Chris Pash Today at 11:15 AM

Growth in Australia’s working age population has passed its peak with baby boomers starting to retire.

“The country has experienced high rates of working age population growth over the past few decades,” says Paul Bloxham, Chief Economist of HSBC, in his regular newsletter, Downunder Digest.

“However, with the baby boomer generation beginning to retire, the pace of growth in the working age population is likely to slow.”

The Australian Bureau of Statistics (ABS) projects that population growth will average +1.2% a year in the 2010s and +0.9% in the 2020s, down from +1.6% in the 2000s.

As in this HSBC chart:

The ABS also presents a low and high scenario, with the variation between the outlooks largely explained by differing assumptions about migration.

“This is expected to act as a drag on Australia’s potential growth rate, adding to the problem of Australia’s recent weak productivity performance,” says Paul Bloxham.

An ageing population is an issue faced by most developed nations around the world.

The post-war baby boom and subsequent declining birth rate is one part of the story.

Rising incomes and advances in medical technology also mean greater life expectancy, further skewing the average age to the upside.

In the US, estimates from the United Nations suggest that 20% of the population will be above 65 by 2030, up from 14% currently.

Australia’s population is expected to age in a similar way, with over 65s projected to account for 19% of the population by 2030, from 14% currently.

As in this chart prepared by HSBC:

For government budgets, the ageing will mean greater spending on healthcare and less revenue from the income tax system.

Paul Bloxham says options available to the government in Canberra include cuts to government-funded healthcare and a shift in the tax base to consumption or wealth-oriented taxes rather than income taxes.

He says stronger migration would also help.

“Migrants are typically younger than the extant population,” he says.

“They also bring with them much needed skills and have strong ties to their former home countries, which can strengthen financial and trade ties. Australia’s already has a targeted immigration scheme, which allows the government to control the types of skills of individual migrants.

“Strong migration flows, particularly from fast-growing Asian nations, could help Australia deal with its demographic challenges and also strengthen its links with the fastest growing economies.”

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