KEVIN Rudd has warned of economic disaster from a looming wave of retirees unless Australia embraces a decade of nation building and workforce reforms.

The Prime Minister yesterday foreshadowed a shake-up to remove workforce barriers and lift workforce participation – themes likely to be central to a planned overhaul of the taxation system.

Revealing findings of the third Intergenerational Report, Mr Rudd said that, by 2050, there would be only 2.7 people of working age for each person aged 65 years and older, compared with 7.5 people in 1970 and five-to-one this year. Within 40 years, the proportion of the population aged 65 years and older would almost double to 23 per cent.

“Unless we make big changes, we will either generate large, unsustainable budget deficits into the second quarter of the century or else we’ll need to reduce government services – including health services – as the needs of an ageing population become greater,” Mr Rudd said.

“At a national level, public finances will be burdened with the increased costs of looking after the needs of older Australians in health, aged care and age pensions. But with a smaller proportion of Australians in the workforce, tax revenues won’t keep pace with those rising costs.”

The Prime Minister warned that working families would feel the impact, with slower economic growth holding back increases in wages.

“Average family incomes will grow at a slower rate than we’ve become accustomed to.”

The Prime Minister said that removing work barriers for women, getting the unemployed into work and introducing paid parental leave would help minimise the impact of the nation’s ageing population, but it would not be enough to reverse an economic crisis.

“Even with all these measures, workforce participation will fall over the next 40 years, from its peak of around 65 per cent now to around 60 per cent by 2050,” he said.

Despite Australia’s resilience to the global financial crisis, Mr Rudd said Australia’s productivity growth could not match the 2 per cent recorded during the Hawke-Keating governments. Last decade, it fell to 1.4 per cent.

“If we let this trend of lower productivity growth continue, Australia will struggle to meet the major challenges facing our economy in decades ahead,” Mr Rudd said.

He said raising productivity growth to 2 per cent would mean every Australian would be $16,000 a year better off.