Jim Chalmers went to the Australian National University on Monday to release a forty-year forecast with fewer Australians in it than the last one. Average annual growth is now put at 2% a year through the mid-2060s, against 3% over the past forty years, mostly because the population is ageing. An economy gets bigger in one of two ways, by adding people or by getting more out of the people already there, and the first of those is thinning out.
The children who are not being born
Fertility is the number doing most of that. Treasury now expects 1.34 children per woman by 2065-66, down from the 1.62 it assumed three years ago, as families start later and stay smaller. Chalmers said the rate is set to fall further and faster than anyone had pencilled in. Population growth follows it down, from an average 1.4% a year over the past forty years to 0.9% a year through to 2065-66.
The country still gets bigger, just slowly. The population is projected to reach 39.3 million by 2065-66 even as deaths overtake births, held up by migration the report assumes at 235,000 people a year. Australians get older on the way there: the median age rises from 38.6 to 45 by 2062-63, the number of people over 65 almost doubles, and the number over 85 almost triples.
The 1.2% holding the rest up
That leaves the other way of growing, and a single assumption carries it. Treasury has labour productivity rising 1.2% a year over the long run, much as it did in 2023, and says the rise and adoption of AI is likely to support getting there. Chalmers, asked about the figure after his speech, said there are upside risks to it as well and that 1.2% strikes a pretty effective balance.
Not everyone reading the report is that comfortable. Stephen Smith of Deloitte Access Economics told Bloomberg that Australia has leaned too hard on adding people and too little on productivity since 2008, and that with population growth now falling away the assumption “appears increasingly dependent on hypothetical productivity gains from a successful economy-wide AI rollout”.
Some of that rollout is already visible in the ground. The data centre build-out is one of the few bright spots in the economy, and Westpac reckons it will end up about as large as the liquefied natural gas expansion of the early 2010s. In the near term it makes things harder, competing for the same scarce capacity that drove inflation up and pushed the Reserve Bank into raising rates.
Chalmers put the longer shift plainly: the advantages of the 2010s, Chinese commodity demand, education and tourism, give way to renewables and critical minerals, strong institutions and partnerships, and AI-enabled services. Treasury's own word for the path to the productivity that pays for all of it is uncertain.
