'Australia and the World' 2026 Annual Lecture: The Hon Jim Chalmers MP

Well, hello and welcome to Australian National University uh to the Australian Studies Institute's annual Australia and the World lecture. I'm Mark Kenny, director of the Australian Studies Institute, and I'd like to acknowledge the traditional owners of the land on which we meet, the Nanal and Ambry peoples, and pay my respects to their knowledge and custodianship of this beautiful country we meet on. Can I also acknowledge the chancellor of AU, Dr. Gordon Debra and um the founding director of the Australian Studies Institute, Professor Paul Pickering and of course the master of university house in which we meet today, Peter Kenowski, Professor Peter Kenowski. So thank you and welcome to all. Um now I'd also like to just at this point thank Dr. Jim Charas for accepting the invitation to do this lecture uh because he's returning to a campus that he's very fond of. Of course, he has achieved great things in his life in this very place. He has a PhD in political science and international relations. But he also has another feat uh which was um achieved on a very cold August night way back in 2002. Many of you will have walked past the fish pond that extends for an enormous distance along the uh the sort of um entrance here to this fantastic hall. And uh in that cold August night in 2002, Jim Charas repeated a feat that Bob Hawk had done before that of swimming the fish pond. Uh and anyone who knows anything about Canberra in August knows that is heroic. Uh perhaps you can ask him a question about that. I don't know. Um just a quick word on the format today. Dr. Charas will speak for around 30 minutes and then there'll be time for 30 minutes of questions. We have quite a few from the press gallery here. So, we're looking forward to that. And then refreshments will be served after that. So, with that, let me invite the interim vice chancellor, Professor Rebecca Brown, uh, to do a formal introduction of our speaker today. >> Uh, thank you Mark and uh, good afternoon everyone. I also acknowledge the Nanowal and the Nambry Camry peoples as the traditional owners of the um lands that we're meeting on today. These very beautiful, these sacred and these unseated lands and I pay my respects to all Aboriginal and toouristrate islander peoples joining us here today and especially to professor Peter U. I also formally acknowledge the honorable Dr. Jim Charmer's treasurer, Jenny Wilkinson, PSM, Treasury, uh, Secretary to the Treasury, His Excellency, Andrew Nees, High Commissioner for New Zealand, Jennifer Cole, acting deputy high commissioner for the British High Commission, other distinguished guests across Treasury and the Diplomatic Corps. So great to have you here. Of course, our chancellor, Dr. Gordon De Brower and I think our former vice chancellor, Professor Ian Chub, may be here today and uh Professor Peter Canowski, Master of University House and colleagues, students and friends of ANU. Welcome to the Australian National University for the 2026 Australia and the World Annual Lecture. I thank Professor Mark Kenny and the Australian Studies Institute who bring us together each year to consider not simply where Australia is today but where we are heading. Uh and that question could not be more relevant. The intergenerational report released today brings together major forces of change. Artificial intelligence, geopolitical fragmentation, the energy transition, population aging, and the continuing evolution of our industrial base. the transformations that will shape our economy and society for at least the next 40 years. It puts a pretty sharp focus on intergenerational equity and the experience of many Australians, not least young Australians in our housing market. AU was established over 80 years ago to build knowledge and the capability needed to serve Australians. Um, and this work today speaks directly to that important challenge. A key part of what we do here at A&U is we convene for consequence and that's been set out in our new strategy A&U by 2030 and this report demands that we must do so. Today is exactly that convening for conf for consequence providing evidence-based knowledge with government, academia, industry, peer universities and communities. And our role is to bring bring those cohorts together to engage with real dedication around the sets of choices Australia continuously faces and bringing the best evidence to decision makers for that. Our keynote speaker today, it's particularly fitting before the titles and the budgets, the honorable Dr. Jim Charas was already part of our A&U community. He completed his PhD here in political science and international relations. He taught politics and public policy. It's a pleasure to welcome him here back today as treasurer, as an alumnest, and as a very valued member of our community. Long before becoming treasurer, his work was concerned with how our economy responds to change and what technological disruption means for working Australians. so apt today. [snorts] His 2017 book, Changing Jobs, co-authored with MikeWigley, examined what technological change would mean for Australian workers. And nearly a decade later, just over a decade later, artificial intelligence as one of those significant technological changes sits at the center of one of the most defining transformations in the report the treasure will be releasing today. That speaks to the larger purpose of the intergenerational report. The Australia we are building for those who come after us. The treasurer before his address very soon he met with a group of our students. And that 40-year horizon this report contemplates is not some distant stu distant future for our students. It's all within their lifetime. Our students will help make the decisions that shape what Australia looks like from 2026 and and and and into the future from there. A&U has long been a place where scholars, policy makers, diplomats, parliamentarians, and students come together to exchange ideas. Treasurer, thank you for choosing A&U to release the seventh intergenerational report. It's a real honor for us and to deliver this year's Australia and the world annual lecture. We're delighted to have you back. Please join me in welcoming the treasurer of Australia and A&U alumnist, the Honorable Dr. Chim Charmer's MP. [applause] Well, thanks very much Rebecca for the welcome. Uh big thank you to uh Mark and Paul for the invitation uh