Baby boomers are spending like theres no tomorrow. But there is.

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Wednesday, 04 October 2017

Written by MRC's Communications Director  :  

Australians are no longer as “young and free” as their national anthem claims, and the implications for their economy are profound.

The key figure regarding the ageing of the population is the “dependency ratio” - the number of working-age people for every one of pension age. In 1975, the ratio was 7.3; in 2015 it had fallen to 4.5. By 2055 it is predicted to be a mere 2.7.

Don’t imagine that superannuation will ease the pressure this places on the age pension. Mercer actuary David Knox says that baby boomers, who are reaching retirement age now, are likely to outlive their super savings and turn to welfare in larger numbers than their predecessors.

The Murray inquiry three years ago found many retirees were risk averse, but that is the generation they grew up in, they lived through the depression and the war,” he says. “But what are the baby boomers going to do? We’ve had a very good life and we like spending our money. I think we might see a generational shift, and there’s a lot of boomers.”

Knox says life expectancy is often misunderstood, and underestimated. Anybody who makes it past birth and teenage years is a member of the cohort whose average expectancy is higher than the total. So a 65-year-old today is likely to live longer than the average for his or her total generation of 83.

“People underestimate their life expectancy,” he says. “A 65-year-old today probably has a life expectancy of 91 rather than 83. Some people think they will only live till 83 and spend accordingly, then wait on the age pension. The age pension is still a very important undergirding of the system.”

This is not the type of expenditure Australia can afford now or in the future.

“As the dependency ratio decreases over time, heavier demands are placed on government spending and the working population to maintain the flow of benefits to older groups,” says Tony Shepherd in the Statement of National Challenges, published by the Menzies Research Centre as part of the Shepherd Review this year.

This will exacerbate the inefficiency of the debt our government is currently accruing.

“Alarmingly, significant spending on non-revenue generating payments (sich as social security, welfare, defence and health) is forecast to grow faster than GDP. Meanwhile, forward looking productive investments such as transport and communications are growing at a rate lower than GDP.

“Failure to proactively manage government expenditure risks eroding the pool of available funds both now and into the future for value generating investments by locking into no-revenue generating recurrent spending.”

This is just one part of the debt that will inhibit Australia’s potential unless significant changes are made to the way we run our economy. We must insist that governments stop wasting our money and focus instead on creating jobs, higher real wages and affordable energy.

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