Artificial intelligence (AI) 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. Australia is also expected to experience lower growth, a decline in the birth rate and unending budget deficits.
As Prime Minister Anthony Albanese makes AI a central issue of discussion during his current trip to the United States, the IGR emphasises the precise nature of the new technology’s impact will depend on how extensively it is adopted and Australia’s position in global supply chains.
This means the estimates of AI’s potential to boost productivity vary widely, the report says.
The IGR, the first since 2023, presents a mixed picture for Australians in the four decades ahead.
It emphasises a more fraught and turbulent world and an ageing population exacerbating budgetary pressures. On the other hand, it argues Australia is well placed to deal with the difficult challenges it will face.
The report, prepared by the Treasury, also has an overtly political streak. For example, it declares the government’s “ambitious reform agenda is all about […] ensuring Australians can be the beneficiaries” of change. It also canvasses the initiatives in the recent budget.
Launching the report, Chalmers said “the economy of the next 40 years will be built with AI-enabled services, smarter technologies, new clean industries powered by cheaper energy, and more secure partnerships in the world”.
He said the government took responsibility for getting “policy and planning right” and “the pressures in this report make all of our longer-term reforms even more important”. He laid out ten key government priorities:
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making productivity a whole-of-government priority
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harnessing AI in the national interest
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building an adaptable, well-trained workforce
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attracting talent through skilled migration
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rebalancing the tax system to support workers
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helping more Australians into housing
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making retirement more secure
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delivering cleaner and cheaper energy
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boosting national resilience
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improving budget sustainability
By the mid-2060s, in real terms, the Australian economy is projected to be more than twice as large as it is now. Per capita income is projected to be 55% higher, the IGR says.
Economic growth is projected to be weaker over the coming 40 years, at 2% annually, compared with the 3% over the last 40 years.
“A more productive, dynamic and competitive economy will be key to lifting living standards over time,” the report says.
The report says that since the 2023 IGR, the budget position has improved “noticeably”, but fiscal pressures remain.
The Australian economy is one of the best placed to benefit from the major transitions that will unfold over coming decades. We have a resilient economy, a highly skilled workforce, a stronger and more sustainable budget position than most advanced economies and a younger population compared to other comparable nations.
We have enormous strengths when it comes to the energy transition and AI revolution, and geostrategic advantages as a stable middle power in the Asia–Pacific region.
Intergenerational equity has been strained by the decline of home ownership, the pressures of an ageing population and structural trends in the tax base, which will be felt most by those of working age, the report says.
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.
On the potential of AI, the report says the Productivity Commission estimates it could increase multi-factor productivity in Australia by at least 2.3% over a decade.
The rise and adoption of AI is likely to support the achievement of Treasury’s long-term labour productivity growth assumption over time. This IGR assumes long-term labour productivity growth of 1.2% a year, consistent with the 2023 IGR and the long-term assumptions of many peer economies.
As a medium-sized economy, Australia’s productivity performance will depend on adopting innovation, supporting investment, developing skills and delivering regulatory reforms that improve the efficient operation of the economy.
Measures of AI capability
The IGR says the impact of AI on labour markets are not really clear, but are set to be uneven.
Australia is well positioned to benefit from the global AI revolution, given our stable institutions, abundant renewable energy potential and well-developed international connectivity, including in the Indo-Pacific region.
Ensuring AI investment and adoption is aligned with Australia’s national interests will improve Australia’s competitiveness, resilience and wellbeing in the decades ahead.
The report says that economic relationships increasingly shaped “by security and strategic alignment could have severe economic or security consequences.”
It also stresses the importance of “remaining open to the benefits of well-functioning markets, while guarding against the volatile impacts of geopolitical instability.”
The report says Australia’s “energy transition will be more important and urgent as global energy supply chains face disruption.” Data centres’ demand for energy is expected to be almost 10% of the National Electricity Market by 2050.
On demographics, the IGR says the population is now expected to age faster and grow more slowly then projected in the 2023 report. This is due primarily to lower fertility rates, a common trend across advanced economies. “Deaths are projected to outnumber births by the 2060s – the first time this has been forecast in an IGR.”
Australians will continue to have among the longest life expectancies in the world. The life expectancy for women is expected to be 89.5 years by the mid-2060s; the expectancy for men will be 86.1 years.
The projections for participation in the labour force are “substantially upgraded” in this report. They are projected to continue rising until 2039–40, especially among women and older people.
But still, an ageing population will “weigh on overall labour force participation over the long term and contribute to the ongoing shift towards a more service-based economy.”
On the budget, the report says that an ageing population and increasing community expectations for services are likely to see payments rise to 27.7% of GDP by the mid-2060s.
“Additional pressures such as further spending on defence, the impacts of climate change and the rise of AI are more difficult to quantify and present risks to the fiscal outlook.”
Tax receipts are expected to reach a historical high of 24.2% of GDP in 2032-33 and then remain there. This is lower than the last IGR assumed.
The post “Intergenerational Report says AI will be ‘a defining influence’ on Australia’s economy over next 40 years” by Michelle Grattan, Professorial Fellow, University of Canberra was published on 09/21/2026 by theconversation.com