taxation and transfers that address the problem at its roots, and offer a more effective
and less costly solution.
2 Population ageing and dependency costs
Though increasing longevity has been a contributing factor, the primary cause of the
increasing ADR has been the large decline in fertility since the early 1960’s. In 1961
the Total Fertility Rate (TFR) in Australia was 3.5. By 1980 this had fallen to 1.9,
and since that time it has tended to level out at 1.7 to 1.8. It is projected to remain at
around this level for the next 40 years. IGR2 dramatically portrays the effects of this
by pointing out that “In 2007 there are 5 people of working age to support every
person aged 65 and over. By 2047, there will only be 2.4 people of working age
supporting each person aged 65 and over”.
Why might the drama be misplaced? First, it is misleading to focus purely on the
ADR when declining fertility is the major cause of population ageing. What is
important is the Total Dependency Ratio (TDR), the ratio of the total non-working to
the working age population. This is influenced by the child-to-working-age ratio, or
Child Dependency Ratio (CDR), and of course declining fertility reduces this. The
TDR can therefore be falling as the ADR is rising. This has in fact been the general
trend since 1961. The projected levelling out of the fertility rate at its current level
will cause the TDR to rise, with the result that the TDR will tend to exhibit a U-
shaped profile over the period from 1961 to 2047. Since the minimum point in the
profile is around the present time, a continuing rise in the TDR is projected for the
next 40 years due, as stated in IGR2, to a fall in the traditional working age category
(15-64 years of age) from its current 2007 level of 67.5 per cent of the total population
to around 60 per cent by 2047, and a rise in the ADR that is greater in absolute value
than the fall in the CDR. However, the projected TDR for 2047 is close to the rate for
1961, which did not appear to cause the collapse of civilisation as we know it.2
2 It should also be pointed out that with productivity growth in the historically experienced range of
1%-2% per annum, over 40 years the average worker’s productivity increases by between 50%-120%,
and so productivity growth alone can be expected to continue to make a significant contribution to
raising output per capita. See Cutler et al. (1990).