to give this year's Australia and the world lecture here at Peter's House uh at University House. Uh I'm really grateful to everyone who's joined us here from the A&U, including the students I met with a moment ago. Jenny, I promised some of them that I would put in a good word. those of them looking to work in the treasury under your leadership. A couple of uh incredibly sharp young people there. I encourage you to have a good look at their CVs. Uh but I also wanted to thank your new chancellor uh Gordon de Brower as well, the great friend uh of mine. I acknowledge the parliamentary press gallery here with the laptops uh here in the front couple of rows and everyone who is here from further a field as well including uh from the diplomatic corps. Uh I did want to make the most of this chance today to take you through the key findings of the 2026 intergenerational report. uh but I be begin by uh acknowledging with some humility uh we are talking about the uncertainties of the next 40 years in the context of meeting on none land part of 65,000 years of continuous culture and so I I honor as Rebecca and Mark did uh their elders customs and traditions. I also wanted to thank my predecessors from both sides of politics uh who began and then built on this intergenerational report uh and the officials, advisers and cabinet colleagues who helped us put it all together. Uh this is the seventh time that this report has been released. Uh Treasurer Costello did the first two. There was one each for treasurers Swan, hockey and frightenberg. And this is now my second. Now, I know that not everybody supports the way that governments go about these 40-year projections. As we were talking with the students about before, there is a degree, a greater degree of uncertainty the further forward that you go. We understand that. And we also know that there are very substantial pressures in the here and now which remain the government's primary focus. But I also think that everyone can agree on this. Uh, no IGR, no previous IGR has contended with challenges this great or politics this fraught or a future less certain. Yet, this IGR shows that we are better placed than our peers in almost every regard. The global and generational risks are serious, but Australia's opportunities are endless. These are the main conclusions of the IGR. But if you read the whole thing, you'll see one observation repeated more than any other. Not just that the world is changing, of course it is. And not just that the change is affecting us here, of course we know that as well, but that the pace of change is accelerating. And this puts very plainly the choice before us. To keep up and succeed or to lag and languish. Now the word change has always been something that people enu imbue with their own ambitions and anxieties. For that reason, it's not enough to say the world is changing or even to say it's changing more quickly. So let's be specific. The world is becoming more dangerous, more unpredictable, more unequal, and more divided. And these aren't just individual threads. They're part of a bigger fraying of that intergenerational promise of better times. Now, the writer and activist James Baldwin said of the American dream that if people are denied participation in it by their very presence, they will wreck it. I know that this was the 1960s, not the 2060s. I know it was the US and not Australia, but I think it still speaks to a truth on every page of this analysis and in every corner of our Commonwealth. If people are unmed economically, generationally, they feel disconnected from and disregarded in our politics. At worst, that's what we're seeing now. At best, it's what's at stake. Accelerating change is putting more pressure on people. It's eroding trust in the institutions of democracy. It's exacerbating the strain felt by younger Australians and younger generations in particular. And so the division in politics now is not between those who accept all of this and those who don't. It's between those who pray on it and pick at it and politicize it and catastrophize it and those who seek to alleviate it. And so the responsibility that we embrace today and every day is to respond to the pressures of the here and now but also plan so that the accelerating pace of change is accompanied by the accelerating pace of opportunity. Now, this generational report, intergenerational report, shows that we face very serious risks and pressures, but that we are better placed and better prepared for them. Better positioned to benefit from the AI revolution, to succeed in a fragmenting world, to make the most of cleaner and cheaper energy, to manage our changing population, and to thrive in an era of new industries. Now this report also shows that we have a better plan to maximize our opportunities and minimize our risks to grow our economy and lift living standards, embrace new technologies and share the benefits. Now there is a lot in this report but at its core it shows an Australia in 20 2066 where people live longer healthier lives. Families have fewer kids and that will make the population grow more slowly to less than 40 million in 40 years. Living standards will be higher and people will retire with much more super meaning much more security. Our economy will be more than twice its current size and the budget will be strained but still stronger than in the last update. Our industrial base will be dominated by services powered by cleaner energy completely transformed by technology in a much more fragmented and uncertain world. Now, the future will depend on how we respond to the five accelerating shifts in AI, energy, demography, industry, and geopolitics. The AI revolution is the most consequential new emphasis since the 2023 report and the biggest economic transformation of our lifetime. The productivity, investment, and labor market impacts of AI will be dramatic. AI will play a pivotal role in re reaching long-term productivity growth of 1.2% and higher if productivity gains accelerate over time. The IGR shows from 2030 onwards each extra.1% of productivity growth from AI could improve the bottom line by 0.07 percentage points and reduce gross debt by.3 percentage points within a decade. Now, we are well positioned with Australians adopting AI at a higher rate than almost every G20 country, but the productivity boost from AI depends on translating that into better ways of working. Twothirds of our businesses have adopted AI in some form, but fewer than 10% describe it as significant. This IGR also shows how the AI investment boom is reshaping the global economy. Capital expenditure by the five largest hyperscalers in 2023 was $230 billion. But in 2026, it will be four times that, more than $1.1 trillion. That investment pushes AI token prices down and demand for computing infrastructure up. And this explains the massive data center boom here and abroad. Australia has positioned itself early and well. We have over $150 billion of AI infrastructure projects scheduled over the next five years, which is about 5% of our GDP. New capital expenditure has already almost doubled since the last IGR, reaching 11.6 billion in 256. Now, the skills in demand are changing as well, but human judgment, coordination, accountability, and relationships will remain essential. So far, there's more augmentation than automation. 