Australia faces 40 years of budget deficits — and our children will inherit the bill

Australia’s federal budget is projected to remain in deficit for the next 40 years.

That should be among the most confronting findings presented to Australians by any Treasurer in recent memory.

This is not a forecast of temporary borrowing to carry the country through a recession, pandemic or war. Treasury is projecting a structural deficit stretching all the way to 2065–66.

In other words, under present policy settings, the Australian Government expects to spend more than it receives every year for an entire generation.

Treasurer Jim Chalmers’ 2026 Intergenerational Report presents the projection as part of a much broader examination of Australia’s future. It considers an ageing population, artificial intelligence, geopolitical fragmentation, the energy transition and changes to the nation’s industrial base.

Those are important matters.

But the figure Australians should not overlook is the one sitting beneath them all: four decades of deficits.

A warning, not an inevitability

Long-term forecasts are not predictions carved into stone.

No Treasury model can know what technologies will emerge, what governments will be elected or what economic shocks Australia will experience between now and 2066.

Nevertheless, the report reveals what Treasury expects to happen if Australia broadly continues along its existing path.

The federal underlying cash deficit is projected to narrow to 0.3 per cent of gross domestic product in 2036–37, but never quite reach surplus. It then begins expanding again, reaching 1.8 per cent of GDP by 2065–66.

Government spending is projected to rise as the population grows older and demand increases for health care, aged care and other services.

That creates a simple but uncomfortable equation: governments will either have to restrain spending, improve productivity, increase taxes—or continue borrowing.

Doing nothing is itself a decision. It means transferring part of the cost of today’s government to Australians who are presently children, or who have not yet been born.

Population growth has not delivered the promised productivity dividend

For years, Australians have been told that rapid population growth would enlarge the economy, expand the workforce and help carry the cost of an ageing nation.

At the level of total GDP, that argument has some truth. More people generally produce and consume more, allowing the overall economy to grow.

But a larger economy is not necessarily a more prosperous society.

What matters to an individual Australian is not simply whether national GDP increases. It is whether output, income and living standards rise on a per-person basis—and whether housing, roads, hospitals, schools, electricity and water infrastructure keep pace with population growth.

Australia has added millions of people while labour productivity has weakened severely. Treasury’s latest projections depend on productivity growth recovering to an average of 1.2 per cent a year, despite productivity having been virtually stagnant during recent years.

The report expects real GDP per person to grow by about 1.2 per cent annually over the next four decades, down from 1.5 per cent during the previous 40 years.

Migration remains economically valuable. It adds workers, skills, businesses and cultural strength, and it helps moderate the fiscal effects of an ageing population.

But migration cannot substitute for productivity reform.

If governments use rapid population growth to enlarge headline GDP while infrastructure, housing supply and productive capacity fall behind, the economy becomes bigger without necessarily making existing residents better off.

Australia should not blame migrants for the failures of governments to plan for the population they invited.

The proper question is whether the scale and composition of migration are being matched by investment, housing, infrastructure and productivity improvements. The lived experience of many Australians suggests they are not.

Labor must accept responsibility for spending

The structural pressures identified by Treasury have accumulated under governments of both political persuasions. An ageing population, rising health expenditure and weak productivity did not begin with the Albanese Government.

That does not absolve the government now in office.

Labor has chosen its own spending priorities, expanded programs and maintained a Commonwealth expenditure base well above its pre-pandemic share of the economy. It cannot argue indefinitely that every present deficit is the inheritance of a previous government.

The 2026–27 federal budget forecasts a deficit of $31.5 billion. Even after favourable movements in revenue, there is no projected return to surplus across the forward estimates.

The government says the budget position has improved relative to previous forecasts. That is true—but a smaller deficit remains a deficit.

Australians were repeatedly assured that Labor would exercise fiscal responsibility, improve the budget and build a stronger economy. The Intergenerational Report now shows that, without major reform, the country remains structurally unable to pay for the government services and commitments it has accumulated.

The government cannot present this merely as an interesting demographic forecast. It is also an assessment of the adequacy of present policy.

