Australia faces escalating economic challenges as its population growth slows sharply and deaths begin to outnumber births, according to the latest intergenerational report (IGR) released in 2026. The federal government’s long-term projection warns of significant impacts on economic growth and public finances over the next four decades.

First introduced by former Treasurer Peter Costello shortly after 2000, the IGR is now in its seventh edition and aims to provide a comprehensive outlook on demographic, economic, and fiscal trends affecting Australia up to 2066. While earlier editions focused on managing the so-called “boomer bulge,” this year’s report highlights a pivotal demographic shift: fertility rates are expected to decline further, slowing population growth to 0.9% over 40 years, down from 1.4% in the previous four decades. Notably, this growth is projected to rely entirely on immigration, as deaths are forecast to exceed births.

This demographic transition carries direct implications for economic performance. The report projects average annual GDP growth to slow to about 2%, compared with the 3% growth historically experienced. While this slowdown has raised concerns, analysts emphasize that the quality of growth—measured by living standards—depends less on population size and more on workforce participation and productivity.

Australia’s future economic expansion will hinge largely on the “three Ps”: population, participation, and productivity. Population growth, while expanding the overall size of the economy, does not inherently improve per capita income or living standards. Moreover, an aging population increases the ratio of retirees to working-age individuals, intensifying fiscal pressures through higher demands on healthcare, aged care, and pensions.

Workforce participation is expected to see modest gains over the next 15 years, driven primarily by increasing employment among women and older workers. However, the participation rate is forecast to decline again after 2040 as demographic aging intensifies, limiting its long-term contribution to economic growth.

Consequently, productivity gains will be critical to maintaining improvements in individual living standards. The report projects average productivity growth of 1.2% annually over the forecast period, despite Australia’s recent slowdown in this area. This anticipated productivity boost is largely attributed to advances in artificial intelligence, which the report references extensively as a key driver of future economic efficiency and innovation.

Nonetheless, this optimistic projection contrasts with ongoing challenges, including insufficient business investment and governmental reluctance to implement substantial reforms aimed at productivity enhancement. The report underscores the need for renewed focus on policies and investments that foster sustainable productivity growth to offset the demographic headwinds facing the Australian economy.