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Part II: Australia's long-term demographic and economic prospects



Demographic prospects

Australia will experience further ageing of its population over the next four decades. Overall, the proportion of the population that is very old (over 85 years of age) is expected to triple, while the proportion in the prime working age range of 15 to 64 is expected to fall.

Fertility and mortality

The total fertility rate (TFR) of Australian women has declined since 1961 when it peaked at 3.5 births per woman during the post-World War II `baby boom'. Since the mid-1970s the TFR has been well below the rate needed for population replacement (Chart 11). At the same time, high standards of public health have contributed to increased longevity. The ageing of Australia's `baby boom' cohort, with lower mortality rates than previous generations and smaller cohorts following as fertility declined, accentuates the impact of an ageing population.1 In the past century, the proportion of the population aged over 65 has risen from just over 4 per cent to nearly 12.5 per cent. By 2042, around 24.5 per cent of Australia's population is expected to be aged over 65.

The trend towards having fewer children, later in life, is a key influence on Australia's changing population structure. The number of children born to women aged 30 to 39 is increasing, but this does not fully compensate for the decline in the number of children born to women aged 20 to 29.

Based on recent trends, the TFR is projected to fall to 1.6 by 2042.2 While this is lower than Australia's TFR of 1.75 in 2000, it is higher than the fertility rates in many OECD countries, including Italy, Japan and Sweden. Australia's current TFR is higher than the OECD average, but significantly lower than New Zealand (at 2.01 in 2000) and the United States (at 2.13 in 2000). Today's TFR will influence the size and growth rate of the population of labour force age in 15 to 20 years.

Chart 11: Australia's historical total fertility rate

Chart 11: Australia's historical total fertility rate

Note: The total fertility rate represents the number of children a woman would bear during her lifetime if she experienced the current age-specific fertility rates at each age of her reproductive life.
Source: ABS Cat. No. 3301.0 (various).

At the same time as fertility rates have fallen, mortality rates have also fallen. Declining mortality rates add to population growth rates and the proportion of aged people in the population. Australia's death rate fell from 8.5 per thousand in 1971 to 6.9 per thousand in 1991 and around 6.7 per thousand in 2001.

Mortality rates have fallen across all age groups, and this is expected to continue for the next four decades. The male proportion in older age groups is increasing slowly. Although women have a higher life expectancy than men, men's mortality rates have fallen faster than those of women.

Australians' life expectancies are among the highest of OECD countries, and this is expected to continue. In the past 40 years, Australians' life expectancies have increased by more than 8.3 years for men and 7.6 years for women. Based on recent trends, men born in 2042 are projected to live to 82.5 years, an average of 5.3 years longer than those born in 2002. Women born in 2042 are projected to live to 87.5, 4.9 years longer on average (Table 2).

Table 2: Australians' projected life expectancy at birth (in years)

Table 2: Australians' projected life expectancy at birth (in years)

Source: Treasury projections.

Migration

An influence with some offsetting effect on the rate of population ageing is Australia's net overseas migration. This is the number of permanent and long-term temporary arrivals minus permanent and long-term temporary departures. Over many years, Australia's net migration inflow has been younger on average than the resident population; this has slowed population ageing.

The contribution of net overseas migration to population growth has varied significantly over the last five decades (Chart 12). Net migration tends to fall during economic downturns, partly because permanent and long-term temporary departures increase, and partly because governments have adjusted migrant intakes.

While most arrivals of new permanent settlers are subject to government policy, many arrivals and departures are not subject to official control, including the permanent departures and arrivals of Australian residents and New Zealand citizens. A large component of net migration is on a long-term but temporary basis. In the future, levels of net migration are likely to be affected by greater competition for skilled migrants, particularly as populations age in OECD countries. Unlike most countries, Australia has a planned migration programme supporting skilled migration, which should provide an advantage in future competition for skilled migrants. Future net migration is assumed to be constant at 90,000 people per year, with the same age-gender profile as at present.

Chart 12: Net migration and natural increase in population

Chart 12: Net migration and natural increase in population

Note: Natural increase is equal to the number of births minus the number of deaths in a given period of time.
Source: ABS AusStats Time Series Spreadsheets 3105.0.65.001.

Population projections

While the population of labour force age is projected to decline as a proportion of the total population, the continued rise in numbers of people in the 15 to 64 age group is expected to increase the labour force (Table 3). Australia is one of only a few OECD countries projecting continued labour force growth over the next 40 years. Of these countries, only the United States is projected to have stronger growth in its working-age population.3 This is partly due to its relatively high fertility rate compared to Australia.

Table 3: Australian population projections for selected age ranges
(millions of people)

Table 3: Australian population projections for selected age ranges (millions of people)

Source: Treasury projections.

Population growth is expected to continue slowing, from 1.2 per cent in 2000 to around 0.2 per cent by 2042. However, the growth rate of the population aged 85 or over is projected to accelerate sharply, while the youth population is anticipated to decline slightly. While the population of labour force age is projected to grow by just 14 per cent, the number of people aged 55 to 64 is projected to increase by more than 50 per cent over the next two decades. This is expected to be the fastest growing group of labour force age (Chart 13).

The projected population of Australia for selected age ranges highlights the expected growth in the proportion of the population who are `very old', that is over 85. Currently, around 1.5 per cent of the population is in this age range, but by 2042 it is expected to rise to over 4 per cent.

Chart 13: Growth indices by age group
(on a 2001 population base)

Chart 13: Growth indices by age group (on a 2001 population base)

Source: ABS Cat. No. 3201.0 (June 2001) and Treasury projections.

In 2002, the aged to working-age ratio (the proportion of people aged over 65 to people of traditional labour force age, 15 to 64) is 19 per cent. This is projected to rise to almost 41 per cent by 2042 (Chart 14). Over the same period, the child to working-age ratio (the proportion of people aged under 15 to those aged 15 to 64) is projected to decline. However, this does not completely compensate for the increase in the aged to working-age ratio. Thus, the overall proportion of the population potentially to be supported by the working-aged population is expected to rise.

Indeed, the combined aged and child to working-age ratio is projected to be slightly higher in 2042 than it was in 1972. However, the rising aged to working-age ratio may have greater implications for government spending than the falling child to working-age ratio. Historically, a significant component of the cost of children has been financed privately, while a larger proportion of the cost of supporting older people has been funded through government transfers (for example, pensions).

Today, the combined aged and child to working-age ratio is lower than it has been at any point in the last 30 years. It is projected to continue falling until 2009, before rising again and reaching a level similar to today's level by 2012.

Chart 14: Australia's child and aged to working-age ratios

Chart 14: Australia's child and aged to working-age ratios

Source: ABS Cat. No. 3201.0 (various) and Treasury projections.


1 The `baby boom' cohort includes Australian residents born during Australia's `baby boom', generally considered to have started in 1946 and ended some time between 1961 and 1965.

2 This projection is based on age-specific data and is not the same as the ABS methodology, which assumes a constant fertility rate.

3 Dang, Antolin and Oxley 2001.

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