The complacent country?

Eleven days before the Treasurer released the Intergenerational Report (IGR), Kevin Rudd told the National Press Club that Australia had become “the Complacent Country”. His target, he stressed, was not the Federal Government, the Opposition or the press, but Australian leadership more broadly. The forces bearing down on the nation, he argued, are without post-war precedent, and incrementalism will no longer do. The release of the IGR gives us a chance to test that charge against Treasury’s own numbers.

On its own terms, the report is reassuring. The increase in spending growth as a share of GDP over the next 40 years is projected at around a quarter of what the last report forecast; the period of debt ends well below the previous projection; and participation has been substantially revised up. By international standards, Australia’s fiscal position is enviable, and the Treasurer’s claim that we are better placed than most has substance.

The more important story lies in the assumptions. 

Treasury retains its long-term labour productivity growth assumption of 1.2 per cent a year, unchanged from 2023. Given technological advancements and the historical quality of our institutions, we should be asking what can be done to lift this rate.

The United States, by comparison, now assumes 1.4 per cent, and small differences here matter over the long run. Treasury’s own sensitivity analysis shows that long-term productivity growth of 0.8 rather than 1.2 per cent a year would lift gross debt to 55.9 per cent of GDP in 2065–66, roughly double the baseline projection of 27.4 per cent.

Artificial intelligence, seen as a key enabler of future productivity growth, is cast in the report as a defining influence on the economy, yet the IGR also states that fewer than one in ten Australian businesses report significant adoption.

Technology alone also won’t lift this productivity gap. The report cites the Productivity Commission’s finding that competition reform was central to the 1990s productivity acceleration because it strengthened firms’ incentives and opportunities to adopt new technology. Yet competition has weakened since, and business owners account for a smaller share of employment.

Education is another key enabler of productivity, yet Commonwealth education spending in the IGR is projected to decline as a share of GDP, largely reflecting demographic change, although real spending per person rises. Whether that investment will meet future skills needs remains important: improved workforce skills have accounted for around a third of productivity growth over the past three decades.

The report identifies more than $39 billion in research and development investment over the forward estimates, but does not set out a quantified national R&D-intensity target.

All of these findings point to a need for national ambition and a shared set of national goals across domains such as artificial intelligence, research and development, education and defence industry to lift our nation’s productivity and prepare for geopolitical risks. Rudd’s prescription for this was a new, vital sense of “shared national purpose”, with clear priorities set by government and delivery measured against them. He then went on to raise the role of industry policy in achieving priorities.

Against this backdrop, he cast the Treasury Department as the “Knights Templar” of economic orthodoxy, comfortable with productivity but wary of industry policy. His alternative to this approach was to establish seven Industry Commissioners within the Prime Minister’s portfolio, ideally senior engineers with private-sector experience, judged on investments landed, companies created and jobs delivered within a prudent fiscal environment. He grounded the idea in history. In 1940, the wartime government brought in three engineers, BHP’s Essington Lewis, John Storey and Laurence Hartnett, to reorganise industrial production, and after the war, senior officials drove national reconstruction. Cabinet set the objectives, and a culture focused on delivery got it done.

The IGR, by contrast, prefers targeted and disciplined intervention. In the Renewable Exports Upside Scenario from Treasury’s Net Zero Plan modelling, cited in the IGR, manufacturing’s share of production rises from 5.8 to 6.2 per cent by 2050. That is a modest change in the industrial mix and raises questions about the scale of transformation envisaged under the Future Made in Australia agenda. Sceptics will point to governments backing the wrong winners and to the accountability questions that czars raise, and Rudd concedes the approach carries risk. But the questions beneath it — what our national ambition should be and who is responsible for delivery — are ones neither side of politics has convincingly answered.

That is the real test. Australia has built systems, from the NDIS to superannuation to a tax base leaning ever harder on wage earners, that are so large and embedded that failure isn’t an option, but neither is standing still. That applies first to a government asking to be judged on delivery, whose own report shows how much of that delivery is still ahead of it. And it applies to an Opposition promising less government, fewer regulations and lower spending in a world that seems to be demanding more of all three.

