The prime minister has urged Australians to respond to the challenges of an ageing population in an address to an Australia Day reception in Melbourne.

Kevin Rudd warned that the nation would have to boost workforce participation and productivity to secure economic growth as the nation ages.

Between now and 2050, the proportion of Australians aged 65 and over will increase from around 14 per cent to 23 per cent.

This will lead to a dramatic change in the ratio of workers to retirees.

“Forty years ago, in 1970, the ratio was 7.5 people of working age to every person 65 and over,” said Mr Rudd.

“In 2010, the ratio is five to 1, and in 40 years' time, in 2050, it is projected to fall so far that there will be just 2.7 people of working age for each person aged 65 and over.”

“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.”

According to the third Intergenerational Report, due to be released before this year’s budget, the average annual economic growth rate will fall to 2.7 per cent over the next 40 years if there is no concerted effort to boost productivity.

Aged Care Association Australia was pleased that the Prime Minister chose to focus on ageing in his first official address for 2010.

“Failure to plan now for the future impact of ageing will almost certainly mean reductions in health services, aged care services and social welfare,” said the association’s CEO, Rod Young.

“After spending a century developing and evolving our health, aged and social welfare services, it would be a social catastrophe to see these diminish or decline due to lack of strategic policy reform to address the impending social impact of an ageing population.”

The Australian Nursing Federation also welcomed the prime minister’s comments, saying a boost to aged care wages would achieve a two-fold benefit to an ageing Australia.

“Paying aged care nurses and carers a fair wage would not only ensure nursing home residents receive the care they require but it would also swell the number of women working in a sector that desperately needs more staff,” said federal secretary, Ged Kearney.

Ms Kearney said Australia is facing a 56 per cent rise in the number of nursing home residents by 2020 so it was essential to prepare today.