Title page 1

Contents 5

Treasurer's foreword 6

Executive summary 7

Part I: Major transitions over the next 40 years 23

1. The artificial intelligence (AI) revolution 24

1.1. The AI technological revolution 25

1.2. The economic and social impacts of AI 30

1.3. Positioning Australia for the future 44

2. Geopolitical fragmentation 54

2.1. Geopolitical fragmentation 55

2.2. Implications of geopolitical fragmentation 60

2.3. Positioning Australia for the future 67

3. Energy transition 77

3.1. The energy transition 78

3.2. Implications of the energy transition 84

3.3. Positioning Australia for the future 91

4. Ageing and the care economy 98

4.1. A population ageing more quickly 99

4.2. Implications of an ageing population 104

4.3. Positioning Australia for the future 114

5. Australia's industrial transformation 118

5.1. The industrial transformation 119

5.2. Implications of industrial transformation 125

5.3. Positioning Australia for the future 131

6. Intergenerational equity 137

6.1. Wealth and income across generations 138

6.2. Intergenerational trends in the housing market 141

6.3. Pressures in the tax and transfer system 145

6.4. The role of superannuation in improving outcomes across generations 147

6.5. Positioning Australia for the future 150

Part II: The economy over the next 40 years 157

7. Economy 158

7.1. Economic projections 159

8. Population 169

8.1. Population projections 170

8.2. Drivers of population trends 176

9. Participation 186

9.1. Participation projections 187

9.2. Drivers of participation trends 194

10. Productivity 206

10.1. Productivity projections 207

10.2. Drivers of productivity trends 211

Part III: The budget over the next 40 years 222

11. The budget 223

11.1. The budget over the next 40 years 224

11.2. Budget balance projections 225

11.3. Debt projections 230

12. Government spending 239

12.1. Spending projections 240

12.2. Health 247

12.3. Aged care 253

12.4. National Disability Insurance Scheme 255

12.5. Age Pension Payment and Superannuation 257

12.6. Education and training 262

12.7. Income support and family assistance payments 264

12.8. Defence and veterans spending 268

12.9. Infrastructure 271

13. Revenue 275

13.1. Australia's tax system 276

13.2. Income taxes 282

13.3. Indirect taxes 286

13.4. Non-tax receipts 290

14. The balance sheet 292

14.1. The balance sheet 293

14.2. Net financial worth 294

14.3. Assets 295

14.4. Liabilities 300

Appendices 302

A1. Glossary 303

A2. Projections summary 308

A3. Methodology and assumptions 312

A4. Sensitivity of projections to economic and demographic assumptions 334

A5. 2026 Intergenerational Report consultation 336

Table 5.1. Examples of evolving comparative advantage 121

Table 5.2. Potential sectoral impacts of the major transitions 126

Table 5.3. The major transitions will interact to shape comparative advantage 129

Boxes 25

Box 1.1. What is AI? 25

Box 1.2. Data centre growth will increase demand for key inputs 33

Box 1.3. Scenarios for productivity growth 35

Box 1.4. Labour market impacts from AI are likely to differ from past technologies 38

Box 1.5. National AI Plan 45

Box 2.1. Foreign investment reforms 61

Box 2.2. Global energy markets transmit geopolitical shocks 64

Box 2.3. Critical inputs will create broader supply-chain vulnerabilities 68

Box 2.4. Disciplined responses in a more fragmented world 71

Box 3.1. Environment adaptation to the impacts of climate change 94

Box 4.1. Parental support and fertility rates 100

Box 7.1. 3Ps framework 163

Box 7.2. Gross national income and net foreign income 167

Box 8.1. Population sensitivity analysis 172

Box 8.2. Aboriginal and Torres Strait Islander peoples demographic trends 175

Box 8.3. Economic benefits of migration and multiculturalism 183

Box 9.1. Participation sensitivity analysis 190

Box 9.2. Drivers of average hours worked per capita 193

Box 10.1. Productivity sensitivity analysis 210

Box 10.2. Making it easier to build, invest and do business 211

Box 11.1. Impact of AI on the budget 227

Box 11.2. Impact of international shocks on debt 233

Box 11.3. Sensitivity of the fiscal position to borrowing costs 237

Box 12.1. Sensitivity analysis to higher or lower aggregate spending 242

Box 12.2. Ageing will be a key driver of increased spending 245

Box 12.3. Modernising the Private Health Insurance Rebate 250

Box 12.4. Health-adjusted life expectancy 252

Box 12.5. Social benefits spending has shifted towards in-kind rather than cash payments 266

Box 12.6. Spending on veterans' support is growing 270

Box 13.1. Summary of the Government's tax reform measures 277

Box 13.2. Sensitivity analysis to higher or lower tax assumption 280

Box 13.3. Fuel excise - projections of gross and net fuel excise 289

Box 14.1. Increasing investment in key priority areas 298

Charts 26

Chart 1.1. Measures of AI capability 26

Chart 1.2. Global capital expenditure of the five largest hyperscalers 27

Chart 1.3. AI outputs prices and token use 28

Chart 1.4. Nominal expenditure in the Information Media and Telecommunications sector 29

