Why Australia's declining fertility matters for business and taxation

Australia's women are having 1.4 fewer children on average now than they had in the 1950s, an effect known in the media as the “baby drought”. With this trend unlikely to reverse, the onus is on policymakers to ensure that society has everything it needs to function.

Economically, fewer children means less humans to contribute to taxes and growth, while an ageing population increasingly consumes resources.

For accountants, this has flow-on effects in terms of tax and wealth planning for individual clients. For corporate clients, a combination of sound workplace planning and efficient use of technology is needed to combat potential negative effects on their operations.

Dwindling labour supply

According to the federal government’s Intergenerational Report 2023, Australia’s participation rate (the percentage of people of working age engaged in the workforce) is projected to fall over the next 40 years from 66.6 per cent in 2022–23 to 63.8 per cent in 2062–63.

This reflects the growing number of older people in the population who participate less in the labour force, an effect which will only partially be offset by the higher participation of younger people and future generations.

 

"We need to shift the trade-off [some] women face between paid work and care by making work more attractive. This means good-quality jobs with options for flexibility, because women mostly carry the burden of care responsibilities."

 

“Lower fertility rates are associated with higher labour participation by women, who are having fewer children and giving birth later in life,” says Ross Guest, a teaching associate in the School of Economics at the University of Queensland.

“Most of the effect of the increasing rate of labour participation for women is starting to reduce now. So, labour supply will be tighter relative to the number of consumers in the economy. That has implications for firm strategy and public policy.”

Productivity and planning

Birthrate decline is also a challenge for productivity, which is already weakening. Over the decade to 2020, average annual productivity growth in Australia was the slowest in 60 years, falling to just 1.2 per cent.

“With falling fertility and an ageing workforce, it is possible productivity will decline even further, meaning Australians will have to work even harder and longer to afford goods and services,” says Dr Diaswati Mardiasmo, chief economist at PRD.

“Already the Australian Government has reduced its productivity assumption forecast from 1.5 per cent to 1.2 per cent. This downgrade implies, on average, Australians’ incomes in 40 years are projected to be almost 20 per cent lower than they would otherwise be.”

On top of this, a rising age dependency ratio — which is the ratio of people younger than 15 or older than 64 to the working-age population aged 15 to 64 — creates tighter, less sustainable fiscal policies.

Government spending on aged care is a rising tension point. According to KPMG, permanent residential aged care numbers increased by 3.4 per cent in the 2025 financial year.

Planning authorities also need to consider how high housing costs affect family planning and shift housing demand towards smaller, more dense urban units or affordable regional areas.

Consequently, expect more local government areas to follow south-east Queensland’s lead, with a Shaping SEQ 2023 regional plan that seeks to facilitate more freestanding small lots or terrace-style developments.

Newer housing models such as build-to-rent also have a role to play, to ensure people have access to affordable, medium-density accommodation.

Employee management

In the private sector, the lower birthrates force a change in how profits are generated and employees are managed. This involves a change from hiring relatively cheaper, younger labour to hiring more experienced and expensive labour.

“Firms that fail to adapt may see margin pressure and slower growth, while those that proactively adjust workforce and capital strategies can remain financially sustainable and competitive,” says Mardiasmo.

Falling birthrates mean organisations must now rethink how they improve the way they attract and retain younger staff.

 

"The Scandinavian countries have had more success keeping their fertility rates higher than elsewhere. That is partly because there are good programs for supporting women to go back into the workforce and there is very strong support for the division between men and women looking after their children. That can help to support higher fertility rates."

 

“At the same time, organisations must plan to retain their current and older workforce, so they remain highly productive,” says Mardiasmo. This will include reskilling, flexible work models such as part-time roles, phased retirement plans and job redesign. Using automation and technology to offset labour shortages and temper wage growth is key.

“Governments influence the big levers in society like taxation,” says Guest.

“But businesses plan workforces, and if labour supply falls relative to demand for goods and services, then you would get upward pressure on wages because there are fewer workers competing for jobs.