79% of the current workforce has low automation exposure compared to 4% with high exposure. But we don't take this for granted. We know that AI offers a lot of upside, but also very serious risks to minimize and manage. We already see dangerous proliferation of misinformation, scams, and malicious cyber operations. We're vigilant about managing the infrastructure builds impacts on our resources and our communities and risks of market concentration, social harm, and economic disruption. Now, this AI revolution will have major implications for the energy transition. It will add to demand for electricity and the infrastructure that supports it. In 2023, renewables made up around a third of the grid. Our efforts in cheap and clean energy mean they now account for nearly half already. Over 60% of coal fired power generation will retire over the next decade, meaning renewables will play a much bigger role. Generation is up and costs are continuing to fall. Families and businesses have seen costs for renewables fall 80% in a decade. Now, if current electrification rates continue, average household energy costs could decline 40% between 2030 and 2050 in real terms. And the changes for industry will be just as dramatic. Australian green exports could exceed 100 billion annually by 2050. Around 80% of global GDP is tied to net zero commitments. So demand for coal and LG will decrease over the century while demand for upstream commodities including our critical minerals will climb dramatically. Lithium demand is expected to triple nickel, graphite and rare earth to increase by 50 to 90%. Now the IGR shows that a disorderly energy transition would be disastrous for our economy but also for our environment. greater damage from rising sea levels, flooding and erosion, lower productivity from higher temperatures, smaller crop yields, and tragedy for our tourism industry, too. In action also means disaster recovery spending around 25 percentage points higher in 2066 if temperatures exceed 3° of warming. Now, at the same time, our population will change in shape and size and faster than we previously thought. Australians living longer and healthier lives is obviously overwhelmingly a good thing. It's welcome recognition of the quality of our universal health care and the contribution that older people make and it's worth every dollar of extra pressure that it puts on our budgets. Now, the higher life expecties and fewer children that this IGR forecasts are familiar, but what is new for the first time in this one is that deaths are projected to outnumber births by the60s. That's much later than other OECD countries, but fewer births mean much lower increases in Australians aged under 20, growing just 10.4% 4% to the early 60s compared to almost 28% forecast in 2023. And this will contribute to slower population growth averaging.9% annually which is 2 percentage points lower than in 23 and a third lower than the last 40 years. The number of Australians over 85 will triple by the mid60s putting further demand on health services. Health and social assistance employment has already grown 13% in just 3 years and it will grow 23% more over the next decade. This means onethird of new health care spending over the next 40 years will be because of aging. Now despite all of these pressures again we are much better placed than many others. Our working age population will continue growing supporting economic growth and migration will play an important role here as well. An important source of skills that complements our domestic workforce and our health care system is the envy of the world and its future is safeguarded by our efforts to make the NDIS and aged care more sustainable as well. So all of these forces are shifting and shaping our industrial base too. This IGR shows that our advantages of the 2010s, Chinese commodity demand, education and tourism will shift towards new advantages in renewables and critical minerals, strong institutions and strategic partnerships and AI enabled services. An aging population will increase demand for the care economy, and AI will unlock new business models, accelerating this shift towards services, spurred further by rising household incomes. And commodities will stay crucial to our prosperity with demand for critical minerals and rare earths growing as global demand for fossil fuels comes off. Now, all of these domestic shifts are playing out against a more fragmented world. Conflicts between countries have risen since the last IGR from 2 to 8, which is the most since the Second World War. These conflicts are hitting the global economy harder, with the war in the Middle East demonstrating just how much the world relies on the precarious transit of foreign fuels. Global trade is changing rapidly as well. American tariffs are the highest they've been since the 1940s. Over 18,000 discriminatory trade measures have been introduced since 2020 and twothirds of global trade is now subject to regulations. Foreign investment is not just a matter of economic advantage but geopolitical interest. Nations are imposing more export controls and restrictions on AI technologies, semiconductors and critical minerals. But even while trade is restructuring and changing along these lines, it's still growing. Global trade as a percentage of GDP reached 68% last year, which is an all-time high. So, this doesn't mean we can be complacent about rising protectionism. There will be long-term costs and consequences from the rise in trade barriers that we have seen. But the changing shape of trade does provide opportunities