ABUL RIZVI. Inter-generational inequality, the fertility rate and population ageing.

Apr 12, 2018

Australia’s fertility rate continued its steady decline in 2016-17 and fell to 1.732, close to the level when Peter Costello rang the alarm about low fertility accelerating our rate of population ageing. It is also a level well below that assumed in the 2015 Inter-generational Report (1.9) and in the ABS’s 2012 population projections (1.8). 

As a retired baby boomer, I know how much we value our grandkids and for some of us, our great-grandkids.  But the children of Australia’s baby boomers continue to delay childbirth and are again having fewer children.

Last month, the ABS released data on Australia’s total fertility rate for 2016-17. It has now fallen steadily since 2011-12 –   2011-12: 1.926;  2012-13: 1.917;  2013-14: 1.851;  2014-15: 1.821;  2015-16: 1.809;  2016-17: 1.732 (note this is subject to revision as the fall is partly due to a delay in registration of some births in NSW).

At 1.732 children per woman, even after allowing for the partial delay in birth registrations in NSW, Australia’s total fertility rate (i.e. the average number of children a woman has over her lifetime) is getting close to the level when Peter Costello first rang the alarm about the consequences of low fertility for population ageing.

The decline in our fertility rate has been significantly faster than assumed by the ABS in its 2012 population projections. The ABS had assumed Australia’s fertility rate would fall very gradually from its 2011-12 level of 1.926 to around 1.8 by 2026 and then remain at that level. All other things being equal, the faster fall in fertility means Australia’s population will grow more slowly than projected by the ABS and it will age more quickly. It also brings forward the year in which the number of deaths will exceed the number of births in Australia, possibly to as early as the 2060s, subject to the level of immigration as that adds to the overall number of women in the population (note that many countries in continental Europe and Japan have already passed this point).

Our 2016-17 fertility rate is also significantly lower than the 1.9 assumed in Joe Hockey’s 2015 Inter-generational Report.

So the crucial question is why has it fallen so much more quickly than either the ABS or the Treasury anticipated? Will the decline continue? And what does that mean for our population growth rate and the rate at which our population ages?

The modern history of Australia’s fertility rate is that, after the 1990-91 recession, fertility fell steadily throughout the 1990s coinciding with relatively weak economic growth and women in Australia having their first child later in life.

In the period 2001 to 2008, Australia’s total fertility rate increased from 1.73 to 1.96. This coincided with both stronger economic growth (including growth in real wages, cuts to personal income tax rates and continued growth in female part-time work) as well as a range of pro-natalist policies designed to boost the fertility rate. It also coincided with an increase in women having their first child in their 30s rather than in their 20s.

Research by Parr and Guest (2011) suggests Costello’s ‘baby bonus’ had only a minor impact on the fertility rate. The impact of an increased child care rebate, higher family tax benefits and increased availability of paid maternity leave was greater but still not significant.  Parr and Guest find the strongest impact was due to greater economic prosperity at the individual family level leading up to the Global Financial Crisis.

This suggests that, with the economy now growing more strongly, Australia’s fertility rate could rise slightly or at least not fall significantly in 2017-18. However, this may be offset by continued weak real wages growth, record household debt levels as a portion of disposable income (and the potential impact of rising interest rates on these debt levels) and the high cost of housing and childcare.

If Australia is to avoid further acceleration in our rate of ageing due to a continuing decline in our fertility rate, much greater financial support and workplace flexibility for younger families will be needed. To offset the costs of any such measures, richer baby boomers may need to relinquish some of the largesse that was directed at us by the Howard Government (e.g. capital gains tax concessions, excessively generous superannuation for rich baby boomers rather than those closer to age pension levels of wealth, dividend imputation credits), especially as we baby boomers will be imposing increased costs of the health and aged care budgets.

If not, we will have only ourselves to blame if our children and their children continue to have fewer babies and we as population age more quickly, with all the negative consequences of that for our economy.

Abul Rizvi was a senior official in the Department of Immigration from the early 1990s to 2007 when he left as Deputy Secretary. He was awarded the Public Service Medal and the Centenary Medal for services to development and implementation of immigration policy, including in particular the reshaping of Australia’s intake to focus on skilled migration. He is currently doing a PhD on Australia’s immigration policies.

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