Josh Frydenberg to release Intergenerational Report, calls for economic reform

The economic impact will be profound over the next 40 years, warns the new Intergenerational Report from Treasury.

The findings of the long-term outlook for population, participation and productivity will be launched on Monday in the fifth report of the series that Treasurer Josh Frydenberg calls "sobering news".

Mr Frydenberg will tell the Committee for Economic Development of Australia today that to maintain current living standards and generate higher wages and more jobs, the government must grow the economy.

"Australia has no alternative than to pursue economic reform, much of which hard and contested," he will say.

Growing the economy is Australia's pathway to budget repair, he will say, not austerity or higher taxes.

The report predicts growth in real terms will be slower over the next 40 years than the previous 40.

Debt levels are also projected to increase, according to the Treasury report.

Once every five years Treasury release its long-term outlook for population, participation and productivity, and outlines how those projections will impact the federal budget over the next 40 years.

Considered the most authoritative projection of the nation's future, the report has nonetheless been marred by accusations of political interference since the Coalition government came to power. The five-yearly outlook assesses the impact of current government policies over 40 years, but the forecast is not locked in, Mr Frydenberg will say.

"Instead, it provides us with guard rails to help guide for future government decisions. To set us up for tomorrow, as we tackle the challenges of today."

High among those challenges is the ageing population.

The Treasurer will say the the fact we are living longer should be welcomed, but the impact on government budgets is profound.

It includes a dramatic increase in health and aged care spending, together with a decline in the proportion of working-age Australians, creating pressuring on both revenue and expenditure.

"It is a warning sign and underlines why growing the economy is so important. Only by growing the economy can we continue to guarantee the essential services Australians rely on," he will say.

The reports finds that the budget will improve as the economy recovers, but it is projected to remain in deficit. The deficit is projected to widen to 2.3 per cent of gross domestic product by 2060-61.

This is in most part due to increased spending on health and interest payments.

The potential for tax revenue, however, is limited due to a government policy that total taxes are capped at 23.9 per cent of GDP.

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The government's response to the report's findings will primarily focus on productivity growth.

"With productivity responsible for 80 per cent of Australia's income growth over the past 30 years, the task is obvious and the choice is clear," Mr Frydenberg will say.

"'Productivity,' as Nobel Prize-winning economist Paul Krugman has said, 'isn't everything, but in the long run its almost everything'.

"This is why we remain committed to our tax to GDP cap, ensuring our Covid economic support is temporary and pursing productivity enhancing structural reforms."

Australia's total population is projected to reach 38.8 million in 2060-61.

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