Is there really a crisis?

The rapid ageing of Australia’s population has long been presented as one of the most serious challenges facing the nation in the coming decades. It is the result of two factors: declining birth rates and longer life expectancy. Given that we would understandably meet any social policy initiative aimed at reversing longer life expectancy with open hostility, governments have targeted increasing family fecundity as a panacea for the problems of an ageing population.

Ostensibly, this objective might seem justified in light of the country’s current fertility rate of just 1.7, which is well below the required replacement rate of 2.1. The reality is quite the opposite. Efforts to raise family fertility would simply contribute to increasing the financial strain on governments and individuals through higher costs for childcare, education and the many other expenses implicit in an age demographic ‘bubble’ at the youth end of the scale.

The most appropriate form of public policy to address the adverse effects of an ageing population is not to create an alternative problem; rather, it is to legislate effectively for the maturing populace, and thereby share the elevated financial strain evenly.

Increasing family fertility is not the answer to an ageing population. Moreover, this phenomenon is not the ‘crisis’ that the media and some politicians have suggested. While it may not be a cataclysmic event as such, it is an area of concern that policy makers should take steps towards tackling.

In an Occasional Paper published by the Department of Family and Community services, the reasons for a falling fertility rate were analysed. A consistent theme was the financial burden of raising children. This burden can be felt by the individual through caring costs, providing costs, and as an ‘opportunity cost’, one of which is lost time in the workforce.

Government equally incurs a cost through service provision – childcare, allowances, education and the like. Any attempt to raise fertility rates will causally increase the cost burden for individuals and governments. When an ageing populace is already placing growing pressure on the public purse, the last thing we need is extra demands from the opposite end of the age spectrum.

Proponents of boosting family fertility point to the need to measurably increase the size of the labour force, and thereby expand the pool of prospective taxpayers. It is suggested that we need the number of working age persons to be such that they can support those in retirement that are living longer and consuming more. This notion is flawed on a number of levels.

First, with increased fertility large numbers of the populace would be spending less time in the workforce, and more time acting as carers (unless there were significant subsidized childcare options). If calls to provide across the board paid maternity and paternity leave were acted on, higher family fertility would result in massive cost blowouts for governments and business.

Secondly, our tax arrangements are shifting such that income tax is becoming less central to the government’s revenue streams. This shift is likely to continue making income tax reliant initiatives antiquated. Attempts to raise population levels so that the number of working age personnel increases is a move in the wrong direction.

Thirdly, even if we accept that increasing the working age population is the answer, a higher fertility rate is not the mechanism to achieve it. Any increase in family fertility would not measurably enlarge the working age population; it would only incrementally augment it. Further, the increase itself (no matter how minimal) would not be felt for at least 20-30 years. Predictions of an ageing ‘crisis’ are expected to be felt sooner than that.

Increases in the immigration intake might offer an age diverse spread of working age participants, yet a marked upsurge in immigration is not electorally appealing, and is unlikely to address all the problems of ageing. Rather, it would simply provide a further contribution to it. Irrespective of the listed points above, it is possible that the jobs market would be unable to sustain the measurable increases in work eligible personnel increased fertility may create. This could be the case even with the Howard Government’s most impressive rate of employment.

If increasing the fertility rate is not the answer to an ageing population, what is? Before signposting some alternative policy approaches, let me throw some cold water on the doom and gloom predictions as they stand. Professor Gary Burtless of the Brookings Institution, a leading USA think tank, has written a paper indicating ageing is "less worrisome than popularly supposed". He comes to this conclusion by analysing dependency as a collective. His findings suggest any increase in aged persons expenditure is measurably matched by decreases in youth expenditure due to declining fertility rates.