The Stats Guy: How this shifting profile will soon reshape Australia
Population forecasts give us a rare view into understanding the economic and social challenges, and opportunities, Australia faces.
This week we will explore what the population forecasts mean for Australia.
We will go beyond the obvious observation of “more people = more housing” to understand the economic and social challenges and opportunities we will be facing.
The chart in all its glory
Let’s look at the 10-year population forecast.
Australia is projected to grow by 3.5 million people (or by 13 per cent) in the coming decade.
I argued last week that I disagree with The Centre for Population’s assumption that the fertility rate will increase from 1.42 to 1.62 children per woman by 2032 and then hold steady until 2036.
The kids are all right – but not very plentiful
I am expecting a slow but steady decline of fertility rates but am willing to settle for a birthrate that stabilises at 1.42.
The projected difference in births over the next decade is remarkable. The centre’s forecasts see 3.31 million births, while the steady-as-she-goes scenario that I think more likely delivers only 2.96 million babies. That’s a difference of 350,000 humans (or 11 per cent).
Having an opinion about which scenario more closely resembles the future is crucial not just for businesses targeting children (nappies, baby formula, clothing, toys, prams) but also for public spending allocations.
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Just how many pre-school teachers must we aim to educate or import from overseas? How many new kindergartens must be built? Such forecasts matter.
I’m mentally adjusting the chart by imagining the 0-9 aged cohort in 2026 and 2036 to be pretty much the same.
That’s where my disagreements with the forecasts end.
The 10-17 cohort is projected to decrease by 61,000 people (2.72 million to 2.65 million – a decline of 2 per cent). That kind of decline might lead to a short-term relief in understaffing issues in schools, but it points to further shortages in the overall workforce in a few decades.
The roaring 20s
Before reaching 30, few Australians marry or have children. The cohort of 18-29-year-olds is projected to grow by 10 per cent (4.60 million to 5.06 million).
Home ownership rates among this cohort are lower than ever and I don’t see this changing. Even without a mortgage to take care of, our young Australians aren’t spending less money – they’re just spending it differently.
Instead of sinking cash into Friday-night alcohol (as you and I might well have done), today’s 20-somethings funnel far more of their budget into always-on services and convenience – multiple streaming subscriptions, food delivered to the door, rideshares, in-game, and buy-now-pay-later instalments instead.
Add to that a steady drip of café visits, gym memberships, skincare products and second-hand fashion platforms, and you get a generation whose discretionary spending is less about occasional big splurges and more about dozens of small, recurring lifestyle payments.
This is simply the latest variation of our national obsession with lifestyle.
These spending shifts are important for pubs, liquor shops, and alcohol producers to understand and to adjust. Investors want to understand how the 20-somethings spend in order to align their portfolios.
A major reason for the population growth in the 20s is our continued high-migration regime. Over the coming 10 years, The Centre for Population assumes a net overseas migration intake of around 233,000 a year.
I agree with this assumption and have written in the past that high migration of about a quarter of a million people a year is needed to counter the skills shortage and ensure we look after our elderly population.
Retiring baby boomers and the workforce paradox
As the large baby boomer cohort leaves the workforce in the coming decade, we’ll struggle to replace them and face a prolonged skills shortage.
This might feel paradoxical to many. Doesn’t our chart show a massive pile of people of working age?
Indeed, the share of the working age population (18-64) increases from 17.18 million to 19.14 – that’s almost 2 million more people that can work and drive-up GDP. Of course not all people of working age are workers.
So, how large might our labour force (that’s all people that are employed, unemployed, and those on sick or parental leave) be in a decade?
Let’s take age-related participation rates from the 2021 census and apply them to our dataset.
We can expect about 1.6 million more worker bees by 2036. Instead of the current 15 million, we might have up to 16.6 million people employed.
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That’s very much a back-of-the-envelope calculation but is a good basis for us to discuss if that’s sufficient or insufficient for our needs.
How many workers do we need?
We have a skills shortage in almost all fields. First, we must play catchup and fill existing shortages.
The government estimates a current skills shortage of about 300,000 workers (29 per cent of all occupations are classified as experiencing a skills shortage right now).
Let’s look at just two crucial current skills shortages.
The wider construction sector is estimated to have a skills shortage of 300,000 by mid-2027. If we want to build enough homes and infrastructure, we can’t possibly ignore this sector.
Australia’s aged-care sector employed an estimated 549,000 people. About 414,000 were direct care workers such as nurses, personal care workers and allied health professionals, while roughly 135,000 were employed in support roles including administration, catering, cleaning and management.
More than half of the 85-plus aged cohort needs care on a daily basis and is projected to grow by a massive 68 per cent in the next decade – it will indeed double within the next 14 years. We might not exactly need to double the aged care workforce in 14 years, but we get close to it.
Just these two sectors will eat up close to 40 per cent of all new workers in the system. Our general population increase of 13 per cent requires a 13 per cent increase in so many jobs as we have more people dining out, traveling, visiting the doctor, buying clothing.
By 2036 Australia will still have a general skills shortage even if we continue our current high migration (about 233,000 net new migrants per annum).
I expect no plausible government to seriously decrease migration intake.
Some might expect AI and robots to make the remaining workers so productive that the skills shortages melt away. I would welcome such developments. If technologies were to become so helpful, we would just adjust migration downwards.
In either case unemployment rates would remain very low. Personally, I am fearing that we overestimate how much technology will help us.
High consumption ahead!
To close this column, let’s talk about the fastest growing cohort in the coming decade – the mid- to late-40s.
The biggest generation (millennials) is pushing into the highest spending phase of the lifecycle in the coming decade.
By your mid-40s, you had a few promotions already and reached your career-earning peak (in some jobs that peak happens later).
You do have a lot of money to spend and will spend it. No time to save. After all, you’ve got financially dependent kids and certainly haven’t paid down your mortgage.
Every penny the biggest generation earns will go straight back into the economy.
If your business services the millennial consumption needs in any way, you will enjoy the coming decade.
A similar trend can be witnessed with the richest generation. The retiring baby boomers actually tend to increase their spending in the first years of retirement as they travel the world, support their grown kids (or grandkids) financially and simply are active consumers of lifestyle goods and services.
Unfortunately, having the biggest and richest generations going on a spending spree is inflationary in nature.
Add to this a decade of expensive infrastructure investments and elevated government spending and you see why the Reserve Bank of Australia will likely have to dictate higher rather than lower interest rates.
Parting words
Our innocent-looking population chart tells us so much about the likely future of Australia. Any forward-looking business or government takes these projections very seriously and adjusts their strategies accordingly.
Simon Kuestenmacher is a co-founder of The Demographics Group. His columns, media commentary and public speaking focus on current socio-demographic trends and how these impact Australia. His podcast, Demographics Decoded, explores the world through the demographic lens. Follow Simon on Twitter (X), Facebook, or LinkedIn.
