Part I: major transitions over the next 40 years

The artificial intelligence (AI) revolution
AI is expected to be a defining influence on the economy, with potential to drive significant transformation. Capital investment by hyperscale cloud computing providers is set to exceed $1 trillion in 2026. In Australia, the data centre pipeline could support more than $150 billion in investment by 2030, equivalent to 5 per cent of current nominal GDP. The Productivity Commission estimates AI could boost multifactor productivity in Australia by at least 2.3 per cent over 10 years. While some tasks will be automated, demand for labour is expected to increase in areas requiring human judgement and coordination. Approximately 4 per cent of the current workforce is in occupations with high automation exposure, while 79 per cent has low exposure.

Geopolitical fragmentation
Geopolitical competition is intensifying, with the number of conflicts between nations rising from two in 2023 to eight in 2025. Conflict in 2026 caused a global energy shock, though east coast wholesale gas prices were 26 per cent lower than a year earlier due to domestic reforms. Approximately 18,000 discriminatory trade measures have been introduced globally since 2020. The United States has increased effective tariff rates to their highest levels since the 1940s. Australia’s terms of trade have been impacted by these shifts, though its reputation as a reliable partner provides strategic advantages in critical minerals and clean energy supply chains.

Energy transition
Australia’s energy transition is well underway, with renewable energy increasing to 45 per cent of the electricity grid. Over 60 per cent of coal-fired power capacity has announced intentions to retire within the next decade. Average household energy costs are expected to decline by around 40 per cent from 2030 to 2050 as households electrify. A solar-powered household that electrifies homes and vehicles could reduce costs by around $4,300 a year. Energy demand from data centres is expected to reach 10 per cent of the National Electricity Market by 2050. Disorderly transition scenarios suggest real GDP could be 1 percentage point lower by 2066 compared to Paris-aligned pathways.

Ageing and the care economy
Australia’s population is ageing more quickly than previously projected, primarily due to a lower total fertility rate (TFR), which is expected to fall to 1.34 children per woman by 2065–66. For the first time, deaths are projected to outnumber births by the 2060s. The number of Australians aged 85 and over is expected to triple by 2065–66, reaching 1.9 million. This will drive demand for care services; employment in health care and social assistance has grown by 13 per cent since 2023 and is projected to grow a further 23 per cent by 2035. Life expectancy is projected to reach 89.5 years for women and 86.1 years for men by 2065–66.

Australia’s industrial transformation
Australia’s industrial base is shifting towards services, which have accounted for around 80 per cent of employment since 2020. Business services will likely see significant growth as AI transforms models and expands tradable activities. Comparative advantages are shifting from fossil fuels towards critical minerals and renewable energy. If Australia becomes a renewable energy superpower, green exports could reach over $100 billion per year by 2050. Manufacturing’s share of production is projected to grow from 5.8 per cent today to 6.2 per cent in 2050 under high-export scenarios.

Intergenerational equity
Pressures on intergenerational equity are intensifying as house prices have risen faster than incomes. Median housing prices rose from four times average full-time earnings in 1999–00 to eight times in 2025–26. If home ownership rates remained at 1981 levels, 250,000 more households aged 25–34 would own their home. Conversely, the maturing superannuation system will support younger generations, with median balances for those aged 65–69 projected to rise from $204,000 in 2024 to approach $450,000 in nominal terms by the end of the medium term.

Part II: the economy over the next 40 years

Economy
Real GDP is projected to grow at an average annual rate of 2 per cent over the next 40 years, down from 3 per cent over the past 40 years. Growth is estimated at 2.3 per cent through the 2030s before declining to 1.6 per cent by 2065–66. Real income per capita is expected to be 55 per cent higher by 2065–66. Real GNI per person growth is projected to slow to 1.1 per cent per year as commodity prices decline to long-run anchors.

Population
The population is expected to reach 39.3 million by 2065–66. Growth will average 0.9 per cent per year, down from 1.4 per cent historically. Natural increase will cease to be a driver of growth by the 2060s. Net overseas migration is assumed to be 235,000 people per year over the long run. Capital cities are projected to grow twice as fast as regional areas, with the median age in cities reaching 43.5 years versus 50.9 years in regional areas by 2065-66.

Participation
Labour force participation is projected to peak at 67.7 per cent in 2039–40 before declining to 64.7 per cent by 2065–66 due to ageing. The gender participation gap is projected to narrow to 5.4 percentage points by 2065–66. Average weekly hours per employed person are expected to decline from 31.4 in 2025–26 to 30.6 in 2065–66 as part-time work becomes more prevalent.

Productivity
Long-term labour productivity growth is assumed to be 1.2 per cent per year. This is consistent with the assumptions of peer economies like New Zealand (1.0 per cent) and Canada (0.9 per cent), though lower than the UK (1.5 per cent). Human capital improvements have accounted for one-third of productivity growth over the past three decades.

Part III: the budget over the next 40 years

The budget
The underlying cash balance is projected to reach a deficit of 0.3 per cent of GDP in 2036–37, widening to 1.8 per cent by 2065–66. Gross debt is projected to decline from 33.1 per cent of GDP in 2025–26 to a low of 22.2 per cent in the mid-2050s, before rising again to 27.4 per cent by 2065–66. Total interest payments are projected to rise to 1.6 per cent of GDP in 2032-33 before declining to 1.2 per cent by 2065-66.

Government spending
Total payments are projected to increase from 26.6 per cent of GDP in 2025–26 to 27.7 per cent in 2065–66. Health spending is the largest pressure, expected to reach 6.2 per cent of GDP by 2065–66. Aged care spending will rise from 1.5 to 2.3 per cent of GDP. NDIS spending is projected to be 2 per cent of GDP in 2065–66. Defence spending is projected to rise to approximately 3 per cent of GDP by 2033–34. Age and Service Pension expenditure will fall from 2.3 per cent to 1.8 per cent of GDP as superannuation matures.

Revenue
Tax receipts are assumed to be capped at 24.2 per cent of GDP from 2032–33. Personal income tax receipts are projected to grow from 12.3 per cent of GDP to 14.1 per cent by 2065–66. Indirect tax receipts, excluding GST, will decline from 1.7 per cent to 0.9 per cent of GDP, reflecting the erosion of fuel and tobacco excise bases. Non-tax receipts will fall from 2 per cent to 1.7 per cent of GDP.

The balance sheet
Total assets are projected to decline from 31.7 per cent of GDP in 2026–27 to 26.7 per cent by 2065–66. This is driven by Future Fund drawdowns starting in 2032–33. Net financial worth is projected to improve to -14.5 per cent of GDP by 2054–55 before deteriorating to -19.2 per cent by 2065–66.