Treasurer Jim Chalmers has delivered his second Intergenerational Report. Image: Screenshot.
There will be more Australians dying than being born in the 2060s and by then artificial intelligence will have dramatically changed the economy.
That’s the takeaway from the latest Intergenerational Report, released on Monday (21 September) by Treasurer Jim Chalmers during a speech at Australian National University.
The report, prepared by Treasury, outlines the challenges Australia will face over the next four decades, and it presents starker changes than previously forecast.
“No previous IGR has contended with global challenges this great, with politics this fraught, or a future less certain,” the Treasurer said.
“The global and generational risks are serious, but Australia’s opportunities are endless,” the Treasurer said.
Australia’s population will keep ageing due to falling fertility rates and the fact that, for the first time, deaths are projected to outnumber births over the next 40 years.
Numerous advanced economies, such as Germany, Japan, and South Korea, have already reached that milestone, and most others are likely to follow in the coming decades.
Fertility in Australia is expected to fall to 1.34 children per woman by 2065, while the number of Australians over 85 will triple by 2066.
The report states that five major transitions are underway in the global economy, with “profound implications” for Australia’s economy, budget and society.
These include AI developing rapidly to be a defining influence on the economy over the next 40 years.
Geopolitical fragmentation is also increasing as conflict and competition have flared and broadened.
The third transition is energy becoming more important and urgent, and the fourth is the population ageing more quickly.
Lastly, Australia’s industrial base is evolving further towards services, influenced by AI and the other major transitions.
It is Australia’s seventh Intergenerational Report (IGR), and the second to be delivered by Dr Chalmers.
He said the report shows risks to Australia’s economy and pressures on the budget are serious, but the country’s advantages are substantial.
“The report confirms Australia is better placed and better prepared to deal with rapid change than most countries, but despite our advantages we cannot be complacent,” the Treasurer said.
“This IGR’s projections show that in 2066, Australians are expected to live longer, healthier lives, with higher living standards and more secure retirements.
“At the same time, families will have fewer kids, the population will grow more slowly, and our industries will be transformed by artificial intelligence and clean energy.
“Advances in AI represent the most dramatic change since the last IGR in 2023, and we’re acting now to maximise the opportunities and minimise the serious risks it presents.”
The underlying cash balance is projected to improve over the medium term, to a deficit of 0.3 per cent of GDP in 2036–37, then widen over the long term to reach a deficit of 1.8 per cent of GDP in 2065–66.
This is an improvement of 1.2 percentage points of GDP in 2062–63, compared to the 2023 IGR.
Gross debt as a share of GDP is projected to decline to 22.2 per cent in the mid‑2050s before increasing to 27.4 per cent by 2065–66 – is an improvement of 7.2 percentage points of GDP in 2062–63, compared to the 2023 IGR.
Younger Australians, however, will be working longer and will find it difficult to buy a home without the same early income gains experienced by earlier generations.
“As the population ages, increased demand for care and support services will reinforce shifts in the economy towards services,” the IGR states.
“This long-run trend towards services and the care economy will coincide with the adoption and diffusion of AI and broader changes in the industrial base.
“Against this backdrop, intergenerational equity is being strained by the long-term decline in home ownership and the pressures that an ageing population and structural trends in the tax base are placing on working-age Australians.
“Democracies around the world are also under increasing pressure as economic anxieties lead to fracturing and fragmentation. Discontent is driving political upheaval at faster rates than in recent decades.
“This underscores the urgency of governments responding to the real pressures and concerns in the community through ambitious reform and long-term planning.”
With weaker productivity growth accompanying the ageing population, and rising defence and health costs thrown in, it all adds up to increasing pressure on government finances.
Real GDP per person will expand by about 1.2 per cent over the next 40 years, down from 1.5 per cent over the previous four decades.
Dr Chalmers said the report “makes the case” for the Federal Government’s “ambitious reform agenda” to boost productivity and resilience.
He said the IGR justifies Labor’s housing tax changes in the last federal budget.
“In all the 20 or so budgets that I’ve worked on or responded to in my time in politics, there hasn’t been a budget that has been more serious about meeting our intergenerational obligations,” he said.
“And I think the pointiest part of that, the defining part of that, is really the housing market, which has locked young people out for too long.”
Original Article published by Chris Johnson on Region Canberra.
