Yesterday this site looked at the shortcomings of the Australian government’s Inter Generational Report and criticised it primarily for its failure to imagine how society and the economy would look by 2050.
While no-one has a crystal ball, making projections on how government spending will look in the future without having some basis for the assumptions on revenues and expenditures renders a document like the IGR somewhat useless.
So what might Australia’s economy in 2050 look like? Here’s a quick list of thoughts.
Rethinking retirement
The obvious is most western societies, including Australia’s, are going to be older. This has a number of consequences, particularly with the retirement age.
In 1909 the old age pension was introduced in Australia with eligibility starting at 65 for men and 60 for women. At the time, life expectancy was 55 years for men and 59 for females.
Today age pension age has barely moved with it becoming 67 for those born after 1952. Life expectancy today 91.5 years for men and 93.6 for women, this expected to increase by 2055 to 95.1 and 96.6 respectively.
More importantly, life expectancy at age 60 will move from 16.9/19.3 years today to 21.3/23.1 in 2055.
Quite clearly the superannuation assumptions of being able to get a tax free pot of gold at 60 are doomed, few people will get enough from their lump sum to see themselves through twenty years retirement.
That throws them back on to the state. Given these numbers it’s clear the eligibility age for the old pension is going to have to be increased.
Coupled with a declining birth and participation rates seeing fewer taxpayers contributing to government coffers, the need to reform the pension age is going to become more pressing.
A healthier population
One of the differences between 1909 and today is that we’re far healthier. A fifty something today is generally in better shape than a thirty year old of their grandparents’ time.
Coupling that with the changing nature of work where most workers of a century ago were employed in exacting physical labour, today’s employees are far more likely to be sitting on a computer. This means the working life can be extended.
While the population is going to be healthier, an older population is going to mean more people with chronic conditions and those with serious issues like dementia are going to be an increasing drain on medical services, not to mention increased incidence of cancers and possibly diseases related to sedentary lifestyles.
This means the nature of medical treatment is going to change, a lot more is going to be spent on early identification and intervention of chronic and debilitating conditions.
Changing the workforce
While the workforce is going to get older, it’s also going to become more precarious. This is already clear in the long term trends since the 1980s and with the rise of ‘collaborative economy’ businesses like O-Desk, Mechanical Turk and Airtasker we can see jobs becoming more casualised.
Today’s children will not have a steady career path and governments have to plan for extended periods of unemployment. This too affects the participation rate and the levels of household spending.
A precarious income also means workers are less likely to take on large debt commitments. This trend is already apparent and is the main reason why companies with a 1960s consumer spending model are struggling in the economy of 2015.
Property stagnation
The Australian middle class model that depends upons highly indebted householders paying down mortgages is likely to be unpopular by the middle of the century as people will be reluctant to take out a huge loan to buy a property when their medium term job prospects are uncertain.
This one aspect is where the Australia government projections go badly awry. It’s understandable not to consider this given the political poison of telling the population their assumed property gains aren’t going to happen but it damns the IGR to failure.
A society with lower levels of property ownership means a dramatic shift in the tax mix and government expenditures. Assuming that today’s normal will also be tomorrow’s is very risky.
Changing technologies
The technologies themselves are changing the revenue and expenditure streams for government, just rolling out diverless vehicles might eliminate the need for half the US’s police force while reduced registration fees, taxes and fines will hit state and local government budgets.
Similarly the global nature of digital businesses is going to challenge governments as the locations of where work is done, goods are delivered and profits made becomes less certain. Right now tax officials are struggling with the revenues of multinationals but increasingly smaller companies will present the same problems.
The other changing nature of work is going to be its composition, just as a hundred years ago nearly half the workers in western countries were in agriculture, a number that’s below one in twenty today, we can expect changes in employment sectors as robots and algorithms take over many of today’s jobs.
All of this means a very different society and workforce to today’s. While it’s difficult to envision what it looks like from here, just as the current economy was almost unimaginable in 1975, it’s necessary to give some thoughts on the shifts to make informed policy choices rather than the opportunistic populism displayed by most of today’s political leaders.
So how do you see the economy of 2015 looking? And where are governments going to raise their money from? I’d be interested to hear what you see in the crystal ball.