Sent: 13-10-2009 11:09:02
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Immigration, Population Ageing and Tax Receipts
Over the last few months Lester has been writing about retirement and whether it is quite quickly becoming outdated.
As always with Lester's material his work has been impeccably researched.
One point which Lester has made both in his articles contained in his free weekly emails and also in several of last year's ATC Digest editions (our subscription journal) has been addressing the problems of ageing caused by the baby boom cohort.
In 2005 the Productivity Commission published a research report which delved into the economic impacts of our population aging problem. The following graph shows the then expected impact on Australia's future economic growth prospects
In 2007 the second Intergenerational Report published by the Commonwealth Treasury showed that we can expect our participation rate (that is the percentage of the population who are deemed to participate in the productive economy) to decline again because of population aging.
As I have discussed previously the Howard and Rudd Governments have dramatically increased immigration to help solve some of the likely problems. The upcoming Intergenerational Report is expected to show some expected improvement in the problems caused by population aging.
Last week the KPMG demographer, Bernard Salt, produced some interesting research in his weekly column that appears in The Australian. His research can best be summarised by the following table:
This table shows the number of people who have moved into the age 15 - 64 age group during each decade and the percentage increase in tax revenue during the same period. Obviously the 2000s is an incomplete decade but only a few months are missing from the data.
As Salt explains, "very crudely it might be said that we need no fewer than one million migrants every decade to ensure growth in the tax base of no less than 70 per cent".
"If we want to maintain growth in the tax base, we need to ramp the level of migration. The other options, of course, are to reduce government services and funding; to radically increase the level of workforce participation; or to increase the level of taxation. Or - and this is, I think, the most likely outcome - to apply all of these levers, including raising the level of skilled migration," Salt said.
The reason for the two lines in the 2010 decade is to show that initially we were expected to only take in 780,000 migrants. Recent Australian Bureau of Stats data says we will now take in more than 1.4 million migrants.
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