OPINION: IN the not too distant future, approximately 35% of the world’s population will be over 65 years of age. This is extraordinary for a number of reasons.
Throughout human history, only about 10% of the world’s population was ever ‘aged’ – regarded as older than 40. This is the first time the ‘tribe’ has had to support so many old people.
Also, we are expected to live longer. Life expectancy in the United States in 1915 was 47. In Australia in 1947 it was 68 years. In thinking of providing a pension to retirees, society was expecting to pay it for a few years after retirement, not a few decades.
In Australia, the population aged over 65 is projected to increase from 3.6 million to 8.9 million by 2054. So demands on the government balance sheet will be increasing.
The number of taxpayers is expected to remain constant under an ’all things being equal’ scenario. If global interest rates rise, there is less revenue for expenditure because interest payments deteriorate the revenue side of the ledger. If, at the same time, the demands for health expenditure and pension payments increase dramatically then there is not enough money to spend on other services such as defence, education, infrastructure and social welfare.
This is why tax reform can be expected to be continually debated for the next decade. Because the ageing of the population is a global phenomenon, as is indebtedness, these issues impact almost every country on the planet.
There are several ways out of this predicament – one of the obvious ways out is to get more taxpayers. However, globally, there are not enough taxpayers. Nevertheless, the war for taxpayers has begun and taxation reform is at the heart of attracting taxpayers to your country. Those countries best able to reform their tax systems are likely to be the most successful at attracting taxpayers.
Finally, another important aspect of the population over 65 is their retirement savings. This pool of capital is expected to grow to over $10 trillion in the future. Retirees want income generating investments so they hunt for yield. In the future there will be a large pool of retirement capital looking for higher yielding investments in a low yield world.
The upshot of this is indebted governments keeping yields low at a time when an ever growing pool of retirement capital is chasing income.
OFFICE/RETAIL/INDUSTRIAL: Tax system changes present significant threats and opportunities for investors. Investment yields can be expected to be lower for longer.
By Tony Crabb, national director, research, Cushman & Wakefield
Property Reviewer on Australian Property Journal
