How is Australia’s ageing population going to effect our economy and our property markets?
Research shows Australians are getting richer and living longer but there are some potential issues ahead.
Cherelle Murphy & Bansi Madhavani, economists at ANZ Bank, suggest we are getting heavier and more unwell in an environment of rising chronic illness.
And the economic impact of this is significant.
Here’s what their research note said:
At present the healthcare and social assistance industry contributes almost one in every 10 dollars spent in Australia and employs one in every seven workers.
“Most healthcare spending is government funded but individuals have been picking up a larger share over time.”
ANZ Research sees continued growth, driven by ageing, growing household incomes, pent-up demand, policy and technology.
This will have positive implications for household and government consumption growth and employment.
There are also upside risks for business and public investment and service exports.
Health expenditure has grown to over 9 per cent of Australia’s economy – from just above 8 per cent a decade ago.
Australia’s healthcare expenditure in 2017 was only a little bit higher than the OECD average even though it grew solidly over the previous decade.
Unsurprisingly, the growth of expenditure on healthcare and social assistance has had significant implications for the labour market.
With 1.7 million employees the sector is the largest employing industry in Australia.
Most healthcare spending is government funded but individuals have been picking up a larger share over time.
Within the public sector, the federal government is the largest contributor to health expenditure in Australia but state-government expenditure has been growing quickly, more than doubling over the past decade.
Notwithstanding a recent slowdown, employment in the industry has generally outpaced the overall employment trend.
As a result, the share of employment in healthcare and social assistance rose to 13.3 per cent in February 2019 from 12.7 per cent just two years earlier.
Wages growth in the healthcare and social services sector has also been strong but wage levels remain below the Australian average when measured by weekly earnings.
Looking ahead, these are the factors ANZ Research believes will drive further growth in healthcare.
Population growth and the proportion of older Australians are key determinants of demand for health.
The number of Australians aged 65 or over is expected to increase 60 per cent by 2030 to 5.5 million as the baby boomer cohort ages.
Recent research from the Parliamentary Budget Office estimated the cost of ageing on the Commonwealth Budget.
Aged care will add around $A5 billion and healthcare spending an additional $A2 billion over the next decade.
As an economy’s income levels grow, so does its demand for health services.
An OECD study found while individual healthcare is often a necessity, expectations of the quality and scope of care rise as countries grow richer.
The OECD study also found 16 per cent of Australian adults skipped medical consultations due to high costs.
This suggests pent-up demand for healthcare.
ANZ Research sees this evolving into actual demand if household incomes rise above the rate of healthcare prices.
This is not necessarily how household incomes and healthcare prices will evolve.
ANZ Research expects health prices are likely to remain higher than inflation and strong growth in household income is unlikely.
However, it is possible technology will reduce the price of some medical services, therefore leading to some strong pockets of strength.
Preventing disease and improving coordination and data collection in the healthcare system are some of the top priorities for governments in Australia.
As well as needing to spend more because their populations are ageing, Australian governments have chosen to prioritise improved health outcomes, given the positive impact a healthy population has on wellbeing, workforce participation and economic growth.
Australia still has scope to increase its expenditure in line with other developed economies such as Sweden, Switzerland, Norway and the USA.
In each budget, there are new health initiatives on top of existing policies.
In the 2019-20 Federal Budget, Medicare and aged-care funding were boosted and $A5 billion was committed to a 10-year Medical Research Future Fund investment plan.
The National Disability Insurance Scheme will grow very strongly over the coming four years to reach 1 per cent of gross domestic product in 2020-21.
Medical technology is solving more problems and procedures are causing less discomfort.
The combination of an older and richer population and more technology-driven healthcare opportunities is also driving health expenditure.
How effectively that demand is met will depend on government policy and the productivity of the health and social assistance sectors.
Technology not only reduces the burden of existing problems for individuals but stimulates new expenditure.
Source: ANZ Bank Blue Notes
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