How rising net foreign income can drive living standards in Australia

While material living standards are best measured by gross national income per capita, projections of living standards in Australia are often based on gross domestic product per capita, thus ignoring the potential role of changes in net foreign income. Owing to changes in the eight key factors influencing a country’s net international investment position, including the population ageing and the maturation of the superannuation system, Australia is set to become a creditor nation in coming decades and have GNI per capita above GDP per capita. Drawing on data from Australian Bureau of Statistics, the Commonwealth Treasury, and World Bank, this paper replicates the Commonwealth Treasury’s Intergenerational Report model for projecting future gross national income, adding a net foreign income component. Over the four decades to 2063, annual net foreign income could reach over $500 billion in real terms. Under the modelled scenario, per capita GNI could reach over $140,000, 13 percentage points higher than Treasury’s forecast. If this eventuates, it has significant fiscal and policy implications: projected budget deficits and gross debt are much lower and the fiscal consolidation task facing the Commonwealth Government is far smaller. A different set of equity and tax policy areas emerge as policy priorities.