Here's what Australia will look like in 40 years

The Intergenerational Report launched by Dr Chalmers on Thursday highlights the challenges and opportunities facing the current and future governments from major shifts underway including an aging population, climate change, the rise of artificial intelligence and an uncertain security environment.

According to the report, Australians will live longer, work less, earn more, have fewer children and be more reliant on critical mineral mining, processing and exports.

Income earners will bear an increasing share of the tax burden and more government spending will go to caring for people, defending the country and paying down debt.

Treasury has warned that last financial year's budget surplus is a one-off and government finances will be in deficit for at least the next 40 years as expenses grow more quickly than revenue.

Overall, spending on health, aged care, disability, defence and debt interest payments, will collectively account for half of all government expenditure by the early 2060s, up from around a third today.

Presenting the report to the National Press Club, Dr Chalmers said it was the most detailed and comprehensive examination of the nation's future prospects yet undertaken.

"This [report] sets out the choices that will determine whether we succeed or fail in the years ahead. It sends a pretty clear and compelling message - we can own the future," he said.

The treasurer said it was clear the aging population will "create some challenges ... to our budget and ... to growth".

"This will put a strain on our budget. In fact, around 40 per cent of the projected increase in spending that's outlined in the IGR is due to us getting older," he said.

The report projects the population will grow to reach 40.5 million by the early 2060s, including double the number of people aged 65 years or older and triple the number of plus 85-year-olds.

But population growth will slow, with rates of migration and births expected to decline.

Although people are expected to stay healthier for longer, demand for health and aged care is anticipated to increase substantially, with care and support services projected to double as a share of GDP.

The treasurer acknowledged that the report came "at a difficult moment for Australians" grappling with rising living costs from high inflation and interest rates.

But he dismissed accusations that the government was distracted by thinking about the future rather than concentrating on alleviating the financial pressure households are under.

"Critics out there who say that we need to wait before engaging with our long-term prospects just don't seem to get it," he said.

"There will never be a quiet time to think about the future. There will always be competing pressures and urgent calls on our attention.

"The best leaders can focus on more than one thing, more than one horizon, more than one set of opportunities."

The treasurer identified five big shifts underway that will shape the nation's future - towards renewable energy, artificial intelligence, an aging population, a larger care sector and towards the fragmentation of global supply networks.

While acknowledging the challenge these transformations presented, Dr Chalmers argued for an outlook that prioritised maximising opportunity rather than merely managing change.

"Managing is working through change, smoothing the sharp edges, softening the blow," he said. "Maximising is making the most of change. Owning it, driving it, shaping it in the best interests of all."

Rather than seeing the doubling of the care workforce as a potential drag on productivity, Dr Chalmers said it was an opportunity to boost productivity and workforce participation, including through greater education and skills development, improved use and access to technology, and reducing barriers to employment, particularly for women, older people, people with a disability and Indigenous Australians.

Similarly, though it is estimated around $225 billion will be required to transition the energy system to renewables and decarbonise heavy industry, Australia also had "vast industrial opportunities" in green manufacturing and energy.

The government expects to report a surplus in 2022-23 of between $21 billion and $22 billion due to low unemployment and strong business profits boosting income and company tax receipts.

But the Intergenerational Report says this improvement will be short-lived and has projected a return to deficit "for the remainder of the projection period to 2062-63".

According to Treasury estimates, the deficit will stay below 1 per cent of gross domestic product through to the mid to late 2040s before widening to reach 2.6 per cent of GDP in 2062-63.

Treasury estimates the size of the economy will more than double in the next 40 years and real incomes will increase by 50 per cent, underpinned by productivity growth at around the long term annual average of 1.2 per cent.

The structure of the economy is also expected to shift as services continues to grow, the transition to renewable energy deepens, the use of artificial intelligence expands and the focus of commodity exports shifts from fossil fuels to other minerals like lithium, cobalt and manganese.

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Opposition treasury spokesman Angus Taylor criticised the treasurer for devoting so much attention to the report.

"The truth of the matter is Australia right now are not focused on 40 years from now, they're focused on getting through the next 40 days or even the next 40 hours," Mr Taylor.

"This is a time where we have a cost-of-living crisis which is bearing down on Australian families. Day after day we're seeing the challenges piling up and we're not seeing solutions coming forward to those problems."

The Council for Economic Development Australia said the report showed the country could "wait no longer" to tackle the costs of climate change, boost productivity, provide for the increasing cost of care and begin discussing tax reform.

CEDA chief economist Cassandra Winzar called for the personal income tax system to be overhauled.

But Dr Chalmers said the government had no plans for major tax changes and would instead consider modest changes like those recently made to the petroleum resource rent tax.

Ms Winzar said such a piecemeal approach was inadequate.

KPMG chief economist Brendan Rynne said the report's focus on lifting productivity was important and there was a "crucial need" for policies that made Australia more attractive for international investment.