Where policy is heading, and where to engage

The report’s real value lies in what it signals about the direction of policy. Where current settings are under strain, change is most likely, and organisations that engage early will have the most influence over its shape.

An ageing population and the care economy

The share of Australians aged 65 and over rises from 17.8 to 24.8 per cent by 2066, and the number aged 85 and over triples. Aged care spending grows from 1.5 to 2.3 per cent of GDP and health from 4 to 6.2 per cent, with public hospitals driving more than 60 per cent of that increase. The report also assumes NDIS cost growth slows to around 2 per cent a year over the forward estimates, a sharp break from its history. If that doesn’t hold, expect further tightening.

For not-for-profit providers delivering aged care and NDIS reforms, implementation detail will decide whether those reforms work. Pricing, workforce, regulation and the transition of participants between systems all need providers’ input. For business, ageing is also a shift in demand, with superannuation drawdowns projected to more than double to 5.8 per cent of GDP.

Declining birth rates: a policy debate in waiting

One of the report’s most significant revisions is the birth rate. The long-term fertility assumption has been cut from 1.62 to 1.34 children per woman, lower than in any previous report, and deaths are projected to outnumber births by the 2060s. The report finds that cash payments alone have limited effect, but that paid parental leave, child care and flexible work, including working from home, are associated with higher fertility.

Expect this debate to grow. Employers may find flexible work increasingly framed as a national demographic issue rather than purely a workplace one. Early childhood, family services and education organisations face a declining youth share of the population, alongside potentially greater policy attention to families that organisations can speak to.

Workforce participation

Participation is a genuine upgrade, now projected to peak at 67.7 per cent in 2039–40, driven by women and older Australians. But the gains aren’t guaranteed. Average hours worked are falling, male participation is in decline, and occupational divides persist: women make up fewer than 20 per cent of most engineering occupations, while men remain under-represented in care.

Around 90 per cent of employment growth over the next decade will require at least a Certificate II qualification. Occupational licensing reform, recognition of migrant skills, the 2050 tertiary attainment target and access to the child care and aged care that allow people to work all directly affect employers. Organisations that can show what keeps older workers, carers and parents in work will find a receptive audience.

Energy policy and the resources sector

Data centres are projected to reach around 10 per cent of National Electricity Market demand by 2050, and the report stresses that building new energy assets efficiently will be critical to competitiveness. Key detail is still being settled: mandatory standards for large data centres covering energy, water and location; a gas reservation scheme; electricity market reform; and an agreement to work on road user charging for electric vehicles as fuel excise declines.

For resources, the long-term outlook depends heavily on how quickly trading partners decarbonise, while the report’s headline coal-production scenario does not separate out thermal and metallurgical coal. It also highlights the value of Australian gas amid geopolitical disruption, alongside growing opportunities in critical minerals. For resource companies and their regional communities, settings on approvals, energy security and market access will be among the most consequential of the next two decades.

Hedging against key input risks

This year’s Middle East conflict tested Australia’s exposure to disruption, prompting a $7.5 billion Fuel and Fertiliser Security Facility, a $3.2 billion fuel reserve and feasibility studies for new refineries. The report’s approach is deliberately targeted: stay open by default, and intervene only where disruption would be severe, such as in fuel, critical minerals refining and some defence technologies.

The key question is where public responsibility for resilience ends and private responsibility begins. Organisations that can show where disruption would hurt most, and what settings would make resilience viable, will help guide government policy and investments.

Why engage now

The report doesn’t make policy, but it frames the choices that will shape the next several Budgets. In almost every area above, the direction is clear but the detail is not. That is the window in which your contribution counts.

The SAS Group will be in Canberra for the upcoming sitting weeks. If you would like to discuss how these developments affect your organisation and your engagement strategy, please reach out.