So businesses have an incentive to use labour-saving technologies like artificial intelligence. Firms might also need to be more open to employing older workers in industries that have traditionally been dominated by younger workers, like hotels and food services.”

Regional comparison

At 1.73, Australia’s fertility rate compares reasonably well to other nations such as New Zealand at 1.85, China at 1.55 and Japan at 1.40.

“Australia’s relatively high rate reflects a good social security system and a fairly high migrant intake,” says chief economist for Australia, New Zealand and global commodities at HSBC, Paul Bloxham. “On average, migrants tend to have more children, in part because they often delay the choice to have children until they have migrated.

Some Asian countries with the lowest fertility rates are places like Korea. Falling fertility rates are a demographic feature that is happening across the world.”

Accordingly, many nations are taking action to boost their fertility rates. In Japan, the government is subsidising education and maternity expenses. In 2025, China raised its statutory retirement age for the first time since the 1950s to combat an ageing population and shrinking pension pool.

It is also making a US$25.8 billion (A$35.6 billion) investment in out-of-pocket birth expenses, even for IVF treatments.

Shifting focus

Around the world, the birthrate decline will influence the way accountants guide clients, shape strategy and contribute meaningfully to policy conversations. From a financial advice perspective, the focus must shift to longevity planning, including retirement savings, healthcare costs and intergenerational wealth strategies.

For more complex, multi-generational families, it will be important to balance the needs of older family members in drawdown with younger family members facing tax pressures and slower wealth accumulation than earlier generations. For accounting practices, workforce planning and productivity will be priorities.

“There is this massive shift from the accumulation phase of superannuation to the drawdown phase,” says Guest. “So, there is an increasing need for superannuation policies that provide long-term income and insure against longevity risk.”

For governments, the qualifying age for the age pension may be a moving target. If people stay in the workforce for longer, it could reduce government spending and increase tax revenue.

“Incentives to work longer include allowing voluntary superannuation contributions to be made up to age 75, without meeting a work test,” says Mardiasmo.

It is worth noting government interventions such as baby bonuses to boost the birthrate typically have limited effect.

Championing women

It is also critical for organisations and economies to think about strengthening the factors that will bring more women into the labour market.

“The women who are not working now, who we would expect to integrate into the labour market, are probably the people who are choosing or constrained to spend more of their time on caring responsibilities,” says Suneha Seetahul, senior research fellow at the Australian Centre for Gender Equality and Inclusion at Work, University of Sydney.

“So we need to shift the trade-off these women face between paid work and care by making work more attractive. This means good-quality jobs with options for flexibility, because women mostly carry the burden of care responsibilities.

“We also need to encourage fathers to take paternity leave and focus on family life,” she adds.

Improved programs that support parents to be able to go back to the workforce, such as enhanced childcare arrangements, are vital.

“The Scandinavian countries have had more success keeping their fertility rates higher than elsewhere,” says Bloxham. “That is partly because there are good programs for supporting women to go back into the workforce and there is very strong support for the division between men and women looking after their children. That can help to support higher fertility rates.”

It will be important for all levels of government to encourage healthy living as people age to counter lower birthrates.

“This is a really very interesting area,” Bloxham continues. “At a fundamental level, we all want to have a population that is able to live longer, healthier lives. That needs to be a fundamental public policy initiative. It keeps people out of the health system and keeps costs lower. It can keep people in the labour force for longer, contributing to the economy and the tax base.”

With evidence more people are staying in the workforce for longer or coming back to the workforce at an older age, there is an opportunity to support more of these behaviours to redress the economic effects of declining birth rates. “It is difficult to discern why this is happening,” says Mardiasmo.

“It could be people are carrying more debt later into life. But the other possibility is we have got a fairly healthy older population and they can be in the workforce for longer. That is a positive, because being in the workforce helps to deal with the ageing population challenge.”

_{Source: World Population Review}