for Australia to set ourselves apart as a more trusted partner and a more reliable exporter. Now, there's no separating these five accelerating shifts from each other or from their consequences for our budget and our economy. And here I think the challenges are most stark. An aging population means a proportionately smaller workforce but broader demand for health and aged care. A smaller workforce means a proportionately smaller income tax base at a time when pressures on social services and tools of state craft including defense will be growing not easing along with the fiscal risks of climate change and more frequent disasters. It is remarkable and it is exceptional that our budget is strengthening even as these pressures are intensifying. Government spending over the next 40 years is expected to increase by much less than we previously thought. Spending will grow by less than a third of what was forecast in 2023, just 1.1%. The cash balance has improved since then as well, ending 1.2 2 percentage points better than in 2023. Gross debt is a massive 7.2 percentage points lower, reducing interest payments even as borrowing costs go up and giving us more headroom to fund the biggest pressures and priorities. Now, the IMF expects US debt to rise 13 percentage points of GDP by the 2030s while ours falls. Australia's strengths like super will pay dividends in the decades ahead. In this regard, by the mid 2060s, the age pension will cost $31 billion less supported by higher superanuation balances. The IMF projects our overall public spending to fall over 5 years as well by the 2030s, lower as a percent of GDP than all of the G7 and revenue lower than five of them until at least the 2030s too. Our economy is already growing faster than almost every G7 economy and the IMF expects this to continue for five more years. No G7 country is forecast to grow above 2% into the 2030s like we are. So this is a stable foundation to build the next 40 years on. Our economy will grow more slowly, that's true, but still average 2% a year until it's double its current size. Incomes will be 55% higher. Living standards will be better and life expectancy, as I said, longer. Participation is still expected to grow every year until 2040, which is remarkable, and remain higher than previously thought, supported by more women in the workforce. Participation finishes 1.4 percentage points higher than the 2023 IGR and 10 percentage points higher than the first IGR. That's equivalent to around 300,000 more workers in60 than was forecast 3 years ago. Now, productivity, we acknowledge, has been too low for two decades here and abroad, but global technological progress has increased Treasury's confidence in its long-term productivity assumption of 1.2%. Now, we did lower this in our first budget to be more realistic than the 1.5 that our predecessors assumed. budgets have maintained that since then to reflect the balance of upside and downside risks and the range of assumptions used by similar economies. So this puts us in the middle range of comparable countries. But in other welcome ways we are an outlier. The fiscal position is the starkkest example. We have lower debt than every G7 country and it will peak lower as well. The US has 12 times more people than Australia, but 40 times more debt and higher interest payments. Australian births will outpace debts for much longer than most comparable countries. We'll spend less on pensions than any OECD economy by the60s, even as retirement incomes in Australia go up, not down. While average spending on public pensions in those countries will rise to over 10% of GDP, ours will fall to just 1.8%. and our workforce participation will continue growing while other OECD economies decline. Now, every generation is confronted with unique choices about the kind of economy they build in the face of these kinds of pressures. Previous generations of Australians built an agrarian economy, then an industrial economy, then a more open service-based economy in roughly 40-year cycles. Each of these economies responded to the challenges and opportunities of their era. But the solutions of the future don't reside in the past. The economy of the next 40 years will be built with AI enabled services and smarter technologies, new clean industries powered by cheaper energy and more secure partnerships in the world. Now whether these next 40 years benefit our people, grow our economy, and strengthen our sovereignty, or whether they fracture and fray our social compact is up to all of us, not just governments. But we take responsibility for getting policies and planning right. We know that economies aren't built on forecasts, they're built on actions. Our primary focus is on the pressures that people are feeling today and the global and domestic circumstances which are intensifying them. But at the same time as the pressures in this report make all of our longerterm reforms more important. At the same time, we've made productivity a whole of government priority. We're rolling out the broadest productivity package in 25 years to ensure the IGR's warning of lower growth doesn't translate into lower living standards for the next generation. To reverse the long-term decline in dynamism, we're revitalizing national competition policy, creating a single national market to improve labor mobility, help resources flow where they're most productive, and boost longrun GDP by $13 billion annually. To compete in this growing scramble for capital, we're cutting business taxes, accelerating approvals, and reducing compliance costs, which will get projects off the ground faster and lower the regulatory burden by $10 billion a year. We're harnessing AI in our national interest to maximize the productivity dividend. We're making adoption easier for workers and businesses, boosting innovation, encouraging labor augmentation over automation to move us closer to the global technology frontier. We're working to attract the right kind of AI training to give us more control and capture more value in the AI supply chain to manage the growth in data centers and digital infrastructure and keep Australians safe. We're legislating worldleading national standards that protect our resources and our communities. We're building an adaptable, well-trained workforce to help offset the projected decline of workers as a share of population. We're making participation easier through expanded paid parental leave, super unpaid