Source : THE AGE NEWS
I was a youngish reporter at federal parliament when former Treasurer Peter Costello issued his famed appeal for Australians to have more babies.
“You should have one for the husband, one for the wife and one for the country,” he told us in a packed press conference on budget day 2004. That night Costello announced billions in new spending to support families including a maternity payment that upgraded his earlier “baby bonus”.
Illustration by Simon LetchCredit:
But Aussies never came close to heeding Costello’s advice: two decades on and Australia’s fertility rate – which measures the number of births per woman – is at rock bottom.
When Costello made his “one for the country” quip, Australia’s rate was around 1.8. The latest official estimate put the fertility rate at 1.5 in 2023 and analysis of ultrasound data by forecaster Oxford Economics suggests that has now fallen to just 1.4. (A fertility rate of 2.1 births per woman is needed to ensure a stable population, not including migration.)
It’s a similar story across the globe. The number of births worldwide peaked in 2012 at just over 146 million and has fallen sharply since; the fertility rate has declined in 90 per cent of countries for the past 25 years.
In many countries, including Australia, fertility rates have been falling faster than expected. The federal government’s 2015 Intergenerational Report assumed our rate would remain “at 1.9 over the next 40 years, which is consistent with the observed trend in fertility over the past 35 years.” That official prediction, made less than a decade ago, now looks wildly optimistic.
An array of personal factors affect decisions about childbearing including education, career and financial circumstances. The threat posed by climate change is another factor. A recent Sydney University study found 43 per cent of 18-30 year olds said climate change has a “great deal” or “fair amount” of influence on how many children they plan to have.
Meanwhile, people are living longer. Life expectancy in Australia is now over 83 years, about four years more than at the turn of the 21st century.
The economic consequences of falling fertility, coupled with longer lifespans, will be far-reaching.
A new report from the McKinsey Global Institute underscores the stark impact of declining birth rates on the world’s most prosperous economies, including Australia.
Unless there are major changes, it warns, younger people will inherit lower economic growth and shoulder the cost of more retirees.
The economic effects of Australia’s changing age mix are already apparent. McKinsey estimates the demographic transition has decreased weekly hours and gross domestic product per capita growth by an average 0.2 per cent each year over the past quarter-century, a decline forecast to continue at the same pace to 2050.
On current trends, Australians will have to work 2.5 hours more per week, on average, between now and 2050 to maintain historical improvements in living standards amid falling birth rates.
Politicians across the world have responded to the baby drought by pouring money into schemes that encourage couples to have more babies; like Costello’s 2004 maternity payment. But, so far, such policies have had little effect.
Italy’s 2020 Family Act is one of many examples – despite providing family allowances, increased paternity leave, salary supplements for mothers and subsidised childcare, Italy’s fertility rate has continued to decline.
There are no clear examples of countries lifting their birth rates back to replacement levels. So governments must change their approach. Last year, the Paris-based OECD urged governments to prepare for a “low-fertility future”.
Chris Bradley, a Sydney-based director of the McKinsey Global Institute and co-author of the report, says Australia will reach an historic demographic milestone this year.
“For the first time in our nation’s history, the number of people aged 65 plus will exceed the number aged under 15,” he says.
The growing share of over-65s will put government budgets under immense pressure as expenditure on pensions, health services and services for the elderly increase and the number of taxpayers shrinks.
Bradley estimates that in 1997 there were 5.5 people of working age (those 15–65 years) for every Australian aged 65 or over. But that has already dropped to 3.7 and will reach just 2.5 by 2050.
For Australia, higher workforce participation will be key to improving living standards amid lower fertility.
The share of women and mature age workers in the labour market has risen markedly during the past two decades, but there’s still plenty of room for improvement.
The McKinsey report says nations like Australia could learn from Japan, where the fertility rate fell earlier than in other nations. Employees there work longer hours in every age group than most advanced nations. Around 84 per cent of Japanese people aged 50 to 65 years have a paid job, up from 73 per cent in 1997. The workforce participation rate for Japanese citizens 65 years and older is 26 per cent, compared with around 15 per cent in Australia.
Fewer and fewer babies are being born. Credit: Andrew Quilty
“With more older people in their workforces, businesses will need to adapt career planning, reorganise teams, encourage lifelong learning, and expand and adjust retraining programs” says the McKinsey report.
Our openness to overseas migration will help offset some of the negative effects of an ageing population by bolstering the number of working age people. Higher productivity growth will also be needed to ensure living standards are sustained in the face of demographic headwinds.
Bradley says the scale of the challenge means governments should lift polices to boost productivity to the top of their agendas.
“The time to act is now,” he says.
Effective steps to rapidly improve the supply of affordable, well-located homes would be a good place to start. Soaring housing costs in Australia have become a major drag on productivity, especially in our biggest cities. This also affects the fertility rate because the challenge of getting into the property market makes it increasingly difficult for couples to start a family, or have more children.
Policies like these should be front and centre in this year’s federal election.
Matt Wade is a senior economics writer at The Sydney Morning Herald.
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