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The possible future of Australia has been laid out in the government's "intergenerational report", which paints a picture of a nation that looks older and lives longer, and is paid better, but also faces a major workforce and climate challenge.
Key points:
The treasurer has handed down a major report forecasting the Australia of 2063
Demographic changes, climate change and AI will shape the nation's future
Productivity and budget issues must be solved to maintain Australia's living standards
The intergenerational report is a "compass" pointing to Australia's current course and not a "crystal ball", the federal treasurer says.
It sets down some clear opportunities and obstacles for the country over the next 40 years, with five major forces shaping the future: an ageing population, climate change, a shift to a caring economy, fragmentation in the global order, and an explosion in digital technologies.
And if Australia stays its current course, there are serious challenges for the government budget: the report forecasts deficits every year to 2063 — which would make the most recent surplus the only one delivered for 50 years.
But Treasurer Jim Chalmers says this report will not trigger an overhaul of the government's taxes or spending.
Instead, he has prosecuted "bite-sized" tax reforms on the edges of the budget for now, and a focus on growing productivity to ward off future economic woe.
He said the government had begun to walk down a path of greater reform.
"I think in the next few years, an increasing focus — certainly of our government and most likely governments that follow us — will be this public policy challenge, this revenue challenge," he said.
Mr Chalmers said the report laid out "a future we can be optimistic about, but not complacent about".
Shadow Treasurer Angus Taylor decried the report as a "plan for increased taxes, increased spending [and] a bigger Australia.
"[There are] deficits as far as the eye can see but not a solution in sight," Mr Taylor said.
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The report forecasts that population growth will stagnate, and the fertility rate will stagnate to 1.6 babies per woman in the next decade.
Asked if the government would look at introducing another baby bonus to build the workforce needed to care for an ageing population, Mr Chalmers says the "opportunities and the policy levers are different now".
"We found a better way, I believe, to service the same objective which is by extending paid parental leave, making early childhood education cheaper, so that parents, particularly mums, can work more and earn more if they want to," he says.
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Mr Chalmers says there will be "costs and consequences" if the nation doesn't take the challenges seriously.
"We might not build the workforce that we need, we might miss this kind of new productivity frontier, we might not make the most of our advantages, we
might leave ourselves more vulnerable to a world that is getting riskier.
"Those are the costs and consequences if we don't take these challenges seriously."
The treasurer says there won't be any changes to the pension age, but he adds the government is looking at how to give older people "more choices and more chances if they want to work".
"People make different decisions and maybe people in blue-collar industries have different abilities in their 70s than people in white-collar industries," he says.
"So there is a major focus of ours to try to work out, in a world where there will be a smaller and smaller proportion pool of workers, how do we encourage
people to work more if they want to?"
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Australia is getting older, and that will change the whole economy
Australians are living longer and are in full health for longer, with life expectancy at birth projected to rise from 81.3 years to 87 years for men and from 85.2 years to 89.5 years for women by 2063.
Those improvements come at a time of slowing population growth, with people delaying having children and having fewer children than in previous generations — Australia's fertility rate has been below the "replacement rate" of 2.1 babies per woman since the 1970s and is expected to remain low.
With longer lives and fewer babies, the median age of Australians will be 4.6 years older by 2063 than it is today, meaning the median Australian will be 43.1 years old.
Almost a quarter of Australians will be over 65 by 2063, and there will be three times as many people over 85 as there is today.
And while migration will continue to add to Australia's overall population, it will make up a smaller share of the predicted 40.5 million Australians in 2063 than it does today — and those migrants will be older and have fewer children than today, too.
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Those demographic shifts have major consequences for the shape of Australia's economy and workforce.
A smaller percentage of Australians will be in work, more Australians will depend on health and care services, and there will be more opportunities in work for under-represented groups to offset the effects of an ageing workforce.
It also means Australia's trend away from manual industries towards a care economy will only pick up pace as time progresses.
The report forecasts the care and support workforce would have to double in size to meet demand by 2050, a "planning challenge" that will require more training pathways and better pay that is more reflective of the task.
Income and living standards will improve more slowly
Wages and the government's ability to maintain services for Australians depend on continuous productivity growth, which is why it's a cause for concern that it has stagnated in recent decades.
The last productivity improvement outside of mining booms came in the 90s with the internet and personal computing, but government and business are increasingly looking to artificial intelligence as the way to reinvigorate the economy.
Technology changes won't just affect productivity but, according to the report, will also boost health outcomes, lower emissions and even "transform consumption and leisure patterns".
But, noting that Australia's current course is not "a foregone conclusion", the report expects slower improvements in living standards and income in the years ahead.
The treasurer warned the country could fall short of even the revised down projections in the report, and Australian would have to "work our tails off" to sustain the economy.
For women, the gender gap in work participation is expected to further narrow but will still track below men even in 40 years' time.
Caring responsibilities remain a key driver of that gap, though the government argues its recent reforms to paid parental leave and childcare subsidies will help to increase hours worked by women with young children.
On average, Australians are working two fewer hours each week than they were 40 years ago, and the report expects that trend to continue, with part-time work becoming more common.
Jobs will become higher skilled, and will more commonly require higher qualifications, as the more routine parts of work are automated.
It says automation has tended to result in safer and higher-paid jobs — but it will also require significant reskilling, and a change to how workers do their jobs.
Net zero emissions is a climate necessity and an economic opportunity
The report lays out that Australia is set to benefit from the global transition to net zero carbon emissions.
Australia is already the leading exporter of lithium, and has vast reserves of lithium, nickel, zinc and bauxite, all essential minerals for renewable technologies.
Swathes of Australian land are yet to be fully explored for critical minerals, meaning there are likely more rich veins to tap, providing opportunities for a mining sector that needs to get out of coal and gas.
But the impacts of a warming climate will affect work conditions, such as greater risks of heat stress in some jobs.
"In the absence of changes to the way people now work, this will affect hours worked and the ability of employers to recruit workers", the report warns.
It says the answer will be to invest in adaptation measures, with the world on track to exceed the goal of limiting warming to 2C.
The intergenerational report warns some effects of climate change are too late to be avoided.(Audience submitted: Angus Emmott)
But climate change will affect where and how Australians live, work and travel.
"Some costs related to the physical risks of climate change are already unavoidable," the report warns.
"The extent of economic disruption will increase significantly with greater temperature increases. This means mitigating further climate change through effective global action by way of decarbonisation has significant economic value to Australia."
The report concludes even if the world can achieve net zero carbon emissions by 2050, temperature increases that have occurred to date will impact Australia's economy.
And under a scenario where the world warms by 3C by the end of the century, Australia's national average temperature is projected to increase by 1.7C, with central and north-west Australia the most exposed to hotter temperatures.
Fragmenting world politics has consequences for trade and for climate change
Australia has improved the flow of goods, services, labour and technology by reducing barriers to trade, and decades of economic growth and improved living standards have ridden on the back of opening the nation to the international market.
But the report says the future prosperity of the nation will be influenced by evolving geopolitics and ensuring supply chains are resilient to future shocks — that is, by reducing Australia's reliance on its major trading partner China.
It issues a warning that the future global economy could be more fragmented, which could result in rival trading blocs, and that fragmentation could "complicate" climate action.
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