Australia’s Dependency Ratio: Economic Impact & What It Means for You (2025)

Australia’s population is changing—and so is the balance between those who work and those who rely on their support. This balance, known as the dependency ratio, is a crucial but often overlooked indicator that shapes everything from tax rates to retirement planning. As 2025 brings new demographic shifts and policy updates, understanding the dependency ratio has never been more important for Australians making financial decisions.

What Is the Dependency Ratio—and Why Is It Rising?

The dependency ratio measures the proportion of people typically not in the workforce (children and retirees) compared to those who are working-age. In practical terms, it tells us how many people each worker is supporting through taxes and social contributions.

• Youth dependency ratio: Number of people aged 0–14 per 100 working-age adults (15–64).

• Old-age dependency ratio: Number of people aged 65+ per 100 working-age adults.

• Total dependency ratio: Both groups combined.

According to the Australian Bureau of Statistics, by 2025 Australia’s old-age dependency ratio is projected to reach 28 per 100 working-age adults, up from 22 a decade ago. This is driven by the ageing Baby Boomer generation and increased life expectancy, while birth rates remain low. As a result, the overall dependency ratio is trending upwards, putting more pressure on the workforce and government budgets.

Economic Impacts: Tax, Spending, and Growth

Rising dependency ratios have far-reaching effects on the economy and public policy:

• Higher government spending: As the population ages, more money is needed for healthcare, pensions, and aged care. Treasury projections for 2025 suggest that age pension outlays and health spending will rise by more than $10 billion compared to 2020 levels.

• Potential tax increases: Fewer workers relative to dependants means each worker may shoulder a larger tax burden to fund social services. This could lead to debates over income tax rates or changes to the GST.

• Slower economic growth: With a shrinking workforce, productivity gains become crucial. The government’s 2025 Intergenerational Report highlights the need for higher workforce participation and skills investment to offset the drag on GDP growth.

For example, in 2025, several states have introduced targeted incentives to keep older Australians in the workforce longer, including flexible work arrangements and superannuation contribution tweaks, as part of a national effort to moderate the rising dependency ratio.

What Does This Mean for Australian Households?

These demographic shifts aren’t just a government concern—they touch the lives of everyday Australians in real ways:

• Superannuation and retirement: With more retirees and longer lifespans, individuals may need to save more to maintain their lifestyle. The 2025 review of the Superannuation Guarantee recommends incremental increases in the contribution rate to help households prepare.

• Younger families: As the working-age population faces higher tax and caregiving demands, financial planning becomes more complex. Multi-generational households and ‘sandwich’ carers (supporting both children and elderly parents) are becoming more common.

• Property and investment trends: Changing demographics are influencing housing demand, with growing interest in downsizing and age-friendly communities. Investors are watching these shifts closely.

Real-world example: In Victoria, the state government’s 2025 ‘Age Well at Home’ program is funding community-based care to reduce pressure on hospitals and aged care facilities, reflecting the broader policy response to dependency ratio challenges.

How Policy Is Adapting in 2025

Australian policymakers are responding with a mix of short- and long-term strategies:

• Immigration: The 2025 migration intake prioritises skilled, working-age migrants to help balance the ratio and fill labour shortages, especially in healthcare and tech.

• Workforce participation: Programs to boost female, older, and regional workforce participation are being expanded, including childcare subsidies and retraining grants.

• Retirement reforms: The Age Pension eligibility age is set to reach 67 by July 2025, with further reviews underway to ensure the system’s sustainability.

While the dependency ratio will keep rising over the next decade, these policies aim to soften the impact and keep Australia’s economy resilient.