Intergenerational Report says AI will be 'a defining influence' on Australia's economy over next 40 years

The Intergenerational Report (IGR) prepared by Australia's Treasury was released by Treasurer Jim Chalmers on Monday, the first since 2023. The report calls artificial intelligence a 'defining influence' on Australia's economy over the next 40 years, but stresses that its precise impact depends on how widely the technology is adopted and Australia's position in global supply chains. This means the report itself gives a wide range of estimates for AI's productivity dividend.

The report cites Productivity Commission estimates that AI could raise Australia's multifactor productivity by at least 2.3% within a decade. At the same time, the report assumes long-term labor productivity growth of 1.2% per year, consistent with the 2023 report and long-term assumptions in many comparable economies, and says the rise and adoption of AI 'may' help achieve this assumption. A distinction is needed here: 2.3% is an institutional estimate cited by the report, while 1.2% is the report's own long-term assumption; neither is an observed realized value.

The report paints a tighter long-term picture. Economic growth is projected at 2% per year, below 3% over the past 40 years; by the mid-2060s, the economy in real terms will be more than twice its current size, with per capita income projected 55% higher. The report says the budget position has improved 'markedly' since the 2023 IGR, but fiscal pressure remains.

On population, the report projects faster aging and slower growth, mainly due to lower fertility rates. The report says deaths are projected to exceed births in the 2060s, the first such forecast in an Intergenerational Report. Female life expectancy by the mid-2060s is 89.5 years, and male life expectancy is 86.1 years. Labor force participation projections were 'revised up significantly,' expected to keep rising until 2039-40, especially for women and older groups, but aging will still drag on overall participation.

On the fiscal ledger, the report projects payments will rise to 27.7% of GDP by the mid-2060s; tax receipts are projected to reach a record high of 24.2% of GDP in 2032-33 and remain at that level, below the assumptions of the previous IGR. The report explicitly mentions that additional pressures such as defense spending, climate change impacts and the rise of AI are 'harder to quantify' and pose risks to the fiscal outlook.

The report places AI at the intersection of energy and geopolitics. It says Australia's energy transition will become 'more important and urgent' due to disruptions facing global energy supply chains, and projects that by 2050 data center energy demand will approach 10% of the National Electricity Market (NEM).

On the geopolitical level, the report warns that economic relations are increasingly shaped by 'security and strategic alignment,' which could bring serious economic or security consequences, while stressing openness to well-functioning markets and guarding against the volatile effects of geopolitical instability. The report argues Australia is well positioned to benefit from the global AI revolution thanks to stable institutions, abundant renewable energy potential and developed international connections (including in the Indo-Pacific).

The report also lists ten government priorities, including making productivity a whole-of-government priority, harnessing AI where it is in the national interest, building an adaptable and well-trained workforce, attracting talent through skilled migration, rebalancing the tax system to support workers, helping more Australians obtain housing, making retirement safer, providing cleaner and cheaper energy, strengthening national resilience, and improving budget sustainability. Chalmers said the government bears the responsibility to 'get policy and planning right.'

The report carries a clear political coloring: it declares the government's 'ambitious reform agenda' aims to ensure Australians are beneficiaries of change, and lists measures from recent budgets. At the release, Chalmers said the economy of the next 40 years will consist of AI-enabled services, smarter technology, new clean industries powered by cheaper energy, and safer global partnerships. These are policy claims and vision statements, not verifiable forecasts.

The report's judgment on AI's labor market impact is that it is 'not really clear,' and the impact will be uneven. This constitutes an important qualification to the AI dividend narrative: estimates of productivity gains, the pace of adoption, and the distribution of benefits all remain uncertain.

The source hierarchy needs to be flagged: the above content comes from The Conversation's reporting on the Intergenerational Report and is second-hand paraphrase. The specific figures in the report (such as 2.3%, 1.2%, 2%, 55%, 27.7%, 24.2%, 10%, 89.5 years, 86.1 years) all come from that report's citation of the report; this article has not obtained the original report for verification, so they are treated as source claims rather than independently confirmed facts.

The core tension of this Intergenerational Report is that AI is given the status of a 'defining influence,' but the report simultaneously downgrades growth and population projections and maintains long-term deficits and rising payment pressures. Whether AI can deliver the productivity dividend depends on breadth of adoption, position in global supply chains and policy execution, all of which are explicitly listed as uncertainties in the report.

For readers, the actionable judgment is: treat the 2.3% multifactor productivity estimate as a potential upper bound rather than a baseline scenario; treat the 1.2% labor productivity growth as the report's assumption rather than a forecast; and treat AI's labor market impact as a part the report acknowledges is not yet clear. The value of the report is not in giving definitive answers, but in discussing AI within a tighter framework of fiscal and demographic constraints.