SYDNEY (Reuters) - Australia faces decades of slower economic growth as its population gets older which will pressure the budget and lift national debt, a government report projected on Thursday, while taxation was notably absent from the reforms suggested.
Releasing the latest Intergenerational Report, Treasurer Jim Chalmers said digital technology, climate change, renewable energy, ageing and the need for more aged care would shape the economy over the next 40 years.
Chalmers emphasised the Labor government's immediate focus was on easing the country's cost of living crisis without adding to inflation, citing relief for household power bills.
Further out, the challenge would be to manage the shift from hydrocarbons to renewables; from IT to AI; from a younger population to an older one and from globalisation to fragmentation, Chalmers said.
This all had to be achieved even as the economy slowed. The report projected annual growth would average just 2.2% out to 2063, down from 3.1% over the past 40 years.
Some of that slowdown would be due to climate change, with the report estimating rising temperatures could cost between A$135 billion ($87.41 billion) and A$423 billion in lost activity over the 40-year period.
Population growth was also expected to slow, though at an average 1.1% it would still be well above the global average. There would be 40.5 million Australians by 2063, up from the current 26 million, but they would also be older.
The number of Australians aged 65 and over was forecast to more than double and those aged 85 and above more than triple.
Past reports have had a mixed track record on demographics. The very first report in 2002 projected the population would be just over 25 million by 2042. It actually hit that milestone in 2018.
Longer life spans and a greater share of people in retirement will eat into tax receipts and add to health costs. Government spending was thus projected to rise by 3.8 percentage points of GDP by 2063, with ageing accounting for 40 percent of that.
This is one reason the government is projecting a return to budget deficits, after recording a rare surplus in the 2022/23 fiscal year just gone.
Despite the pressure on the budget, the report made little mention of taxation. In a round of media interviews this week, Chalmers has made it clear that major tax reform is not on the agenda despite calls from business leaders for a review of sales and corporation taxes.
($1 = 1.5444 Australian dollars)