Australia’s deaths will outnumber births in the 2060s

A slower economy with a harder task

Australians are expected to have fewer children while the population ages. Many developed countries, including Japan, Germany, Italy and the Republic of Korea, have already crossed the point at which deaths exceed births. Most other countries are expected to face the same shift in the coming decades.

Australia’s population growth is projected at 0.9%, below its historical rate of 1.4%. At the same time, the share of working residents supporting economic activity and the budget will decline. The report treats slower growth as the new normal.

Real GDP per person is still expected to rise, but at about 1.2% a year over the next 40 years, compared with 1.5% over the previous four decades.

That outlook depends on labour productivity recovering from the almost-zero levels of recent years to its historical rate of 1.2%. The report places much of that recovery on AI, which Chalmers called the largest economic transformation of the current generation.

The report says the spread and adoption of AI could eventually help Australia reach the Treasury’s long-term productivity forecast. Chalmers described the technology’s role as key. The report also identifies four conditions for productivity growth in a medium-sized economy:

The government therefore faces a difficult balance: protecting Australians from the most dangerous effects of new technologies without holding back the AI development that could almost independently support future gains in living standards.

The budget catches up with demographics

The report projects a persistent structural budget deficit over the coming decades. The deficit is expected to narrow during the next 10 years, then grow again across the following 40 years.

By the middle of the 2060s, government payments are projected to rise by 1.1 percentage points to 27.4% of GDP. The authors say the interaction of these long-term trends will require continuous policy action and reform to contain rising spending, address pressure on revenue and preserve the government’s financial position.

My read is that the demographic forecast matters less as a prediction of one bad year than as a change in the country’s operating conditions. Australia will have fewer workers relative to the people and services they must support, while the productivity improvement needed to offset that shift is still only a forecast.

A report built for long horizons

Australia publishes its intergenerational report every five years. The previous edition appeared in 2023 after the COVID-19 pandemic disrupted the earlier schedule.

Former Liberal Party treasurer Peter Costello first proposed the report. The idea was established in the 1998 Charter of Budget Honesty Act to explain how demographic change affects the budget over the long term. The first report was published in 2002.

Each edition returns to similar pressures created by an ageing population:

The reports also make a strong case for compulsory retirement savings. That system has substantially offset the budget pressure created by pension funding in other countries.

Six transitions over 40 years

The new report adds a dedicated section on six major transitions expected to shape the next four decades:

Chalmers said the world is becoming more dangerous, unpredictable, unequal and divided. He described these developments as interconnected and as a weakening of the promise that future generations will live better lives.

He also argued that managing them successfully will be central to countering populist movements that use public dissatisfaction for political purposes.

What the report does not settle is how Australia will decide which AI risks deserve restraint and which forms of regulation would simply slow adoption. That tension sits at the center of its growth strategy: the technology is being asked to compensate for demographic pressure, while the government is also expected to limit its most damaging effects.