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0.8 per cent , and a stagnating fertility rate of 1.62 babies per woman by 2030-31 .
While new , young , temporary migrants could help offset the ageing population and be critical to the burgeoning care economy , the report warns that permanent migrants could put further strain .
In his speech , Mr Chalmers said there was no hiding from the fact that an older population “ will put a strain on our budget ”.
“ But this will come with a chance to transform our industries in the right way ,” he said .
CLIMATE IMPACT ON THE ECONOMY Climate change will be one of the biggest challenges to the economy over the coming 40 years , but Mr Chalmers says it also offers new opportunities .
The IGR projects that if global temperatures were to increase over four degrees without adaptive changes , aggregate productivity could decrease to 0.8 per cent by 2063 , which would reduce economic output by up to $ 423 billion in today ’ s dollars .
The report also warns that inaction on climate change would put significant strain on Australia ’ s agriculture and tourism sectors over the coming decades .
A changing climate will also impact productivity , with rising temperatures set to have a significant impact on the number of hours labourers , especially , can safely work outside .
The report also warns that the physical effects of climate change will put a strain on the budget , calling for “ timely investment ” in climate change adaptation to build resilience and “ reduce the costs ” over coming decades .
“ Dealing with climate change is a global environmental and economic imperative ,” Mr Chalmers said .
“ The IGR makes clear the costs that could come with rising temperatures , the impact on specific sectors like agriculture and tourism .”
The report also lays bare the challenge that transitioning to net zero will have on the structure of Australia ’ s economy , namely because of the loss of significant revenue from traditional mining and fuel excise .
Around $ 225 billion will need to be spent to decarbonise heavy industries and transition the energy system .
But , Mr Chalmers says , the transformation to a net-zero economy will “ also create growth opportunities ”.
“ These are not only risks to manage , costs to bear , but vast industrial opportunities ,” he said .
Critical minerals are set to become a major Australian export , with forecasts a 350 per cent increase in global demand for lithium , nickel , zinc and bauxite will be needed by 2040 in order to reach net zero by 2050 .
Exports of lithium – a key building block for renewable technologies like electric vehicles and wind turbines – are set to double over the next five years alone , with global demand forecast to increase eightfold by 2063 .
DEFENCE AND INTERNATIONAL RELATIONS As the “ window of opportunity to deal with potential threats ” narrows amid an accelerating military modernisation in the Indo-Pacific region , restraints on the budget will constrain how Australia responds to “ potential threats ” in the decades ahead .
Noting that the global strategic environment has “ deteriorated sharply ” over the last decade , and the challenging strategic outlook facing the Indo-Pacific amid China ’ s military build-up , the report says Australia ’ s security and prosperity are “ under increasing pressure ”. But with budget restraints elsewhere , the report warns that governments will have to make tough choices about how they spend money and “ will need to prioritise which national security measures best meet security needs to effectively respond in these challenging strategic circumstances ”.
Defence will be one of the fastest-growing spending pressures on the budget over the next 40 years . Spending on defence is projected to increase from two per cent of GDP in 2022-23 to around 2.3 per cent in 2032-33 , where it will remain until 2062-63 , in line with recommendations of the Defence Strategic Review to “ ensure Australia is positioned to respond under these complex strategic circumstances ”.
“ The government is making major investments in military capabilities and deepening engagement with
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Not just understanding the big trends and transitions but acting on them . Turning pressures into prescriptions
the region . AUKUS will strengthen national security and Australian industry , supporting exports and jobs in sectors like technology and advanced manufacturing ,” the report says .
Expenditure on diplomacy and defence across the region and globally is expected to trend upwards across major economies , while Australia ’ s national security funding will experience increased pressures in the medium to long term .
The report says governments will need to prioritise funding diplomacy and assistance to promote regional stability best .
It also notes the national security workforce will face increasing challenges due to the limited availability of vetted and skilled personnel .
A PRODUCTIVITY CHALLENGE The IGR also shows that Australia ’ s productivity growth , which has slumped to a 60-year low over the past decade , is unlikely to improve substantially , thus risking Australia ’ s quality of life .
Productivity – how efficiently labour can produce goods and services – has become a political flashpoint in recent months amid warnings that the nation ’ s weak productivity growth , if not reversed , could lead to a decline in living standards .
“ Continuing to improve productivity will be important to realising future economic opportunities and ensuring continued strong growth in living standards ,” the report reads .
The IGR also reconfirms the government ’ s productivity growth assumptions of 1.2 per cent a year .
This follows last year ’ s October budget when Mr Chalmers lowered the government ’ s long-term productivity growth assumptions from its 30-year average of about 1.5 per cent to its 20-year average of about 1.2 per cent .
In response , the report identifies areas of “ opportunity ” to enhance Australia ’ s productivity outlook and underpin the next era of productivity growth .
These include growing the nation ’ s economic dynamism , encouraging innovation and investment , and skilling Australia ’ s workforce . ■
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