Australia's Intergenerational Report Projects AI Revolution Amid Lower Growth and Ageing Population

AI Revolution Takes Center Stage in Australia's Economic Future

Artificial Intelligence will serve as a defining influence on Australia's economy over the next 40 years, according to the Intergenerational Report released by Treasurer Jim Chalmers1

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. The seventh IGR presents a watershed moment for the nation, outlining how AI adoption will become pivotal to maintaining productivity and living standards amid demographic pressures and lower economic growth. Speaking at the Australian National University, Jim Chalmers described AI as "the biggest economic transformation of our lifetime" and emphasized that no previous Intergenerational Report has contended with global challenges this great or a future less certain2

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Demographic Shift Reshapes Australia's Economic Landscape

The report reveals a stark demographic shift: deaths will outnumber births by the 2060s for the first time in Australian history2

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. This milestone, already surpassed by Japan, Germany, Italy, and South Korea, reflects declining fertility rates and an ageing population that will fundamentally alter the nation's economic trajectory. Population growth is projected to slow to 0.9% annually, down from the historical rate of 1.4%, while a shrinking share of working Australians will support economic activity and the budget2

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. Despite these headwinds, the Australian economy is projected to more than double in real terms by the mid-2060s, with per capita income rising 55%1

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Lower Economic Growth Becomes the New Normal

Australia's economy has entered a new normal characterized by lower economic growth, with annual expansion projected at 2% over the coming 40 years compared to 3% historically1

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. Real GDP on a per person basis will expand by approximately 1.2% over the next four decades, down from 1.5% in previous decades2

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. Living standards will continue improving, but not as quickly as in the past. The report emphasizes that a more productive, dynamic, and competitive economy will be key to lifting living standards over time, making future productivity growth essential to the nation's prosperity1

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AI Adoption Critical for Productivity Gains

The relatively optimistic outlook depends heavily on labor productivity growth recovering from virtually zero in recent years to the historical average of 1.2% annually2

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. The Productivity Commission estimates AI could increase multi-factor productivity in Australia by at least 2.3% over a decade1

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. As a medium-sized economy, Australia's productivity performance will depend on adopting innovation, supporting investment, developing skills, and delivering regulatory reforms that improve efficient operation1

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. The government faces a delicate balancing act between protecting Australians from potential harms while not stifling technology that could almost single-handedly drive future prosperity2

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Strategic Advantages Position Australia for AI Revolution

Australia is well positioned to benefit from the global AI revolution, given its stable institutions, abundant renewable energy potential, and well-developed international connectivity, including in the Indo-Pacific region1

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. The report notes Australia's position in global supply chains will significantly influence the precise nature of AI's impact, leading to wide variations in estimates of its potential to boost productivity1

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. Ensuring AI investment aligns with Australia's national interests will improve competitiveness, resilience, and wellbeing in the decades ahead. The treasurer outlined ten key priorities, including harnessing AI in the national interest, building an adaptable workforce, and attracting talent through skilled migration1

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Structural Budget Deficits Persist Despite Improvements

The report projects ongoing structural budget deficits over coming decades, with government payments as a share of GDP anticipated to rise by 1.1 percentage points to 27.4% by the mid-2060s2

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. While the budget position has improved noticeably since the 2023 IGR, fiscal pressures remain significant1

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. The ageing population will exacerbate budgetary pressures, particularly in the care economy, as a growing tax burden falls on a shrinking share of workers. Maintaining a sustainable budget position will require policies and ongoing reforms that manage growing spending and revenue challenges2

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Six Major Transitions Define the Next Four Decades

The report identifies six major transitions shaping Australia's future, topped by the AI revolution and geopolitical fragmentation2

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. Additional challenges include the energy transition, the ageing population and care economy, industrial transformation, and intergenerational equity. Chalmers warned that the world is becoming more dangerous, unpredictable, unequal, and divided, with democracies under increasing pressure as economic anxieties lead to fracturing and fragmentation1

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. Responding successfully to these challenges will be key to defeating populist insurgencies that weaponize public discontent. The treasurer emphasized that Australia's resilient economy, highly skilled workforce, and geostrategic advantages as a stable middle power provide enormous strengths for navigating these transitions1

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