When the baby boomers turn 70

THE past is the present in so many areas of Australia`s economy and society. Mining has resumed its role as our sugar daddy, property prices are on the march again in all capital cities, and the recent spike in fertility is officially a baby boom.

The quarry, the quarter-acre block, and baby carriages as far as the eye can see: these forces dominated the nation in the 1950s and 60s, when Australia was last a one-party state.

If only it were so simple. There are three critical differences to this long boom that will make the next decade one of our most challenging outside a world war.

First China`s, and soon India`s, demand for our resources contains the paradox of abundant restraint. To feed the mining beast, other domestic businesses, most notably in manufacturing and tourism, will be pushed aside. And households will be expected to re-learn the art of saving so our banks don`t need to keep running overseas for money to lend back home.

Second, our cities are reaching the physical limits of their growth so all those young families can`t be pushed to the outer suburbs like they had been in the previous golden age. Australians will have to get used to living closer together.

Third, the nation is ageing faster than either side of politics seems ready to acknowledge.

The future is already here in one respect. In August, the healthcare and social assistance sector replaced the retail sector as the nation`s No. 1 employer.

Mark this as the first tangible sign that our body clock has greyed, with more people employed to look after us than to greet us at a shopping mall or local store.

We are, to be precise, an older nation having children later. The second baby boom is being driven by 30-somethings. The fertility rate for women in their early 30s is the highest since 1961; for those in their late 30s it is the highest since 1948. Last year, they helped deliver the largest number of registered births in our history.

Women in their 20s are also having babies sooner. Typically, the younger the mother, the longer she stays out of the workforce after childbirth because she is more likely to have a second child. For a nation running out of workers, the choice that today`s 20-something mothers make will force governments to again rethink their employment and family policies into the next decade.

Deregulation and demography are reshuffling the cards to reveal a two-toned Australia that defies the standard categories of young and old, of blue collar and pink collar, of slow state and fast state.

By 2016, when the first children of the post-war baby boom turn 70, Australia will divide almost evenly between producing things and looking after people, between the physical economy of mines and farms and factories, and the caring economy of health and education.

There will still be room for shopping and eating out. But another Kath & Kim decade like the one about to close, when households borrowed to consume and governments collected taxes so they could give it back to households to fund even more consumption, is surely out of the question.

The babies of this boom have to be raised and educated, while the elderly of the original baby boom have to be cared for. There is no escaping the increasing costs.

To complicate the equation, the money to pay for the caring economy can`t come from the mining boom, because the quarry will need to be set aside from the federal budget to avoid another fiscal shock like the one we are living through now.

If the global financial crisis has clarified anything, it is that government budgets are suddenly more vulnerable, and volatile. The windfall revenue that is collected when mining profits are surging can vanish into a black hole a year later.

On paper, the global financial crisis can be written off as just one very bad year that almost ended our longest growth cycle. But the consequences for the federal budget of that one year of international madness is a run of record and near-record deficits. The budget repair work will stretch until 2016, when the Rudd government or its successor will be committed to restoring surplus. A surplus, incidentally, that will be tested almost as soon as it is booked because the cost of the ageing population will really start to bite at this point.

This is why the next seven years will make or break Australia. By 2016, we will know if we have the political and communal smarts to juggle the demands of the young and the old.

The public is often overlooked in these debates, but the calls they make in their everyday lives can often lead governments to new solutions.

For instance, the urge for industry protection to save jobs, which politicians picked up in their polling throughout the 80s and 90s, is now almost gone. Researcher Rebecca Huntley says Buy Australia campaigns were popular after the last recession because consumers equated local products with saving the jobs of their neighbours.

"However, that has definitely changed over the last decade and a half," Huntley, head of research at Ipsos Mackay, tells Inquirer.

"While today`s consumer still mouths words of support for buying Australian, they quickly move on to all the many justifications about why they don`t in some product categories. Food still seems an area people are prepared to make an effort, but I would argue that`s driven as much, if not more, by concerns about safety and quality as it is about a desire to protect Australian jobs."

If this insight is taken seriously by politicians, then the next decade should see the winding back of business assistance as a critical part of the budget repair job.

To anyone who entered the workforce after the early 90s recession, the idea of a job for life seems absurd. So too is the idea that an individual business should be propped up when entire industries are being swamped by new technologies.

Call it a globalised mind. The young assume change as part of the bargain. It is the boomer on the edge of retirement who still wants their employment patch preserved.

The media may be quick to report the mass sackings of this or that manufacturer, but it never has its cameras and microphones at the ready when one of those workers is rehired.

The recent closure of the Mitsubishi car plant in Adelaide is a case in point. Last month, 361 of the 900-strong workforce that was laid off held a reunion barbecue on the old Tonley Park site.

Most had stories to tell of new jobs, although a significant minority weren`t doing so well.

Of the 361, 72.6 per cent, or 262, had been re-employed, with 156 in full-time positions, 69 casual, 29 part-time and eight working for themselves.

The casuals and the part-timers split roughly 50-50 between those who were happy with their hours and those who wanted more work. Of the rest, 61 were unemployed, 22 in study, 11 retired and three in other categories.