parental leave, more access to early education, and tax cuts, which will increase total hours worked by about 1.3 million per week compared to previous tax settings. equivalent to over 30,000 full-time jobs. To respond to rapid changes in our economy, we're making our skills and education systems more dynamic, more integrated to help workers gain and retain skills over their lifetime. To build the homes and infrastructure we need and take care of more older Australians, we're training more workers in construction, energy, AI, and the care economy, addressing skill shortages in areas of growing demand. And we're also attracting that talent through migration. We're complementing these investments in skills with a more robust and well-managed migration program. That's what last Thursday's reforms were all about, to shore up our labor supply as our population ages and fertility rates decline. And we're boosting productivity and workforce capacity by reforming the migration points test, which will select better educated, higher skilled, and younger migrants. We're rebalancing the tax system to support workers. To address a heavier burden on proportionately fewer workers, we're better aligning the tax treatment of income from work and income from assets, reducing workers share of the personal income tax burden by two percentage points. This will help level the playing field for younger Australians and future generations. And our combined tax cuts will benefit the average worker by up to $2,800 a year. We're increasing our capacity to cut workers taxes again in the future by strengthening the budget, but also by establishing the working Australians tax offset as a new feature of the system. We're helping more Australians into housing to address one of the biggest drivers of intergenerational wealth inequality. We are reforming the tax system to reduce distortions in the housing market. We're changing arrangements for capital gains and negative gearing to deal with plummeting home ownership rates among young people. At the same time, we're rolling out a comprehensive plan and making record investments to boost housing supply. We're making retirement more secure because as our as our population ages more rapidly, we're strengthening the super system to lift retirement incomes, to boost economic security, to improve standards, and to take pressure off the pension. Our reforms to payday super, super on parental leave, lowinccome super will help more Australians secure tens of thousands of dollars more in retirement. The IGR shows the median retirement balance is set to more than double to around $450,000 by the end of the medium term and our reforms will help the system grow and mature over the next 40 years as well. And as more Australians move out of accumulation, we're assuming that we're ensuring that they have more information and better products to make the most of their super. We're delivering cleaner and cheaper energy. To capitalize on shifts in global demand, we're developing new industries worth up to hundred billion dollars in green exports by 2050. To ensure families and businesses benefit from this, we're incentivizing electrification through solar and battery take up, which could reduce household costs by thousands of dollars a year. To replace the energy from retiring coal fired power stations, we're providing certainty to investors through the capacity investment scheme, unlocking 73 billion in new private sector investment in renewable generation and storage. We're boosting national resilience to shield us from global energy market volatility and more frequent shocks. We're reducing our reliance on foreign fuels and reforming our gas market with our first term gas reforms already lowering gas prices by 26% over the year to June at a time when prices were escalating in Asia and Europe. And our gas reservation will strengthen the domestic market even further. As demand for critical minerals soarses, we're growing our capacity to mine, refine, and trade with trusted partners, helping diversify our exports and global supply chains. We're investing in our broader industrial capability as well through the future made in Australia to take advantage of new export markets, boost resilience, and help our industries make the most of the clean energy opportunities. And against the rising tide of protectionism, we're actually cutting nuisance tariffs and forming new international partnerships to reduce costs for Australians and expand access to new markets. And we're improving budget sustainability as well. In response to rising structural budget pressures, we're delivering the single biggest savings package in history, which will reduce our debt and our interest servicing costs. To meet growing demand for services, we're reforming and securing programs like the NDIS and age care to ensure future costs don't overwhelm the budget. To alleviate structural pressures on our revenue base, we're making tax concessions more sustainable, including in housing, but also super. Now, we're taking this responsible approach so we can manage fiscal pressures as they emerge, but also improve our budget sustainability as global uncertainty and and upheaval forces up borrowing costs as we're seeing right now. Now, I'd finish by making these few points. No other country has a plan more comprehensive than the one that I've just run through to modernize our economy and to find opportunity and security in all of this uncertainty in each page of the IGR. Now, of course, the findings and the forecasts in this report will challenge us and some of them in quite confronting ways. And of course, much of it will be weaponized by those who always like to see things through a more pessimistic and often more political lens. I assure you that the government is not complacent about any of these challenges. On the contrary, never before have the risks been more serious or the opportunities more substantial. Australia's opportunities make us more optimistic about the future of our country, our people, and our economy. And not despite all of this accelerating change, but because of it. Thanks for the opportunity to run you through the key findings from the intergenerational report. And I'm looking forward to taking some questions now. [applause] Thank you. Thank you very much uh treasurer. Uh it's a wide-ranging speech and um very interesting uh subject. It does so closely align as the as Rebecca Brown was saying so