Population dynamics, health expenditure growth and the workforce

The Australian health system is experiencing intense pressure – marked by longer wait times, delayed emergency responses, growing inequities in care access and an overburdened workforce. This article outlines the demographic, financial and workforce factors driving the strain, and proposes key strategies to improve resilience and sustainability.

Demographic features

The Australian population was projected at 28.0 m in 2025, and projected to increase 8% annually to 33.6 m in 2040.¹ The percentage of people aged ≥65 years has increased from 12.3% in 1999 to 16.3% in 2020, with projections of 18.9% by 2040 (Fig. 1).^1,2 At the same time, the percentage of people aged 0–15 years and 16–64 years have both decreased due to decreasing fertility rates (Fig. 2).

Fig. 1.

Percentage of age groups in the population – observed and projected.^1,2

Fig. 2.

Fertility rates – observed and projected.^1,3

The fertility rate in 2023 was significantly below the lowest estimate projected in 2015 by the Australian Bureau of Statistics, and it has continued to decline.³ Although the Australian Bureau of Statistics estimates suggest that fertility rates may stabilise, the most probable scenario is fertility rates declining to 1.5 live births per 1000 women in 2026 – down from the >2.0 in 2007/08. The proportion of childless couples is increasing;⁴ however, among couples who do choose to have children, many continue to have between two and four.

The ageing population and declining fertility rates are leading to an increase in the dependency ratio. By 2040, 59% of the population will be dependent (aged 0–14 or ≥65 years), supported by just 41% in the workforce (Fig. 3).¹ Although workforce participation among people aged ≥65 years has doubled to 15% over the past two decades,⁵ this increase is not enough to offset the burden. With fewer working-age people – especially in care professions (despite this being the fastest growing sector in human services) – there will be fewer taxpayers to support dependents and the healthcare sector.

Fig. 3.

Population projections of the dependency ratio.¹

Healthcare expenditures

In 2022–2023, total healthcare expenditure was A$252.5 billion, having grown at an annual average rate of 3.1% (inflation-adjusted) over the past decade (Fig. 4).⁶ The Australian government contributed A$101.4 billion (40.2%), state and territory governments A$77.2 billion (30.6%); the remainder came from private health insurance funds (A$19.3 billion, 7.6%), out-of-pocket payments (A$38.9 billion, 15.4%) and other sources, such as injury compensation insurance and non-government capital spending (A$15.6 billion, 6.2%).⁶

Fig. 4.

Total health spending by area of expenditure, constant 2022–2023 prices, 2012/2013 to 2022/2023 ($ million).⁶

Health care made up 15.9% of total Australian government spending in 2022–2023 – unchanged from a decade earlier.⁶ However, the state and territories expenditure on health care consumed 19.0% of their total budget expenditure in 2022/2023, having increased from 16.5% a decade earlier (i.e. a 25% increase).⁶

Hospitals account for the largest portion of this growth. Key cost drivers include increased services per case (39%), population growth (35%) and an ageing population (19%).⁷ This trend reflects both greater demand and a corresponding rise in the delivery of more services in an effort to meet the evolving needs of the population.

Workforce challenges

Although the health workforce is growing, it is not keeping pace with demand.⁸ In 2023, there were 326,000 full-time equivalent nurses. By 2040, demand is projected to reach 560,000 (a 3.0% annual growth rate), yet supply is expected to rise only 2.1% annually, reaching 460,000 full-time equivalent nurses by 2040 – leaving a shortfall of approximately 100,000.

Similar gaps exist in other areas, including medical practitioners and allied health professionals. Health care also relies on non-clinical staff, which includes cleaners, caterers and IT workers – many of whom are also in demand across other growing service sectors.

Overall, there are disproportionate increases in the ageing population, demand for healthcare services and healthcare expenditures, occurring alongside a relatively declining general workforce and healthcare workforce. Consequently, the tax base will struggle to sustain both the dependent population and the required healthcare workforce. Although this presents a broad, economy-wide challenge, the healthcare sector is expected to be most significantly impacted and subject to the greatest strain.

Potential solutions

To address growing pressure on the healthcare system, two main strategies are available: increase the tax-paying workforce and improve healthcare system efficiency.

Discussion

Innovation uptake in Australia remains uneven, limited by underinvestment in research to develop the evidence, and weak implementation capacity. The 2013 McKeon Review¹² recommended allocating 3–4% of government health spending to research – whether this remains the right target is unclear, but key questions persist:

The National Medical Workforce Strategy¹³ tackles short-term staffing issues, whereas CSIRO’s Health Megatrends Report¹⁰ outlines long-term priorities. The Strategic Examination of Research and Development¹⁴ and the forthcoming National Health and Medical Research Strategy¹⁵ may recommend reforms to boost structural investment.

Short-term solutions such as skilled migration help, but are not enough. Sustained funding for health workforce education, consumer health literacy and research capacity is essential. Leveraging research and clinician-researchers will be vital. A coordinated, strategic and well-funded approach is needed. Long-term healthcare sustainability depends on embedding innovation and evidence-based reform into care delivery.