Chart 1.5. Non-mining business investment and ADP equipment contribution to GDP growth 29

Chart 1.6. Innovation and AI diffusion by country 36

Chart 1.7. Unemployment rate by age and level of highest educational attainment 40

Chart 2.1. United States and China share of world GDP 56

Chart 2.2. Trade measures 57

Chart 2.3. United States annual average effective tariff rate 57

Chart 2.4. Share of United States goods imports 58

Chart 2.5. Australia's terms of trade 62

Chart 2.6. Australia's LNG exports and diesel imports 65

Chart 3.1. Global energy investment 79

Chart 3.2. Electricity generation by source 81

Chart 3.3. Outage rates of coal generators in the NEM by age, 2009-2026 82

Chart 3.4. Disorderly Transition Scenario wholesale electricity price relative to Baseline Scenario 82

Chart 3.5. Annualised lifetime household energy expenditure 85

Chart 3.6. Average annual household energy costs 85

Chart 3.7. Change in real GDP from four physical damages 88

Chart 3.8. Contribution to change in total gross value added from four physical damages, 2066 88

Chart 3.9. Modelled increase in DRFA expenditure 90

Chart 4.1. Australia's past and future total fertility rate, previous long-term assumption vs new assumption 99

Chart 4.2. Select OECD countries' public spending on family benefits and total fertility rates, 2021 100

Chart 4.3. Changes in age structure 101

Chart 4.4. Old-age dependency ratios of select OECD countries 102

Chart 4.5. Proportion of population at each age 103

Chart 4.6. Populations aged 65 and 85 and over 104

Chart 4.7. Working-age population 105

Chart 4.8. Working-age population of select OECD countries 106

Chart 4.9. Participation rates, 65 years and over 107

Chart 4.10. Population pyramids: China, Japan, Republic of Korea and Australia 108

Chart 4.11. Health care and social assistance employment growth 110

Chart 4.12. Projected health care and social assistance employment growth 111

Chart 4.13. Composition of health care and social assistance workforce 112

Chart 4.14. Proportion of hours spent on unpaid care by age 113

Chart 5.1. Services share of economic activity across countries and time 122

Chart 5.2. Average annual consumer price growth, selected goods and services between 1990 and 2026 123

Chart 5.3. Investment by asset type 124

Chart 5.4. Digital and professional services share of intermediate inputs 124

Chart 5.5. Projected Value of Australian Exports 128

Chart 5.6. Australia's capital goods imports by region 130

Chart 6.1. Average real household wealth by age of household reference person and birth decade 139

Chart 6.2. Average real disposable income by age and birth decade 140

Chart 6.3. Home ownership rates by birth cohort and age group, 1952-1956 to 1992-1996 142

Chart 6.4. Earnings and dwelling prices 143

Chart 6.5. Housing tenure types among recent retirees, 2003 and 2023 144

Chart 6.6. Average fiscal impact by age, 2023-24 145

Chart 6.7. Median superannuation balance ages 65-69, 2014 to 2037 148

Chart 6.8. Drawdowns from superannuation and Age and Service Pension expenditure 149

Chart 6.9. Taxes on workers as a share of personal income tax, before and after tax reform 151

Chart 6.10. Tax benefits of reform for the median 30-year-old Australian worker 152

Chart 6.11. Cameo: Difference in retirement savings resulting from key reforms for a young low-income worker 153

Chart 7.1. Growth of the Australian economy 160

Chart 7.2. Contributions to growth in real GDP per person 165

Chart 7.3. Contributions to growth in real GNI per person 166

Chart 7.4. Nominal GDP growth 168

Chart 8.1. Population growth 170

Chart 8.2. Population level projections across intergenerational reports 171

Chart 8.3. Impact on UCB of population change 172

Chart 8.4. Impact on gross debt of population change 172

Chart 8.5. Population growth in Australia 173

Chart 8.6. Proportional age structures of Australia 174

Chart 8.7. Estimated and projected population 175

Chart 8.8. Historical and projected fertility rate by birth order 177

Chart 8.9. Fertility trends, selected countries 178

Chart 8.10. Life expectancy at birth 179

Chart 8.11. Life expectancy, selected countries 180

Chart 8.12. Age standardised death rates 181

Chart 8.13. Net overseas migration 182

Chart 9.1. Projected participation rates across intergenerational reports 188

Chart 9.2. Impact on UCB of participation rate 190

Chart 9.3. Impact on gross debt of participation rate 190

Chart 9.4. Average weekly hours worked per employed person aged 15 years and over 192

Chart 9.5. Average weekly hours worked per capita of population aged 15 years and over 192

Chart 9.6. Drivers of changing average hours worked per capita 193

Chart 9.7. Structural changes in the participation rate 194

Chart 9.8. Full-time participation rate 195

Chart 9.9. Part-time participation rate 195

Chart 9.10. Female participation rate 198

Chart 9.11. Male participation rate 198

Chart 9.12. Gender participation rate gap, by birth decade 199

Chart 9.13. Structural participation rate, by sex 199

Chart 9.14. Share of workers by sex, children status and industry employment cyclicality 200

