Artificial intelligence will be a defining influence on Australia’s economy over the next 40 years, according to the Intergenerational Report (IGR) released by Treasurer Jim Chalmers on Monday. The IGR, the first since 2023, presents a mixed picture for Australians in the four decades ahead, balancing economic opportunities with significant challenges.
The IGR projects that by the mid-2060s, in real terms, the Australian economy will be more than twice as large as it is now, with per capita income 55 per cent higher. However, economic growth is expected to weaken to 2 per cent annually, down from the 3 per cent average over the past four decades.
AI’s Uncertain Economic Impact
The report emphasizes that AI’s precise economic impact will depend heavily on how extensively the technology is adopted and Australia’s role in global supply chains. Productivity Commission estimates suggest AI could increase multi-factor productivity by at least 2.3 per cent over a decade, but the range of projections varies widely. This dependence means that Australia’s ability to capitalize on AI advancements will depend on strategic investments in technology infrastructure and maintaining access to global markets, particularly in the Indo-Pacific where Australia holds significant geostrategic advantages.
The IGR assumes long-term labour productivity growth of 1.2 per cent a year, consistent with previous reports and peer economies. As a medium-sized economy, Australia’s productivity performance hinges on adopting innovation, supporting investment, developing skills and delivering regulatory reforms that improve the efficient operation of the economy.
The report notes that AI’s impact on labour markets remains unclear, though likely to be uneven. Labor force participation is projected to rise until 2039–40, particularly among women and older workers, but an ageing population will eventually weigh on overall participation rates.
Data centres’ energy demand is expected to reach nearly 10 per cent of the National Electricity Market by 2050, highlighting how the energy transition will become more urgent as global supply chains face disruption. This surge in energy demand shows the critical need to accelerate the energy transition, ensuring Australia’s renewable energy infrastructure can support the growing demands of AI-driven industries while mitigating vulnerabilities in global energy markets.
Demographic shifts present a stark picture. Deaths are projected to outnumber births by the 2060s—the first time this forecast has appeared in an IGR. Population growth will slow further than previously estimated, driven primarily by lower fertility rates across advanced economies. The population is also expected to age faster than projected in the 2023 report, with life expectancy for women reaching 89.5 years and men 86.1 years by the mid-2060s.
Community service payments are expected to climb to 27.7 per cent of GDP by the mid-2060s, as an ageing population strains public finances. Additional costs from defence spending, climate impacts, and AI development add further uncertainty to this outlook, compounding the demographic pressures already evident.
Tax receipts will peak at 24.2 per cent of GDP in 2032-33, then hold steady at that historically high level. The report frames this trajectory within a broader political context, noting that democratic societies worldwide face increasing pressure from economic anxieties that fuel political fragmentation at unprecedented rates. This steady level of tax receipts reflects the government’s need to fund expanding community services while handling a complex fiscal environment shaped by demographic and economic transitions.
