Australia’s federal budget is projected to remain in deficit for the next four decades, with rising debt and ongoing economic challenges outlined in the latest Intergenerational Report (IGR) released by Treasury. The report, handed down on September 21, 2026, forecasts budget shortfalls continuing through to 2066 amid shifting demographics, changing tax burdens, and evolving economic drivers.
Treasurer Jim Chalmers acknowledged the budget will remain “strained” but emphasized that the economy is expected to more than double in size by 2066. He reaffirmed the government’s commitment to personal income tax cuts, including the legislated stage three cuts starting in 2024, despite concerns about long-term fiscal sustainability. Chalmers also highlighted migration and multiculturalism as essential contributors to future economic growth, with the workforce increasingly reliant on both permanent and temporary migration to offset demographic changes.
The report projects that government payments will rise slightly as a share of GDP, increasing from 26.6 percent today to 27.7 percent by 2066, driven largely by health and aged care costs associated with an ageing population. However, tax receipts are assumed not to surpass a historical peak equivalent to 24.2 percent of GDP, a key assumption that drew criticism for its optimism regarding bracket creep—a phenomenon where inflation and nominal wage growth push taxpayers into higher tax brackets. The IGR’s assumption effectively limits the tax-to-GDP ratio increases that would naturally result without policy adjustments.
Economists and industry representatives cautioned that the report’s assumptions may be overly positive. Warren Hogan, chief economist at JudeBanka, warned that growing government spending and chronic deficits have eroded public trust and called for a recommitment to disciplined fiscal policy that includes cutting recurrent spending and taxes to stimulate private sector investment. Similarly, Stephen Walters of the Centre for Independent Studies said that without accounting for bracket creep, the deficit projections could be understated.
Business groups expressed concerns over the government’s economic agenda. Mike Zohrab, chief executive of the Property Council, suggested the Albanese government risks adopting policies akin to those of recent Victorian leaders, characterized by higher taxes and increased regulation. The Business Council of Australia urged comprehensive reform over reliance on anticipated artificial intelligence-driven productivity gains, which the report cites as a central component of future economic strategy.
The IGR forecasts a gradual slowdown in economic growth, with average real GDP growth expected to decrease from around 3 percent in recent decades to approximately 1.6 percent by 2066. Productivity growth assumptions vary, with a downside scenario projecting growth at 0.8 percent—consistent with recent historical trends—while a more optimistic scenario assumes a 1.6 percent rate supported by technological advances.
Demographic trends highlighted include the “population tipping point,” when deaths are projected to outnumber births from the early 2060s, and a substantial increase in the number of Australians over pension age, expected to nearly double by 2066. Despite this, the proportion of older Australians receiving pensions or income support is projected to decline.
The report drew political commentary as Treasurer Chalmers addressed accusations of politicizing the nation’s economic challenges amid Labor’s declining polling numbers. He cautioned against what he described as political actors “catastrophising” economic pressures and framed the government’s approach as focused on alleviating challenges rather than exploiting them.
Overall, the Intergenerational Report sets the stage for ongoing debates about tax policy, spending priorities, and economic strategy as Australia navigates complex demographic and fiscal headwinds over the coming decades.