Chart 9.15. Attitudes towards gender and work, males 201

Chart 9.16. Attitudes towards gender and work, females 201

Chart 10.1. Long-term productivity growth across advanced economies 208

Chart 10.2. Impact on underlying cash balance of productivity 210

Chart 10.3. Impact on gross debt of productivity 210

Chart 11.1. Fiscal balance comparisons among G20 countries in 2027 225

Chart 11.2. Underlying cash balance projections across intergenerational reports 226

Chart 11.3. Payments and receipts 228

Chart 11.4. Primary cash balance 229

Chart 11.5. General government gross debt in 2026 230

Chart 11.6. Gross debt 231

Chart 11.7. Net debt 232

Chart 11.8. Quarterly responses to a 1 percentage point increase in US 10-year bond yields sustained for 8 quarters on average 234

Chart 11.9. Interest payments 235

Chart 11.10. Decomposition of changes to gross debt since the 2023 IGR 236

Chart 11.11. Interest payments on Government debt 237

Chart 11.12. Impact on UCB of borrowing costs 238

Chart 11.13. Impact on gross debt of borrowing costs 238

Chart 12.1. Government spending across intergenerational reports 240

Chart 12.2. Changes in payments relative to the 2023 IGR between 2025-26 and 2062-63 241

Chart 12.3. Impact on UCB of spending 242

Chart 12.4. Impact on gross debt of spending 242

Chart 12.5. Government payments by major category 243

Chart 12.6. Change in projected GDP shares of major pressures between 2025-26 and 2062-63 244

Chart 12.7. Projected government payments by size, growth and recipient age 245

Chart 12.8. Contributions to growth in major payments between 2025-26 and 2065-66 246

Chart 12.9. Commonwealth health spending as a share of GDP 247

Chart 12.10. Average Commonwealth spending per person on major health components by age, 2025-26 248

Chart 12.11. Components of health spending as a share of GDP 249

Chart 12.12. Average PHI rebate per insured person, 2023-24 250

Chart 12.13. Average PHI benefits per insured person, 2025 250

Chart 12.14. Health-adjusted life expectancy at birth, 2024 252

Chart 12.15. Aged care spending as a share of GDP 253

Chart 12.16. Residential care and at-home care spending as a share of GDP 254

Chart 12.17. Total NDIS spending as a share of GDP 257

Chart 12.18. Flows of superannuation monies 258

Chart 12.19. Persons of Age Pension age or over, by pension category 260

Chart 12.20. Fiscal impact of superannuation tax concessions and Age and Service Pensions 261

Chart 12.21. Education spending as a share of GDP 262

Chart 12.22. Share of the workforce with tertiary qualifications will grow 263

Chart 12.23. Income support and family assistance spending (excluding Age Pension) as a share of GDP 264

Chart 12.24. Income support and family assistance payments 265

Chart 12.25. In-kind vs cash social benefits payments 267

Chart 12.26. Defence spending as a share of GDP (NATO methodology) 269

Chart 12.27. Infrastructure Investment Program spending as a share of GDP 272

Chart 13.1. Total tax receipts 278

Chart 13.2. International comparison of total tax revenue - all levels of government 279

Chart 13.3. Impact on UCB of different tax assumptions 280

Chart 13.4. Impact on gross debt of different tax assumptions 280

Chart 13.5. Australian Government receipts 281

Chart 13.6. Composition of tax receipts 282

Chart 13.7. Personal income tax receipts 283

Chart 13.8. Company tax receipts 284

Chart 13.9. Other income tax receipts 285

Chart 13.10. Goods and services tax receipts 286

Chart 13.11. Indirect tax receipts (excluding GST) 287

Chart 13.12. Excise and customs duty receipts 288

Chart 13.13. Gross and net fuel excise 289

Chart 13.14. Non-tax receipts 291

Chart 14.1. Total assets and liabilities 293

Chart 14.2. Net worth 293

Chart 14.3. Net financial worth 294

Chart 14.4. Composition of assets 295

Chart 14.5. Composition of financial assets 295

Chart 14.6. Composition of liabilities 300

Chart 14.7. Future Fund assets and superannuation liability 301

Table A2.1. Demographic projections 308

Table A2.2. Economic and fiscal projections 309

Table A2.3. Projections of major components of Australian Government payments (% of GDP) 310

Table A2.4. Projections of major components of Australian Government payments (real spending per person, 2025-26 dollars) 311

Table A3.1. Coverage trend model projection methodologies 322

Table A3.2. Global climate scenarios 327

Table A3.3. Government revenue and expenses modelled in FIONA 331

Table A4.1. Assumptions underlying sensitivity analyses 334

Table A4.2. Sensitivity analyses results 335

Table A5.1. Stakeholders consulted 336

Appendix Boxes 328

Box A3.1. Acknowledging the full range of possible future climates 328

Box A3.2. Limitations around First Nations' data 332