closely align with the remit of this lecture series to think about Australia in the longer term and its place in the world. Um we're going to go to some questions from from our media gathered here. I thought I might just start though with a question that kind of goes to that. You touched on um the how dangerous the world is, how volatile it is, a number of inputs that are that make uh predictions highly problematic. Um it make uh planning uh need necessarily a dynamic thing. I wonder is there a tension inherent in the long-term focus of a thing like an intergenerational report and the shortterm exigencies of the political cycle and how do you ensure that the the the the advice that you've got the studies that have been done the thinking that's gone into this report um can continually inform the decisions that you are making >> well here I want to pay tribute ute to uh Peter Costello who began uh these intergenerational reports. I've done that before because I think in a political system which does encourage shorter and shorter term thinking, a media cycle that operates on much faster cycles even than when uh you were knocking around the parliamentary press gallery mark. So much of the incentive in our political system uh encourages people to think in shorter and shorter term ways in shorter and shorter term cycles. And so the reason why I have always been a big supporter of the intergenerational report uh is that it encourages governments, it compels governments uh and anyone who reads it to think uh in bigger longer term cycles. Uh and I know that at a time when the cost of living pressures are substantial as we've acknowledged and as we are responding to in the here and now uh I know when those near-term pressures uh are serious as they are right now it's harder and harder to focus people and to focus governments on the long term. But I think it's possible to do both. But more than possible I think it's imperative that we do both of those things at once. And so for this government overwhelmingly uh the primary focus is on the pressures that people are confronting right now. Uh the war of the in the Middle East and its impact on inflation. Uh what that means for borrowing costs at the household level but also for governments. Uh when you see what's happening with bond yields around the world uh when you see what's happening with expectations for interest rate rises around the world. Uh that is the government's focus. But we can maintain that focus at the same time uh as we share with the country our thinking uh about how we think this will all play out over the coming decades. And the further you go out obviously the less certain the less confident you can be about some of these projections. Uh but that doesn't mean it's not worth the effort because if you make a list of all of the things that Australians are good at, uh I believe they're good at navigating the here and now at the same time as they plan for the future. And that at its core is what the IGR is all about. >> Thank you. Now, first question I think from Claire Armstrong, although it may be from James Misola. Is Cla here? No. Uh James Misola. >> Thanks. >> Hi James. >> Thanks Mark and thanks treasurer. Look, I might ask one for CLA as well as myself given she's absent. Um the first is um around the productivity assumptions uh in this document. So um >> it's estimated we will return to around about 1.2% productivity growth per year over the next 40 years. The document says a large part of that is because of um AI. It's short on detail. We are at the dawn of a AI. I do understand that. But it's quite short on detail how that will actually come about. If you go to page 195 of the document the estimate of gross debt to GDP the ratio at a 1.2% 2% rate it's about 30% 28% which is you know quite a good position for us as a country to be in. If it's8% which is the figure Labor has been using until recently uh gross debt to GDP and I know that's only one measure but gross debt to GDP is around 60% which is a much less comfortable position for this country to be in. So I guess my question is how confident are you uh or how can you be confident that we will continue to hit that 1.2%. And then my second question for CLA, the document also notice notes um the significant decline in indirect tax revenues, things like excises. >> Would you under any circumstances consider altering the GST, >> raising it? >> Uh in reverse order, so Cla's question first, uh that not something that we've um contemplated really at any point. uh on your first question about the productivity assumption. I understand and accept uh that uh for you and and for a couple of your colleagues uh this has been a big focus of how people are grappling with the the intergenerational report report. First point is I think an obvious one which is that every uh number in the document is sensitive to uh assumptions and uncertainties and the further you go out into the 40-year horizon obviously it becomes harder and harder to make uh concrete predictions. We acknowledge that I think every treasurer who's presented the an IGR uh has acknowledged that in one way or another. But on the productivity assumption obviously uh we have grappled with this quite a bit as well. I think uh quite early in the life of the new government in late in 2022 uh I remember talking to Patrick actually about um the early advice that I got to take the productivity assumption down from 1.5 to 1.2. I don't know if you remember that meeting in the office Patrick but uh that was when we were grappling with bringing it down. We thought 1.2 was more realistic. We've maintained it in budgets since and we've maintained it in the IGR for a couple of good reasons. Uh first of all, um we shouldn't assume that the risks to that 1.2 productivity number are all to the downside. As you can see in that scenario we presented for AI in particular, there are upside risks as well to that productivity number. And so we think the 1.2 uh strikes a pretty effective balance. uh it also represents not the precise midpoint but it is in the it is below some other comparable countries assumptions and it's above others. So it's below the US and the UK. I think the UK is one and a half and the US is 1.4. Uh the Kiwis have got.9. Uh so we are broadly in the kind of middle ranges of the productivity assumption. Uh there are also some other kind of more complex considerations. For example, uh one way we compare ourselves to the US