Deaths will outnumber births by the 2060s for the first time ever as fertility levels hit a new record low and the number of people aged 85 or older tripled, Treasury fears, reviving talk of bringing back the baby bonus.

The first Intergenerational Report since 2023 is forecasting an ageing population will mean wider Budget deficits in four decades from now, making up a bigger proportion of the economy, as the working-age population shouldered a heavier tax burden to finance new healthcare expenses.

Treasury is also predicting Australia will be home to 1.7 million fewer people than would otherwise have been the case, as the nation continued to rely on immigration to provide workers to look after more older people, with a senior Liberal MP confirming he was open minded about reviving the baby bonus.

With fewer younger adults in the labour force, unemployment is expected to be lower in four decades’ time than it is now, as artificial intelligence created more jobs and boosted productivity, even as long-term economic growth slowed.

Australia’s median age is tipped to increase from 38 years and seven months now to 45 by 2062-63, which is almost two years higher than the 43 years and one month forecast previously.

During that time, the proportion of the population aged 65 or over is projected to almost double, growing by 87.1 per cent over the next four decades.

The proportion of Australians aged 85 or older is forecast to triple to 1.9m, up from 625,000 now, with most of that growth occurring in the 2030s and 2040s.

Life expectancy during that time is forecast to increase to 89 years and six months for women and 86 years and one month for men, up from 85 years and one month now for women and 81 years and one month now for men.

Treasurer Jim Chalmers noted that an ageing population would consume one third of new healthcare spending by mid-2066.

“What is new is that for the first time in this one is that deaths are projected to outnumber births by the 2060s,” he told an audience at Australian National University in Canberra on Monday.

“That’s later than most OECD countries, but fewer births mean much lower increases in Australians aged under 20.

“Australians living longer and healthier lives is obviously, overwhelmingly, a good thing.”

Australia would also need to rely on immigration to cater for an older population, with Treasury assuming a consistent annual net overseas migration rate of 235,000 until mid-2066 which would be slightly lower than 292,100 in the year to the end of March.

“Our working-age population will continue growing, supporting economic growth,” Dr Chalmers said.

“Migration will play an important role here as well, an important source of skills that complements our domestic workforce.”

Deloitte Access Economics partner Stephen Smith said Australia could not afford to continue relying on high immigration.

“The 2026 Intergenerational Report reinforces the fact that over the last few decades, and particularly since 2008, Australia has relied too much on increasing the population and too little on improving productivity to drive economic growth,” he said.

“This is not a sustainable model for the future.”

With couples having fewer children and later in life, Australia within four decades’ time is tipped to join Japan, Germany, Italy and South Korea in having deaths outnumber births in four decades’ time.

“Australia’s population will age more quickly and grow more slowly than projected in the 2023 IGR, due primarily to lower fertility rates - a trend common across advanced economies,” the Intergenerational Report released on Monday said.

“Deaths are projected to outnumber births by the 2060s — the first time his has been forecast in an IGR — at which point natural increase will no longer be a driver of population growth.”

The fertility rate for every woman is expected fall to a new record low of 1.34 in four decades from now, which is even lower than the existing record-low of 1.481 and significantly lower than the 1.6 level forecast just three years ago.

This was projected to mean 1.7 million fewer people living in Australia by 2065-66 than would otherwise have been the case.

“Lower fertility means fewer children, a proportionally smaller future workforce and a larger proportion of older Australians,” Treasury said.

Apart from a brief uptick in 2008, following the introduction of a baby bonus, it’s been below the replacement level of “two” since 1978.

Coalition frontbencher Andrew Hastie, often regarded as a potential future Liberal leader, confirmed on Monday he was open to the idea of reviving the baby bonus brought in by former prime minister John Howard and his treasurer Peter Costello in 2004.

“Sure. I’m pretty open-minded about it,” he told the ABC.

“Peter Costello’s baby bonus of 20-odd years ago seemed to work at the time, although economists and people who know are mixed about their views on whether that actually worked.”

Australia will be home to 39.3 million people by 2065-66, which would be 11 million higher this year’s population tally of 28 million.

Just three years ago, Treasury was forecasting a population of 40.5 million by 2062-63, but it is now predicting Australia’s annual population growth will average 0.9 per cent during the next four decades.

That would be slower than the 1.1 per cent predicted three years ago and would be significantly lower than the present population growth pace of 1.4 per cent.

An ageing population and more geopolitical uncertainty is also expected to put more pressure on the Budget with only deficits forecast over the coming decade.

The 2026-27 Budget had a deficit making up 1 per cent of gross domestic product which Treasury forecast would shrink to 0.3 per cent in 2036-37 widening to 1.8 per cent in 2065-66.

Treasury predicted the working age population was likely to shoulder a heavier tax burden to finance care for the elderly.

“Against this backdrop, intergenerational equity is being strained by the long-term decline in home ownership and the pressures that an ageing population and structural trends in the tax base are placing on working-age Australians,” it said.

The rapid pace of new artificial intelligence has marked the biggest change since Treasury’s last Intergenerational Report, which is expected to make the labour market more productive in coming decades.

“While there is not yet evidence of significant labour market impacts, it is expected that productivity gains will arise from some tasks being automated using AI, and that demand for labour will increase and drive change in other areas,” it said.

“AI has the potential to drive significant social progress, as well as amplify risks such as cybersecurity and misinformation.”

Unemployment was expected to settle at 4.25 per cent over the longer-term, which is lower than the existing level of 4.5 per cent still considered to be full employment.

After peaking at 67.7 per cent in 2039-40, labour force participation is expected to decline as a result of an ageing population.

Economic growth was projected to slow to an average, long-term pace of 2 per cent a year, similar to now.

But by June 2066, it was expected to slow to 1.6 per cent to be well below the 3 per cent annual average of the past four decades.

Treasury is also assuming a long-run annual productivity growth pace of 1.2 per cent despite hourly output shrinking by 0.2 per cent during the last financial year.

“The Intergenerational Report relies heavily on an assumption of a serious uplift in productivity, but when the on-the-ground evidence of this dividend in Australia is scant, it is a risk to bake this result into future Budget planning,” Australian Chamber of Commerce and Industry chief executive Andrew McKellar said.

“Budget planning should be based on realism rather than hope.”