The ageing population is a fiscal time bomb, according to a new report released by the Budget Office.
The report found that by 2028-29 the ageing population is expected to reduce the budget balance by $36 billion, based on current projections.
Revenue is expected to fall by approximately $20 billion in the same period, while spending will increase by $16 billion.
The Budget Office says: "This net effect is greater than the projected cost in that same year for any one of Medicare, the National Disability Insurance Scheme, Commonwealth funding for schools and hospitals, Family Tax Benefit or the Disability Support Pension - all of which are amongst the top ten spending programs in the Commonwealth budget."
As Australia's largest generational cohort retires, the workforce will shrink. This slowing of labour force growth will reduce national income and tax revenue substantially.
The $16 billion projected increase in spending represents a projected greater demand for government programs that support older Australians - the Age pension, aged care and health.
The report says there will be a steady increase towards the 2028 spending numbers.
The old-age dependency ratio is a measure of population ageing which illustrates the relative size of the working population compared to those aged over 65.
Between 1971 and 2011, there were 13-21 people over 65 for every 100 working people. Between 2011 and 2031 it is projected there will be 29 people over 65 for every 100 working people.
However, the rate of increase in the old-age dependency ratio is predicted to slow after 2031.
The report says: "The rapid rise in the old-age dependency ratio over the next decade provides an indication that this will be a unique period of population ageing for Australia."
"Public understanding of the fiscal implications of that ongoing demographic change on the budget is important."
Federal Treasurer Josh Frydenberg announced that 65 and 66-year-olds will be able to make voluntary super contributions, both concessional and non-concessional, without being required to meet the work test.