In a sobering assessment of the country's economic trajectory, the latest Intergenerational Report (IGR) signals a pressing need for Australia to invigorate its economy, emphasising the enhancement of productivity and increased investments as key measures.
According to the report, the projected economic growth is slated to decelerate to a mere 2.2%, a level we haven't grappled with since World War II.
More worrisome is the anticipated dip in productivity growth, which is forecasted to be 1.2%, resonating with the lacklustre averages of the past 20 years.
Another demographic challenge highlighted by the IGR is the expected surge in the population aged 65 and above.
This demographic bulge, combined with a contracting pool of working-age Australians, foretells significant strain, especially within sectors such as health and aged care.
Bold action needed for ageing population
Business Council chief executive Jennifer Westacott said: “The IGR shows Australia needs bold action to deal with an ageing population, and to ensure we can deliver the quality services people expect and deserve, in health, aged care and the National Disability Insurance Scheme, as well as pay a growing interest bill."
Westacott further warned of the implications if proactive measures aren't adopted, “This document shows that growth in living standards will slow unless we take urgent decisive action to achieve higher economic growth.”
Highlighting the grim projections, Westacott continued, "Its projections are concerning – with economic growth slowing to 2.2%, its lowest rate since World War II, and productivity growth declining to 1.2%, consistent with the sluggish average for the past 20 years and a warning that productivity growth is not a foregone conclusion."
On the correlation between productivity and wages, she added, “Productivity has been the central driver of wage growth, accounting for 80 per cent of wage rises since federation.”
The report also offers a stark demographic forecast, indicating significant changes in the age makeup of the Australian populace. “The number of people aged over 65 will double and that will be accompanied by a shrinking of working age Australians to support them in a care sector that will double in cost,” she elaborated.
The Intergenerational Report has sounded the alarm on the urgent need to grow our economy faster by lifting productivity and driving investment, which will improve living standards, drive more revenue to government and sustain higher wages.https://t.co/ZAzyisS1zv pic.twitter.com/v1a5KDR6xZ
— Business Council of Australia (@BCAcomau) August 24, 2023
Stronger revenues - higher wages
For Westacott, the solution lies beyond temporary fixes. “We cannot have short term, ad hoc responses – we need a comprehensive and aligned economic strategy.
“The best insurance for the future is a strong economy which will deliver stronger revenues and higher wages.”
Highlighting the intimate relationship between productivity and wage growth, she pointed out, “Historically, productivity has been the linchpin for wage enhancements, accounting for a whopping 80% of wage increments since the federation.”
To maintain our level of prosperity for future generations of Australians, the priority must be on lifting productivity. See ACCI's media release responding to the Intergenerational Report here https://t.co/ICJF1GU7HH pic.twitter.com/LgBJL0tFFr— Australian Chamber of Commerce & Industry (ACCI) (@ACCINews) August 24, 2023
What’s next ?
In light of the IGR's insights, the Business Council released "Seize the Moment", a document that outlines a forward-thinking strategy for the nation.
Ms. Westacott highlighted its proposals: “Our document sets out clear and achievable goals to lift our productivity and make us more competitive, with a package of reforms that would leave each Australian $7,000 better off each year by the end of the next decade.”
She concluded by emphasising the need for targeted reforms that focus on essential areas like skill development and education.
“We need spending reforms to deal with future challenges, one of the main of which is making sure Australians have access to the skills and education they need to compete in the workforce.”