Concluding comments
Continued ageing of the population, persistence of low participation rates among the increasing proportion of older people, and a possible fall-back to historical rates of productivity growth would imply lower growth rates in Australian standards of living in decades to come.
Continuous adaptation, and changes to policies and attitudes, can offset these factors and make possible sustained high levels of growth. To illustrate the gains to Australia's standard of living that could be possible, it is worth considering the increase in GDP per capita that could be achieved through plausible policies to lift participation and sustain productivity growth.
Improving participation has the greatest scope for gains up front. If participation rates for each age and gender cohort were to rise towards the top of the OECD countries' current experience over the next 20 years, then the level of GDP per capita could be over 9 per cent higher by 2041-42 than the projections contained in the IGR. Most of the long-term gain would be in place by the early 2020s.
On top of this, further reforms might be able to drive faster productivity growth than projected in the IGR. Productivity growth of 2 per cent per annum (halfway between the 30 year average of 1¾ per cent used in the IGR, and the 2¼ per cent recorded over the past decade or so) would add a further 4 per cent or so to the level of per capita income by 2021-22. Further, because higher productivity growth compounds through time, by the year 2041 the higher level of productivity growth could potentially boost incomes a further 9 per cent compared to the scenario with participation alone improving.
If these levels of participation and productivity can both be achieved, the total level of GDP per capita would be almost 20 per cent higher than the base case used for the IGR projections. This would greatly improve Australia's capacity to respond to the pressures that will come from an ageing population and continued higher cost of health care.
Medical, lifestyle and economic improvements mean Australians are living longer, healthier lives. They might generally want more flexibility as to how to spend their additional productive years. If the community supports timely policy choices over the balance of this decade, increasing competition and flexibility in product and labour markets could produce higher participation rates and productivity growth rates than currently projected. Towards 2040, the resultant society would be both richer and fairer in terms of access to employment, with Australians enjoying lower unemployment, better education and training, continuing rapid innovation and productivity growth, and greater choice among more flexible employment options over their life spans.