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The impact of the Asian century and Australia's changing demography

The impact of the Asian century and Australia's changing demography

March 21, 2014 3:21 PM | Posted by Richard Batten, Tim Sutton | Print this page

In order to pre-empt the challenges and opportunities of the coming decades, the Financial System Inquiry will need to consider a number of significant trends.

For example, the impact of China and other Asian countries as consumer economies is increasing, and this is set to continue. In a recent speech, David Murray said that globally, there has been the shift of economic weight to emerging economies and Asia. This will present growing opportunities for Australian wealth managers in Asia and for Asian investment in Australia. In addition to being trading powers, these economies also represent stores of capital which are capable of funding Australia's growth.

Our financial system will also need to be prepared for the oncoming demographic change in Australia's population. In 2004, Treasury identified that over the next 40 years, the proportion of the population over 65 years will almost double to around 25 per cent. In addition, the Productivity Commission released a report in 2013 which projected that Australian governments will face additional pressures on their budgets equivalent to around 6 per cent of national GDP by 2060, principally reflecting the growth of expenditure on health, aged care and the Age Pension. David Murray has also noted the importance of addressing the challenges for Australia's GDP based on the aging population.

David Murray has also indicated that the Committee will need to examine the state of competition in banking, payments, insurance, funds management and financial markets and whether it drives or impedes efficiency (both administrative and allocative) in the financial system. While it appears the four pillars policy is not likely to be reconsidered, it looks like the Inquiry will consider whether the current regulatory settings ensure the right trade-off between stability and competition in the financial sector.

The balance between competition, stability and efficiency is likely to be another key theme in the panel and the industry's deliberations over the next few months.

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