Business needs to be wary of a “baby bust” as boomers retire and stop paying tax over next decade: Bernard Salt

A report from KPMG demographer Bernard Salt and research firm Ipsos says Australian businesses need to be prepared for the start of a “baby bust” in the next decade, as baby boomers start retiring from the workforce and stop paying tax.

The report, which examines what Australia will look like in 2020, is based on demographic trends and focus groups of business leaders and consumers.

While Salt argues most of Australia’s demographic trends for the next decade are set, the report highlights a number of trends that will occur over the next 10 years that businesses will need to adapt to:

• Population will increase by three million to around 25 million. Populations of Melbourne, Sydney and South East Queensland to increase by 500,000.
• No new population centres are likely to emerge over the next decade.
• Strongest population growth will be in the 30-34 age group and the 64-75 age group.
• The 30-34 age group will need affordable housing options, with a probable focus on apartments.
• The 64-75 year age group will demand health services and may spark a revival of spirituality in Australia.
• Migrants likely to continue to come from New Zealand, China and India.
• Baby boomers likely to continue to retire at the age of 50, although truly self-funded retirees will not start to leave the workforce until 2020.

However, the most worrying trend is that the report calls the “baby bust” – the social and economic movement that will occur as baby boomers (and their skills) leave the workforce and switch from taxpayers to pension recipients.

While some commentators have warned that this could trend could have huge financial ramifications as boomers sell their homes and their businesses – thus pushing down asset values – Salt says he is not so pessimistic, arguing many boomers will probably need to work longer than expected to fund their retirement.

However, he says the baby bust trend cannot be ignored, particularly by governments who will face hard decisions about the changing shape of the tax base.

“There are quite negative scenarios about the baby bust. Taking millions of people out of the workforce has got to have an impact on the level of skills out there and also the tax base,” he told SmartCompany today.

“It’s a double whammy. They stop paying tax and many of them start putting their hands out.”

Salt says these issues need to receive attention and debate – and quickly.

“These demographic issues are a little like turning the wheel on a super-tanker. You need to be turning the wheel now if you want changes in five or 10 years.”

As part of the focus group process, Salt floated two scenarios.

In the first – called “Measured Australia” – consumers and business people were asked to consider an Australia where migration had been limited to reduce congestion and new laws and regulations have been introduced to address environmental and health concerns. Growth is slow, and the pressures of the ageing population and exacerbated by migration cuts.

In the second – called “Global Australia” – migration was been increased to take the population to 30 million, prosperity has soared but urban sprawl and environmental concerns have also increased.

Salt says consumers largely backed the first scenario, while business people preferred the second.

“Consumers certainly re-acted negatively to the more global perspective, the more engaged, confident and global Australia,” he says.

“The business people were very measured who are more concerned about sustainability of prosperity, not just prosperity at any cost.”

Salt says balancing these issues is a huge challenge for governments, but the public also needs to become involved in a rigorous debate on the shape of Australia’s economy over the next 10 to 20 years.

“I think what this highlights is a significant division between the general population and the business community regards the outlook for Australia. We need a debate. We need a robust conversation about the future.”