Debt interest buys Australians nothing new

Borrowing may be justified when it finances productive infrastructure that will serve several generations.

It is much harder to justify when debt is repeatedly used to cover ordinary expenditure.

Every new deficit adds to the stock of debt. Every dollar spent servicing that debt is a dollar unavailable for hospitals, defence, schools, roads, tax relief or future emergencies.

Public debt interest is already among the fastest-growing areas of Commonwealth expenditure. It produces no additional hospital bed, classroom, home or kilometre of highway. It is payment for decisions already made and money already spent.

Treasury’s central projection has gross Commonwealth debt declining as a proportion of GDP during the middle of the forecast period before rising again to 27.4 per cent by 2065–66.

That projection is not catastrophic by international standards. But it depends on productivity recovering, the economy avoiding prolonged shocks and future governments exercising considerably more discipline than the political system has recently demonstrated.

If productivity growth disappoints, the position becomes much worse. Treasury’s modelling shows how sensitive future deficits and debt are to relatively small changes in productivity.

Australia is therefore relying on an improvement it has not yet achieved.

The states add another layer of debt

The Commonwealth figures do not tell the whole story.

Australians also carry the liabilities of state and territory governments, several of which are undertaking enormous infrastructure programs while facing rapidly rising debt and interest bills.

Some of that borrowing will create valuable long-term assets. Some projects have suffered cost overruns, delays, weak business cases or political interference.

Regardless of which government incurs the debt, there is only one community of taxpayers available to service it.

A federal debt is not paid by a different population from a state debt. Both ultimately fall upon Australian households and businesses through taxation, reduced services or diminished future financial flexibility.

Discussion of Commonwealth sustainability should therefore not occur in isolation from the debts accumulating elsewhere in the public sector.

Why has this not dominated the national conversation?

Much reporting on the Intergenerational Report has concentrated on artificial intelligence, falling fertility, population ageing and the prospect that deaths will eventually exceed births.

Those are legitimate stories.

But a 40-year sequence of Commonwealth deficits deserves at least equal prominence. It directly concerns taxation, services, generational fairness and the future capacity of Australia to respond to crises.

Governments naturally prefer to emphasise opportunity. Reports of this kind are wrapped in language about transitions, resilience and reform.

The public, however, is entitled to hear the unembellished conclusion.

Under the central assumptions adopted by Treasury, Australia will not record a federal budget surplus at any point during the next four decades.

That is not a minor technical detail. It is a warning about the sustainability of the Australian model of government.

The real intergenerational question

The report is titled an Intergenerational Report because it considers the Australia that one generation will leave to the next.

That inheritance will include longer lives, advanced technology, compulsory superannuation and opportunities that do not yet exist.

It may also include accumulated debt, higher taxation, congested infrastructure and a government budget permanently constrained by interest payments and expanding service obligations.

There is nothing inherently compassionate about promising services today and sending part of the invoice to tomorrow’s taxpayers.

Nor is fiscal restraint automatically harsh. A government that preserves its balance sheet retains the ability to protect Australians when a genuine emergency arrives.

The challenge is not to abolish public spending. It is to distinguish investment from consumption, essential services from political convenience, and policies that improve productive capacity from those that merely enlarge government.

The Times View

Forty years of deficits should not be accepted as Australia’s unavoidable future.

The Intergenerational Report is a projection based on current assumptions. Australia has time to change the outcome—but that makes complacency less excusable, not more.

Migration can strengthen the country, but it cannot be used to disguise weak per-person growth or replace investment in productivity and infrastructure.

An ageing population will cost more, but governments still decide how efficiently money is spent, which promises are made and whether programs are properly designed.

Labor did not create every structural weakness in the federal budget. It is, however, the government responsible for confronting them now.

Australia cannot continue measuring success by the size of the economy while households experience declining affordability, crowded services and weaker gains in living standards.

A nation does not become richer merely by adding more people, spending more money and borrowing the difference.

The true test is whether each generation leaves the next with greater productive capacity, stronger institutions and more choices.

On Treasury’s present projection, Australia risks leaving its children a bill instead.