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The Intergenerational Report projects an outlook for the economy and the Australian Government’s budget over the next 40 years. This outlook has been profoundly affected by the COVID-19 pandemic, which has caused the most severe global economic shock since the Great Depression. While Australia’s economic recovery is well advanced, some effects from this shock will persist for years to come. At the same time, pre-existing structural trends – such as population ageing – remain ongoing challenges for the economy and the budget.
The Australian economy is projected to grow at a slower pace over the next 40 years than it has over the past 40 years, though growth per person is projected to be closer to historical averages. Slower population growth is the main reason for the expected slowdown in economic growth. Australia’s total population is projected to reach 38.8 million in 2060-61. This is lower than previous projections due to the lower level of migration resulting from the COVID-19 pandemic and a lower fertility rate.
Migrants are expected to continue to be the largest source of population growth. Migration contributes to economic growth and can help offset population ageing. However, migration needs to be managed well to ensure it supports higher living standards.
The population will continue to age, largely as a result of improved life expectancies and low fertility. In 2060-61, 23 per cent of the population is projected to be over 65, a rise of around 7 percentage points from 2020-21. The ratio of working-age people to those over 65 is projected to fall from 4.0 to 2.7 over the next 40 years. Australia is currently in the middle of a significant demographic transition, as people in the baby boomer generation reach 65. This has already driven a rapid fall in the ratio of working-age people to those over 65 through the past decade, which will continue for the next decade.