The Australian Manufacturing Workers Union conducted an even larger survey in March, in the depths of the GFC. Back then, the re-employment rate was 53 per cent, compared with last month`s 72.6 per cent. What is fascinating is the data was collected at all. Until recently, the AMWU -- in fact, most unions -- would not have thought to track lost members. But unions, like consumers, are learning to live with globalisation.

It is the smallest figure, the eight who were self-employed, that says the most about new Australia. It remains one of the least understood quirks of deregulation, but reform makes jobs more secure, which, in turn, reduces the incentive to work for yourself. Both sides of politics like to see deregulated Australia as entrepreneurial Australia. The reverse happens to be the case. The proportion of workers who are self-employed has been falling since the early 90s and the figure is now at its lowest level since 1975.

More telling, trade union members outnumber the self-employed for the first time since 2003. But don`t misread this as a revival of trade unionism. It just means the entrepreneur class has been losing ground faster than the unions.

In 2004, when the former Howard government was at the peak of its political and cultural powers, 1.91 million Australians were self-employed, while another 1.84 million belonged to trade unions.

Four years on, the figures are 1.74 million versus 1.76 million in favour of organised labour. The mining boom has made working for an employer more appealing than running your own business, or getting a union to negotiate on your behalf.

But the mining boom will, by dint of the investment dollars it will require, inevitably choke off other parts of the economy. Manufacturing is the prime target.

"In the long run a mining boom employs nobody," Australian National University economist Bob Gregory says. "But in the short term it employs a hell of a lot of people who are building things that aren`t that complicated: houses, roads, a bit of plumbing. A lot of that spills into the domestic industries. So I think that`s one of the reasons why manufacturing is holding up at the moment."

Gregory warns that the longer the resources boom runs, the two-way street between China and India on the one hand, and Australia on the other, leads to the destruction of Australian industry.

"ANU has just built 80 units for students and it built them out of cargo containers," he tells Inquirer. "The cargo containers were made in China. So all of a sudden we are importing housing from China, where previously houses and apartments were completely built here." But don`t mistake decline for death.

Gregory, while a pessimist, agrees Australia will continue to make things and whatever is lost from here on won`t be as painful as what the sector endured in the early 90s.

Twenty years ago, manufacturing was still the nation`s No. 1 employer with 15 per cent of all jobs; it is now third placed with 9.4 per cent. But the construction sector has lifted its share from 7.9 per cent to 9.1 per cent.

With building the new black in public policy, from school halls to urban infrastructure, expect the blue-collar male to be gainfully employed well into the next decade.

The best way to think of Australia in 2016 is to follow the trend that has been apparent for the past generation.

The physical economy of farming, mining, manufacturing and construction has been steadily losing ground to the caring economy of health and education.

In August 1989, the physical economy was double the size of the caring economy, with 29.7 per cent of the workforce compared with 14.8 per cent (see graph). In August this year, the gap of 14.9 points in favour of the physical economy had been reduced to just 4.6 points: 23.4 per cent versus 18.8 per cent.

Between the two sits the consumption economy of retail, wholesale trade, accommodation and food services. The surprise is how little has changed in real terms during the past 20 years. In 1989, the consumption economy employed 22.1 per cent of all workers; in 2009 it was 21.5 per cent. The message here for governments that see shopping, dining and tourism as the national saviour is: think again.

The real action will be in the caring economy, where the two baby booms collide. The original boomers will expect to be pampered in retirement. The parents of the new baby boom will expect their share of the handout cake as well. Government will be forced to choose between the two groups if the budget is to be in surplus by 2016. It is more difficult than it seems, because the politics will depend on which side of the fence one sits. The Coalition would aim for the grey vote; Labor would want to look after the youth vote.

A second tension is within the budget itself, between direct handouts and government-provided services. Does a government tweak the age pension and mature-age tax offsets, or boost funding for hospitals and aged-care centres? Does it maintain the family tax and childcare benefits at the expense of extra funding for schools and childcare centres.

Governments can do both, of course, bribe and provide. But they can`t continue to do so in the same proportions as before. The community expects services to improve. Every poll taken about the issues that trouble voters finds health and education in the top two positions. But will people be willing to accept a cut in their take-home pay from government to allow government to deliver better services? Politicians may take the coward`s option of hoping that the next round of proceeds from the mining boom will pay for 21st-century services.

But the job of getting the budget back into surplus will, one way or another, compel a squeeze on the handout society.

In the 60s, households got by with just 5 per cent of their income coming from government. Each prime minister since Gough Whitlam has ratcheted up the dependency. The figure broke 10 per cent of household income for first time in 1992, under Paul Keating, and hit a non-recession record of 12 per cent in 2004, under John Howard. The latest figure was 13.6 per cent, in the June quarter. It was, to be fair, inflated by the Rudd government`s cash stimulus and will come down in the next quarter.

But to achieve surplus in 2016, Labor or its successor would have to break the pattern of the past four decades by reducing handouts in real terms. Only then could Australia say it has recreated the best of the 50s and 60s, when households saved and welfare was set aside for the needy.

The open question for 2016 is which pampered voters suffer the heaviest cut: today`s parents or tomorrow`s retirees?