continue to be hampered by the COVID-induced shockwaves hitting government coffers, employment and migration for many decades to come, according to the latest forecasts from the federal Treasury.
- Treasury’s Intergenerational Report will show long-term damage to Australia’s budget from the COVID-19 pandemic
- Migration and population growth will hamper the national recovery
- The federal budget is forecast to be in deficit through until 2060
Treasurer Josh Frydenberg will unveil the 2021 Intergenerational Report today, after the pandemic delayed its original release for 12 months.
The report will show Australia’s population will start to age at a far greater rate in coming years, while the birth rate continues to slide.
More baby boomers are reaching retirement age and population growth is not forecast to keep up with the demands that will put on the nation’s labour market.
The report shows the ratio of people of working age to those at retirement age will continue to drop. In the early 1980s, there were more than six people working for every Australian aged over 65.
Today that has dropped to just four workers and by 2060 it will be less than three workers.
After years of campaigning against Labor on the issue of debt and deficit, the report also forecasts the budget will remain in the red for at least another 40 years — or more than 13 electoral cycles.
“The economic crisis associated with the COVID-19 pandemic has placed significant demands on public finances in Australia and around the world,” the report states.
“While Australia’s stronger-than-expected economic recovery has flowed through into the fiscal position, the effects of the pandemic on the budget are expected to remain into the long term.”
Population growth will be one of the biggest challenges for the federal government over the next four decades, but that too has been hampered by COVID-19.
“The economic recovery is well underway, but some effects from the pandemic will persist,” Treasury’s report says.
The closure of Australia’s international borders has all but stopped migration in the short term, but Treasury says any chance of it magically returning to normal once restrictions are eased is unlikely.
“Migrants are expected to continue to be the largest source of population growth,” the report states.
“Migration contributes to economic growth and can help offset population ageing.
“However, migration needs to be managed well to ensure it supports higher living standards.”
Frydenberg to warn of hit to economy by sluggish population growth
It is an area the federal Treasurer is expected to highlight in a speech to the Committee for Economic Development of Australia (CEDA) today.
“This is the first time there has been a downward revision of the long-term population projections in an intergenerational report,” Josh Frydenberg’s speech notes say.
“This means the economy will be smaller and Australia’s population will be older than it otherwise would have been, with flow-on implications for our economic and fiscal outcomes.”
“A well-targeted, skills-focused migration program can supplement our stock of working age people, slow the transition to an older population and improve Australia’s economic and fiscal outlook.”
The Treasurer will warn it is not all doom and gloom for the post-pandemic economy.
“The IGR does not give us a fixed picture of our fate,” Mr Frydenberg is expected to say.
“Instead it provides us with guard rails to help guide for future government decisions.
“To set us up for tomorrow, as we tackle the challenges of today.”
The Intergenerational report does note that an ageing population with access to superannuation will put less of a burden on the Commonwealth pension.
But it notes that comes at a cost.
“Superannuation attracts favourable tax treatment which reduces government revenues,” the report says.
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