Australia Faces Demographic Shift as Birth Rate Declines

Australia is on the cusp of a significant demographic transformation, with projections showing that by the 2060s, the country will experience more deaths than births. This shift, driven by declining fertility rates and a rapidly aging population, will make net migration the sole source of population growth.

Treasurer Jim Chalmers acknowledged the demographic challenges, stating that migration will continue to be important as Australia grapples with a shrinking younger demographic and an aging populace. New migrants typically arrive at a median age of 26, in contrast to the resident population's median age of 38, providing a younger workforce.

The population is still expected to grow, albeit at a slower pace, reaching an estimated 39.3 million by 2065–66. The Intergenerational Report (IGR) forecasts that for the first time, deaths will outnumber births, marking a pivotal moment for Australia, which has not historically experienced this demographic trend. While nations such as Japan, South Korea, and Germany have already reached this stage, it signifies a new era for Australia.

The fertility rate is predicted to decrease from its current 1.48 babies per woman to 1.34 by 2065–66. Simultaneously, the number of Australians aged 85 and older is projected to triple over the next four decades.

While acknowledging the demographic pressures, Chalmers highlighted that Australians living longer, healthier lives is a positive development, despite the increased strain on the federal budget. He noted that one-third of all additional health spending over the next 40 years will be directly attributable to the aging population, leading to increased demand for hospitals, aged care, disability support, and other health services. Federal government payments are anticipated to rise to 27.7% of GDP over the next four decades, with population aging identified as a key driver of this increase.

Treasury's current forecast anticipates population growth to average 0.9% annually over the next 40 years, a decrease from the 1.1% projected in the 2023 IGR and lower than the 1.4% average observed over the past four decades.

Chalmers also commented on the report's findings, suggesting they present confronting challenges. He alluded to the potential for such findings to be "weaponized" by those with a pessimistic or political outlook, particularly when individuals feel economically and generationally disconnected. He emphasized that the division in politics today is not between those who accept demographic changes and those who do not, but between those who exploit and politicize these changes and those who seek to alleviate their impact.

He further proposed that extending political terms could potentially enable governments to focus more effectively on long-term challenges, as the current political system often incentivizes short-term thinking.

Australia's future prosperity, Chalmers concluded, will increasingly rely on emerging industries adapting to an older population and evolving global demand. He identified renewable energy, critical minerals, and AI-powered industries as increasingly vital sources of economic growth.