which is relevant to productivity is how we calculate our relative living standards with the US relative living standards. And so uh it would take a little longer to explain that relativity, but something that uh we've been talking about with the Treasury. All of that means we think that 1.2 two is appropriate. Not because uh any economist can bet their life on an outcome 40 years down the track, but because we think it best balances all of these different considerations. Jade Gber, not everybody gets to ask one for CLA as well. Jade, >> um thank you, Treasurer, for your speech. Um, your report states that if home ownership levels had remained at 1981 levels, around 250,000 more households aged 25 to 34 would own their own houses. >> What percentage of the coming generations does the government want to see on the home ownership ladder to reduce the rising age care burdened on taxpayers? And should those new homeowners essentially accept that the great Australian dream of a house with a backyard and the hills hoist is dead? Well, not on our watch. And you might have noticed that um you know, we've taken some very substantial political risks uh in order to meet our intergenerational obligations and responsibilities. Yeah. here. Again, I shout out uh wonderful group of students I met with before I came here to give the speech because I was able to look them in the eye and and tell them what I what I'm prepared to say again now, which is that, you know, in all of the 20 or so budgets that I've worked on or responded to in my time in politics, there hasn't been a budget that has been more serious about meeting our intergenerational obligations. And I think the the pointiest part of that, the defining part of that is really the housing market which has locked young people out for too long. And so we're not targeting a particular percentage. Uh but we do want to shift the needle over time because you know one of the the key conclusions I'm hoping that you draw from this intergenerational report when you've gone through it in detail uh is that every page of this IGR in one way or another justifies uh validates and I hope one day vindicates the difficult decisions that we've taken reforming the housing market and reforming the tax system. Uh, and one of the reasons why I think the IGR is so important, it goes back to Mark's first question, we do have obligations to each other, not just in the here and now, as important as they are, but down the generations as well. And so, if we are to look young people in the eye, and tell them that we are doing the best for them, you can't do that without doing something about housing. I'm convinced of that. We were convinced of that before the budget, and we knew that there would be that that would be contentious and contested. We of course it of course it was going to be but no objective reading of the IGR or anything like it would conclude that the housing market was doing justice to the dreams and aspirations of young Australians in particular and that's why we're changing it. >> John Kio. >> Thanks Treasurer. John Kio from the Australian Financial Review. Thanks for the opportunity to ask some questions today. Um the intergenerational report it puts a tech a technical cap on tax receipts at 24.2 2% of GDP uh whereas your budget document doesn't I think tax receipts keep rising to more than 25% of GDP over the medium term. Um could you just explain the thinking behind the difference there >> and are you able to give us any indication approximately how much um AI is thought to contribute to GD um productivity growth are we talking like 0.1 2.3 over over the medium term >> yeah well on the second part of your question there's a there's a analytical box in the document which goes to that precisely the different range of possibilities from uh AI and so I'd uh I'd direct you to that uh on the first part of your question about tax to GDP. I mean, every intergenerational report has had to make uh an assumption on tax to GDP, as you know. I suspect you've probably read uh all seven of them more closely than most. Uh and so you're forced to make an assumption so that the tax to GDP doesn't just climb forever. Uh in this document, what we've chosen is the 24.2, which reflects tax to GDP no higher than it was in the Howard years. uh but I accept that uh different governments have chosen different levels in the budget uh because it was a shorter time period. We let the tax GDP assumption run. Uh I think the the fundamental point about the 24.2 two or or tax to GDP in this IGR or in any of the previous six IGRs uh is it's an assumption that governments I think a worthy uh assumption a fair assumption uh that governments of both political persuasions whenever they can afford to do that uh return as much bracket creep as they can and I say that as a treasurer who's done that five times in three different ways uh and so tax to GDP is always a focus of these IGRs you have to make an assumption. We've chosen to pick a number which is no higher uh than a couple of those years that we saw under Howard and Costello. >> Patrick Commons. >> Thanks very much, Treasure. Um one of the most striking um forecasts or predictions is that there will be more deaths than births by the time we get to the60s, which is the first time the IGR has um projected this outcome. Um, it feels like I think a lot of Australians might read that and be a bit alarmed and think, well, in a world where there are more deaths than births, in a country where there's more deaths and births, it feels like it's a symptom that something is going wrong. How worried are you about this forecast about falling fertility rates? Is this something that you point out in the IGR this is happening all around the world, >> but is this something that we should be actively um taking steps to avoid or is it not a major issue in your eyes? Yeah, I I mean I think this um combination of issues is really important in the IGR. Uh the first point is to inject a bit of perspective in in that you're right that for the first time the IGR will uh project that uh but that will be much later in some cases decade decades later than other you know really quite good uh economies uh where they expect deaths to outnumber births uh much much sooner. That's the first bit of perspective. But on the issues that underpin it, um on fertility rates, I think that is one of the big changes in this IGR compared to 2023, we expect fertility rates