Every few years, Treasury performs a task that demographers do every day. It tries to imagine Australia decades into the future. 

The 2026 version of the Intergenerational Report looks all the way to 2065-66. 

These reports aren’t forecasts in the conventional sense. Nobody at Treasury seriously claims to know precisely what Australia will look like in 40 years. 

Think about trying to predict Australia today from 1986 – the internet barely existed. The Soviet Union still did. China was poor. Australia’s population was about 16 million. Melbourne’s median house price was below $100,000. Artificial intelligence was science fiction. 

The point of an Intergenerational Report isn’t to tell us exactly what will happen but to take today’s demographic, economic and fiscal settings, make reasonable assumptions about the future, and ask “where do they take us?”.

This year’s answer is fascinating. Australia gets bigger, older and richer. 

Treasury expects the population to reach around 39 million by the middle of the 2060s. We live longer lives. The number of Australians aged 85 and over triples. Population growth slows.

Eventually, in the 2060s, Australia reaches a demographic milestone we’ve never experienced before – more Australians die each year than are born. 

None of this should surprise regular readers of this column. 

I’ve spent an unreasonable amount of my adult life talking about ageing populations. 

The generations entering the workforce are increasingly smaller relative to the generations leaving it. Healthcare and aged-care demand rise. Skills shortages become harder to fill.

Migration remains important because it adds disproportionately young working-age people to the country. Migration can’t stop ageing, it can only slow the process. 

Overall, Treasury and I are broadly looking at the same demographic Australia. 

Where things get much more interesting is the economy –  Treasury’s Australia of 2066 is significantly richer than today’s Australia.  

The IGR is of course also a tool for government to tell voters how wonderful things will be under their stewardship, so I naturally take views about our future riches with a grain of salt. 

To collectively become richer, we need productivity growth. 

The most important number in the report 

Buried among hundreds of pages of projections, is arguably the most consequential assumption in the entire exercise. 

Treasury assumes long-run labour productivity growth of 1.2 per cent per year. 

While that doesn’t sound like much, over 1 per cent each year for four decades is huge. Productivity is ultimately how we become richer without simply working more hours. 

If a worker can produce more value in an hour of work, wages can rise without necessarily creating inflation. Businesses can make more money. Governments collect more tax. Living standards improve. 

Compound tiny, annual improvements for decades and you create an enormously richer country. 

The problem is that Australia hasn’t exactly been smashing the productivity game lately. 

Productivity growth over the past decade has been miserable and simply assuming that future productivity gains will occur because we say AI a lot seems too easy to me.

We haven’t even discussed yet whether productivity gains are being translated into higher wages or whether they just line the pockets of the........

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