Australia Ageing Arithmetic Hinges on AI Bet
When Deaths Outnumber Births
The first assumption to crack in Australia’s long-term outlook is the quiet one at the base of it: that births outrun deaths. For the first time, deaths are projected to outnumber births — in the 2060s, according to the government’s seventh Intergenerational Report. The mechanism is fertility: Australians are having fewer children, and a population that has fewer children grows older. Australia is not first to this crossing. Japan, Germany, Italy and the Republic of Korea have already passed it, and the report expects most other advanced economies to follow over the coming decades. What the milestone actually marks is narrower and harder — a workforce and a tax base that do not renew themselves as fast as the spending commitments built on them.
Population growth is set to run at 0.9% for the foreseeable future, against 1.4% historically. The report’s conclusion is blunt: the economy has entered a new normal of lower growth, and the budget arithmetic that follows from it is what the rest of the document is built to defend.
Living standards still improve, just not at the old speed. Real GDP per person — total economic output divided by the number of people in the country, the closest available measure of average prosperity — is projected to expand by about 1.2% a year over the next 40 years, down from 1.5% over the previous four decades.
None of this is a new discovery. The report is a five-yearly exercise; this seventh edition was published in 2023, after Covid interrupted its scheduling, and the government has since begun work on the next edition. Peter Costello, a former Liberal treasurer, conceived the whole apparatus and enshrined it in the Charter of Budget Honesty Act 1998 to explain how demographic shifts shape the budget over the very long term. The first was published in 2002. Each edition since has flagged the same two problems: delivering services to older Australians, and paying for them with a growing tax burden on a shrinking share of workers.
The AI Bet, the Budget Bill, and the Case for Superannuation
The first reading puts artificial intelligence at the centre. The report’s central productivity assumption — that output per hour worked grows at its historical average of 1.2% — requires a rebound from virtually zero growth in recent years. The report says the rise and adoption of AI is “likely to support the achievement of Treasury’s long-term labour productivity growth assumption over time”. Jim Chalmers, the treasurer, called that role “pivotal” and described AI as “the biggest economic transformation of our lifetime”. [1] The report attaches a condition that has nothing to do with the technology itself: as a medium-sized economy, it says, Australia’s productivity performance will depend on adopting innovation, supporting investment, developing skills and delivering regulatory reforms that make the economy run more efficiently.
The second reading counts the bill. The report projects a structural budget deficit — a shortfall that persists even when the economy is running normally, as distinct from a temporary, recession-driven gap — across the coming decades. That deficit narrows over the next 10 years and then widens again across the following 40. Government payments as a share of GDP are anticipated to rise by 1.1 percentage points, to 27.4%, by the mid-2060s. Sustainable finances, the report concludes, will require policies and continuing reforms that manage growing spending and revenue challenges.
A third reading treats the document as a defence of machinery that already exists: the five-yearly reporting cycle itself, the Charter of Budget Honesty Act 1998 that mandates it, and the political discipline of publishing long-run projections that no single government can quietly abandon.
Stripped of its framing, the arithmetic separates from the assumption. The ageing of the population, the falling fertility, the shrinking share of workers and the rising payments share are all written as projections. The productivity rebound is written as something else: an assumption the forecast depends on, and one that leans heavily on AI. The demographic bill is scheduled. The means of paying it is a bet, and the report does not say who wins if the bet fails.
The Fraying of an Intergenerational Promise
The report organises the next 40 years around six “major transitions”. The AI “revolution” sits at the top of the list, followed by geopolitical fragmentation. Then come the energy transition, ageing and the care economy, the country’s industrial transformation, and intergenerational equity.
Underneath those forecasts runs a political constraint. The numbers make plain the tightrope the government must walk: shielding Australians from the worst aspects of a new technology while not smothering the same technology, which could almost single-handedly generate future prosperity.
Chalmers framed the stakes in harder terms. “The world is becoming more dangerous, more unpredictable, more unequal, and more divided,” he said. [1] Those were not, in his account, separate threads but part of a bigger fraying of “that intergenerational promise, of better times”. His political reading of the same problem: responding successfully to these challenges, he argued, would be the key to defeating populist insurgencies that seek to weaponise public discontent for political ends.
At the Australian National University, where he launched the analysis, the treasurer said the report “illuminates the road ahead” and that “the global and generational risks are serious, but Australia’s opportunities are endless”. [1] He also put a limit on what a 40-year document can promise: “No previous IGR has contended with global challenges this great, with politics this fraught, or a future less certain,” he said.
Sources
1. Guardian — Quote source (original article)
Mentioned organisations (context, not sources)
- Treasury — Organisation (homepage)