With the release of the federal Treasury’s 2023 Intergenerational Report (IGR), a flurry of headlines emerged based on the various economic and social forecasts covering the next 40 years. It predicted Australia’s population to pass 40 million by 2063, Aussies to have fewer children and the population of over 65s to double.
As one might imagine attempting to peer into the future and trying to see how Australia will look in 20 or 40 years is challenging.
But what we can do is examine the original IGR authored by the Peter Costello led treasury from way back in 2002 for some clues on what trends the experts have got wrong in the past and how those divergences from forecasts, both good and bad, are impacting Australians in the now.
Some of the predictions contained in the original IGR have been repeated with a twist in the latest edition.
Population
It was estimated in 2002 that the population would grow by 5.7 million people over the 40 years to 2042 to a total of 25.3 million. The closest snapshot provided to the present day was for 2022, where the population was estimated to stand at 23.2 million.
According to the latest data from the ABS, the population currently stands at 26.7 million people, significantly above the trend predicted in the 2002 Intergenerational Report.
While there are several differences to how the 2002 projections expected to play out, perhaps the most notable are the increase in fertility rates seen between 2005-2013 and that net overseas migration has not been 90,000 per annum for every year since 2002.
In reality, the average net migration figure since the initial IGR has been 191,600 and it’s worth noting that this has been skewed lower by the extremely low levels of net migration seen during the pandemic.
With the latest IGR projecting net migration to sit at 235,000 over the next 40 years, experts have raised questions as to how accurate this estimate will be, given how far the 2002 report missed the mark.
GDP Growth Per Capita
In the 2002 IGR it was estimated that GDP per capita would grow by 2.1 per cent in the 2000s, 1.5 per cent in the 2010s and 1.4 per cent in the 2020s. The economy was roughly on track to achieve the IGR’s estimated growth rate in the 2000s, but the arrival of the GFC saw annual growth for the decade drop from 2 per cent to finish at 1.56 per cent.
Despite experiencing the tail end of the mining boom and stronger wages growth, the 2010s also proved to be a disappointment, coming in with a growth rate of 0.99 per cent, one third below the original estimate.
While this may not sound like much, when the impact over the last 21 years is cumulatively tallied up, GDP per capita is 9.7 per cent below where the 2002 IGR estimated it would be. At first glance one might imagine that this may be the impact of the pandemic at work, but growth in GDP per capita in the completed financial years since the start of the pandemic has actually been much higher than in the years prior.
Between June 2019 and June 2022, GDP per capita grew by 4.5 per cent, compared with just 2.2 per cent between June 2016 and June 2019.
Life expectancy
In the 2002 IGR, it was estimated that the average male life expectancy at birth would rise from 77.2 years to 80.7 years by 2022. For females, life expectancy was estimated to rise from 82.6 to 85.7 years.
According to the latest data from the ABS, the current male life expectancy at birth is 81.3 years, 0.6 years higher than was estimated back in 2002. For females, life expectancy at birth is 85.4 years, 0.3 years less than was estimated.
What the IGR estimate didn’t anticipate was the narrowing of the gap between male and female life expectancies. In 2002, the gap was 5.4 years, but in the latest data that had moderated significantly to 4.1 years.
All in all, a pretty solid estimate considering how long ago it was made and the advancements in healthcare that have occurred since.
Labour force participation rate
In the 2002 IGR, it was estimated that the labour force participation rate (the proportion of people 15 years of age or older in the labour force) would drop below 60 per cent by 2021-22. This is one where there has been a positive surprise to the upside across the board.
Today the overall participation rate is 66.8 per cent, 3.6 percentage points higher than it was when the 2002 IGR was authored and there is no sign of the expected downtrend seen in the initial predictions.
Part of the reason for this surprise to the upside is higher rates of immigration than anticipated, but the divergence in the figures goes much deeper than that.
In 2002 it was assumed that around 48 per cent of men and 27 per cent of women between the ages of 60 and 64 would be in the labour force in 2022. In reality, 67.4 per cent of men in that age demographic are in the labour force, along with 53.7 per cent of women.
The gap between the expected labour force participation rate for Australians aged 65 to 69 and reality is even more striking. It was expected that 22 per cent of men in this demographic would be in the labour force, in the latest data it was 38.9 per cent. For women the expectation was for 11 per cent in this age range to be in the labour force, compared with 25.5 per cent in reality.