Treasury [on Thur 5.3.2015] released its 2015 Intergenerational Report (IGR) – Australia in 2055 highlighting the fiscal challenges over the next 40 years from an ageing population. In responding to the report, Treasurer Hockey said that the Government will continue to focus on the key drivers of economic growth – participation and productivity.

The report projects that average annual growth of real GDP will be 2.8% (or 1.5% per person) over the next 40 years, compared with 3.1% (or 1.7% per person) over the past 40 years. However, the report warns that these long-term projections look through business cycles and assume a smooth growth path, which in unlikely. The report also estimates that Australia’s population will grow to 39.7m in 2055. It also expects that the number of people aged 65 years or over will more than double by 2055. As a result, the labour force participation rate is projected to fall to 62.4% by 2055 (down from 64.6% in 2015). This demographic change will have important implications for the tax base, the report said.

Under current policy settings, the tax-to-GDP ratio is expected to reach the long-term assumption of 23.9% of GDP in 2020-21, thanks largely to bracket creep. The report also noted that digital commerce and the growth of multinational companies using global supply chains is putting strain on the tax system. According to the report, other economies are responding with reforms that reduce the average burden of corporate tax, while also addressing global tax avoidance activities.

Source: Treasurer’s media release, 5 March 2015

[LTN 43, 5/3/15] [IT 5/3/15]