Intergenerational report finally admits it got it wrong on fertility

The latest intergenerational report (IGR) emerges at a somewhat embarrassing time, both for the government and for the whole political class, as well as for the media, which has spent the last 12 months amplifying hostility to migration.

As always with these reports — which are often badly wrong in their forecasts, but usually in ways that are very useful for public policy — there’s a grim inevitability about the numbers. The most fundamental number is one that successive reports, right from the first report in the Howard years, have gotten badly wrong: our fertility rate.

In report after report, including the last one in 2023, Treasury under successive governments has boldly predicted that Australia would somehow defy the global experience of declining fertility and maintain its fertility rate. But in this year’s report, Treasury has finally tapped the mat and admitted its optimism was wildly misplaced: “The total fertility rate is expected to fall to 1.34 children per woman by 2065–66, lower than the previous assumption of 1.62 children per woman.” Treasury even, to its credit, provides a nice graph on page 80 of how off its previous forecasts have been.

It hardly had a choice: our current fertility rate is 1.48. Maintaining previous forecasts would mean Australia achieving the improbable — indeed, wildly outlandish — feat of engineering a long-term increase in fertility, which no-one anywhere has managed. If you want higher fertility, forget another Baby Bonus (which would be inordinately expensive anyway). You would have to adopt the Taliban’s education policy and ban women from education; you’d have to dramatically cut the price of housing, substantially increase economic and financial certainty for young couples, make sure young people don’t enter adulthood packing a monster tuition debt, and maybe get rid of phones as well.

While there might be some people on the right who are up for banning women from education, it’s unlikely there are too many takers in the major parties for any of the other requirements.

Lower fertility means, all things being equal, a lower population and fewer workers. And for the first time, an IGR predicts that by the 2060s there’ll be more deaths than births among Australians. That might make even the ardent haters of migration in One Nation, the media and the Crikey readership pause: this isn’t just about our workforce — do they want a steadily shrinking country? (M’colleague Jason Murphy has an excellent exploration of the implications for migration in Crikey today).

And that workforce will need to change. The report notes the economy will shift more toward services as the population ages, a line that’s not really convincing coming from a government that fetishises manufacturing and A Future Made In Australia. But older people need carers; unless you’re a Financial Review editor and believe children, the aged, the ill and people with disabilities should magically care for themselves, a bigger health and caring sector is inevitable even though it’s already our biggest employer. Demand for childcare workers might eventually contract a little, but in the next decade, the report forecasts, the allied health, hospitals, medical services, pathology and residential care workforces will all experience growth between 20-30%. That’s at least half a million more workers.

Where are they coming from? The report acknowledges that workers are working much longer than they used to (previous reports serially predicted our participation rate was about to fall off a cliff, even as older Australians were abandoning the traditional idea of simply stopping work at 65). But a sustained higher participation rate isn’t enough, and will eventually succumb to demographic gravity. The answer lies — whisper it softly if you dare — in the fact that 60% of the residential care workforce, around 40% of the hospitals and social assistance workforce and over a third of the medical services workforces are migrants.

And who will pay for all those workers? Barring some fundamental shift to a user-pays system, it’s taxpayers. The latest report forecasts government spending rising from its current level just below 27% to 27.7% over the next 40 years — a laughably optimistic forecast but indicative of how an ageing population will demand ever higher care spending.

How will it be paid for? The report assumes the tax take maxes out at 24.2%, with financial markets picking up the tab with ever higher government debt into the 2060s. The document is keen to insist that all this is fine because the debt projections were worse in the last report in 2023. But that’s what this government does: substitutes rhetorical tricks and comparison against forecasts for actual spending discipline. Instead, it confirms our fundamental lack of fiscal discipline.

The document also hopes that AI will help with all that caring. “Continued adoption of digital technologies, including
artificial intelligence, could help offset some of the pressures associated with population ageing by improving productivity and reducing administrative burdens … AI technology has significant potential to address workforce pressures in health care and aged care through health monitoring, disease management, and risk prevention.”

Indeed, throughout the report, AI does heroic work propping up not just healthcare but the whole economy. It’s already been noted that the government is sticking with Pollyannaish forecasts about future productivity on the basis that AI will cause a productivity surge — even though current evidence is that the impact is mixed and highly varied. But thank goodness AI has arrived to save our productivity bacon, just when we’d run out of politicians actually prepared to do anything about it.

One way or another, senior Australians will get their way and taxpayers will continue to fund their caring needs, whether AI-assisted or not. From that point of view, there’s nothing too alarming in the report for those of us who are approaching our autumn years. But for young people, carrying a mega Job-ready Graduate debt, facing a housing market that remains absurdly overpriced, a lifetime of higher taxes and a more inflationary world courtesy of the climate crisis and geopolitical instability, there’s plenty to worry about. No wonder they’re voting with their reproductive organs and refusing to become parents.