Australians can look forward to better health and living standards in 40 years, but young workers will shoulder a larger burden propping up straining public finances.
Treasurer Jim Chalmers on Monday delivered a positive assessment of the nation's prospects while warning of unprecedented challenges to coincide with the release of the nation's latest Intergenerational Report by the federal Treasury.
In real terms, Australia's economy in 2066 will be more than twice as large and the average Australian will enjoy 55% higher income.
But an ageing population, turbulent global politics and an uncertain productivity outlook will place increasing pressure on young workers, according to the seventh edition of the Treasury assessment, which charts the impact of government policies four decades into the future.
Longer lives, greater pressure on workers
"The effects of an ageing population will place increasing pressure on the tax and transfer system," the report said.
By 2066, the average life expectancy will rise to 89.5 years for women and 86.1 years for men, up about four years from current levels, placing Australians among the world's longest-lived populations.
But declining fertility and immigration as a share of population mean the proportion of over-65s to working-age Australians will rise from about 28% to 39%, requiring higher health and aged care payments.
As a result, income tax is projected to rise from 12.3% of GDP to 14.1%.
"This pressure will be primarily borne by working-age Australians," the report said.
"As indirect taxes face structural decline, the share of tax receipts from personal income taxes is projected to rise.
"This combination of trends means that, over time, working-age Australians will support a growing number of older Australians who are living longer and driving demand for health and aged care services."
Super to ease pension pressure
But Chalmers said growing superannuation balances will provide older Australians with more security and reduce the strain on the federal budget.
Age pension payments are expected to fall from 2.3% of GDP to 1.8% by 2066.
"No previous (report) has contended with global challenges this great, with politics this fraught or a future less certain," the treasurer said in a speech coinciding with the release of the report.
"The global and generational risks are serious, but Australia's opportunities are endless."
The federal deficit is projected to blow out from 1% of GDP to 1.8%, although net debt is expected to ease from 18.8% of GDP to 18.1%.
Productivity key to living standards
However, the projections were underpinned by a rosy assumption that productivity growth would bounce back from the 0.3% average over the past decade to 1.2% within five years.
It is more optimistic than the Reserve Bank's medium-term assumption of 0.7% and has been questioned by some economists.
Under a less optimistic 0.8% assumption, the average Australian's standard of living would be $20,000 worse off in real terms than the baseline forecast for income per person of $149,500.
The gross debt-to-GDP ratio would blow out to 55.9%, compared to the baseline projection of 27.4%.
AI central to productivity hopes
Along with the government's recent tweaks to national competition policy and red tape reduction, much of the productivity improvement was chalked up to AI.
While the world was becoming more dangerous, more unpredictable and more divided, technological advancements also provided the nation with greater opportunity, Chalmers said.
The nation faced a simple choice: "Keep up and succeed or lag and languish."
That meant ensuring the accelerating pace of change, driven by rapid advancements in technology, was accompanied by an "accelerating pace of opportunity".
