Should we be scared by the forecasts of the latest Intergenerational Report? With Simon Kuestenmacher

In a time of lockdowns, thinking 40 hours ahead is sometimes a challenge.

Now try thinking 40 years ahead.

Well, that’s what the Federal Government has done when it recently released its fifth Intergenerational Report.

It has taken a 40-year view on where we’ll be in 2061 and forecasts that Australia will be older, smaller and more in debt than previous Intergenerational reports suggested.

Predicting anything 40 years out is a challenge.  But predicting what will happen to something as unpredictable as our economy, and the budget settings it generates, requires the most adept of crystal balls.

And as with any such exercise, the predictions are completely meaningless without understanding the assumptions upon which they are based, so today I unpack this report in my regular chat with leading demographer Simon Kuestenmacher and ask him what do the findings mean for our economy and our property markets.

What’s ahead for Australia?

Our property markets don’t work in isolation – they’re driven by our demographic changes and according to the latest Intergenerational Report in 40 years’ time Australia will be smaller and older than previously expected after the first downward revision of official projections in an intergenerational report in 20 years.

• The purpose of the intergenerational report:
  • Show everyone what Australia could look like in 40 years under the current policy settings
  • Help treasury understand how much money it can spend
  • Help politicians consider the long-term effects of their policies
• In the current intergenerational report:
  • The Australian economy is projected to grow at a slower pace over the next 40 years than it has over the past 40 years.
  • Real gross domestic product per person is expected to grow at an annual average of 1.5 percent
• The pandemic has interrupted heavy population growth. Growth has been buoyed by government stimulus, but that can’t last forever.
  • The previous Intergenerational Report in 2015 projected an Australian population of almost 40 million by 2054-55.
  • The 2021 update projects 38.8 million by 2060-61.
  • That’s less growth, but it’s still a monumental trend.
  • City and town planners will have a lot to do in coping with the growth.
  • This will impact property investment choices, but strategic knowledgeable investors will be well-placed to capitalize on the changing trends.
• In 2060-61, about 23% of the population is projected to be over 65, up from 16% at present and 13% in 2002.
  • Health improvements suggest that older Australians will be able to remain active longer
  • However, they’ll also need to work longer to self-fund retirement.
  • As a consequence of the low birth rate, aging population, and decline in migration, over the next decade, we will lose out on over a million people in Australia who could have added to our GDP.

Resources:

Simon Kuestenmacher - Director of Research at The Demographics Group

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Shownotes plus more here: Should we be scared by the forecasts of the 2021 Intergenerational report? With Simon Kuestenmacher

Some of our favourite quotes from the show:

“In the next 40 years, our population will increase by 13.3 million they’re saying. In other words, increase by over 50%.” – Michael Yardney

“Some people would also say another way is to import these higher-skilled people from overseas.” –Michael Yardney

“There’s a long list of people who’d rather complain than actually do something about it.” – Michael Yardney

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