Archive Article: The Baby Boomers In Old Age. 23rd August 02.
December 29, 2008

Some of us have for many years warned about the economic implications of an aging population. The Australian Government has now responded with a major statement. It looks as though the Australian Government will be able to cope with the aging Baby Boomers – but the Baby Boomers themselves may have a tough time.

In all the documents tabled by the Treasurer Peter Costello in this year’s Australian Government Budget there was “Budget Paper No 5”. This was the first public attempt by the Treasury to assess the long-term financial impact of an aging population.

In short, the Treasury estimated that there would need to be increased spending on health and aged care which would lead to a fiscal deficit on current trends of about 2 per cent of GDP in 2025 and at 4 per cent in 2035. That will not a big problem.

Therefore, the Treasurer reassured us that Australia is well placed to cope with the problem. There are the government pension scheme and personal superannuation schemes, and Australia has an efficient health system, with a targeted social welfare system.

Indeed, demographically speaking Australia will be better off then many other developed countries. While Australians are not having children and so reducing the number of people who will pay taxes to pay for other citizens, the situation is far worse in most of western European countries and New Zealand.

However, I am concerned about the limitations of the Treasury forecast. “Budget Paper No. 5” is heavily focused on the Pharmaceutical Benefit Scheme and health care costs. There is more to life than just these items. Additionally, there could be an increase in labour participation – or at least not reduction through retirement – because people will recognize that retirement is a health hazard. Therefore, there could be an increased tax base. Also improvements in medical technology are very difficult to predict, not least with people taking greater care of themselves.

Also, nothing is said in the Budget Paper about increasing immigration. Australia will need to have some form of immigration debate because of the shortage of workers, such as nurses.

But even if Australia may be able to cope with the aging population, this may not necessarily apply to the individual. Most people are not prepared for their own retirement.

For example, Baby Boomers estimate that they will need $30,000 PA to live in retirement but most Boomers won’t get it! The superannuation scheme will not work for most Baby Boomers (these are the people born between 1946 and 1966). The average worker on $40,000 PA, saving 9 per cent through compulsory super for 30 years, would still receive in retirement only about $19,000 PA. Most Baby Boomers will not come into that category because most superannuation schemes only got underway in the 1990s. They will not have worked their 30 years.

Also, if $40,000 is an “average” wage, then there must be many people who earn less than that amount. Such people are often women – who tend to live longer. Thus, most Baby Boomer women will have to live longer on less. By the way, all these calculations about superannuation assume that the stock market holds up. Given recent events, that is a big assumption.

Broadcast On Friday 23rd August 2002 On Radio 2GB’s “Brian Wilshire Programme” At 9pm.