to fall further and faster. Uh that's one of the key conclusions. It's one of the reasons why uh population growth will be slower than we anticipated and the overall population number lower uh by the mid60s. Um now when it comes to fertility rates um I do not and will not give people free advice about these very personal decisions that they make about whether to start a family and when to start a family. I you can see in those fertility rates uh that more people are choosing to have kids later and that means that uh families will be smaller. If you look at the decline in the fertility rate, I think almost half of it is because of fewer uh families where there are three or more kids. Um so I'm not giving free advice to people. Our job, the responsibility that we embrace and have embraced uh is to make it easier for people to make that choice if they would like to. So the early childhood education reforms are key to that. Expanding paid parental leave is key to that. Paying super on paid parental leave really important part of that as well. And so those are our efforts to make it easier for people to make those choices if they would like to uh in a in the context of people making a decision to have smaller families later in life. >> Dana Daniel we'll come to you. Sorry I'm running a dynamic list here. It's a bit like dynamic pricing you know it's changing all the time. >> Thanks Mark. Thank you treasurer of your speech. Um the the IGR I've just got some questions around the forecasts around lower government spending. Um how much of this depends on NDIS savings being realized and could you also share what is being forecast for the size of the Australian public service? The report says AI will reduce the cost of the public service. Have you modeled what proportion of GDP will be spent on the APS? Will it be less than 3 and a half% and will fewer public servants be needed as a proportion of the population? >> Yeah. Um the second part of your question wasn't a big focus of the of the IGR you know that we think with technological improvements but also increasing responsibilities that we think that the size of the public service is broadly right and so it hasn't been a big focus of our uh thinking in the IGR but the growth in the care economy has been uh and that's why the NDIS reforms are really important a really really important part of the story here um And you know, one of the reasons why we engaged in that NDIS reform really was to save the NDIS from itself because absent that reform uh over time it would have tempted governments perhaps of a different uh political persuasion than ours than to then to uh cut harder than we think is wise. And so uh NDIS reform is key. uh getting the interest repayments cost down from saving $200 billion off the debt trajectory we inherited is key. Uh ongoing effort in age care is obviously key. Uh making sure that we continue to bud manage the budget in the most responsible way that we can. Uh it is quite remarkable as I said that even with these gathering pressures uh we are seeing the budget uh better than we anticipated in 2023. But again, that doesn't make us complacent because the growth in the care economy and in other areas will put very substantial pressure on the budget. >> James Maker, >> thanks Treasure for your uh speech today. Um looking at the uh AI investment over the last say 3 years from 2023 if you exclude investment into data centers from the capital investment data in the GDP data business investment is banging bumping up and down about $43 billion a quarter. Um and so all of the growth we're seeing in the economy is coming from data centers. Now excluding obviously the you the AI revolution you're talking about what else does business need to do to increase uh this their investment and their productivity gains because obviously you know productivity is not just a matter for government action and and you can't control all the get productivity gains that you're speaking about today. >> Yeah. Um I mean first of all it's it's always true not to be flippant about it but it's always true if you take a big part of investment out of the investment calculation investment will be will be smaller and um yes uh AI investment AI infrastructure has been a been doing a lot of the heavy lifting uh in those business investment numbers which have been very strong. It hasn't been the whole story. Obviously, energy investment uh even dwelling investment in the most recent national accounts uh we saw uh pretty strong in in welcome ways. Uh but the broader challenge is still there and the broader challenge is to uh attract the kind of investment where we can get that capital deepening to make our economy more productive. Uh that was one of the key things out of the reform round table. One of the key elements of the productivity package in the budget is attracting more investment. Uh and so yes, overwhelmingly it relies on decisions taken by the private sector. Uh but we've got a role to play in this and we are playing it. You know, we're we're we're consulting right now on another big trunch of foreign investment reform. Uh we whether it's environmental approvals or other kinds of approvals, we're speeding them up because investors tell us that's a big challenge. how long it takes to get a project approved and and up and running. Uh we're working with the states, you know, working doing a heap of work with the states, uh trying to make the national economy more seamless. All of this is about attracting more investment uh because we do acknowledge whether it's in AI or in other areas. We've got huge advantages. Australia is extremely attractive in the world right now. Uh investors love our stability. Uh they love our geography. They love our combination, our unique combination of advantages, but there's work that we will continue to do uh to attract that investment in our national interest, whether it's in AI or in other areas too. >> Uh Sarah is sorry >> Sarah is from the Australian. You'll note I now introduce myself fully as opposed to when we first met. um in the intergenerational report uh personal income tax as a percentage of GDP is going up. Are you happy with that and how can you restrict that growth? >> Uh well, no I'm not and that's why we're cutting income taxes. Um and you know if you consider that as our population gets older uh and proportionately fewer workers are doing heavier lifting in the tax system uh then the responsibility that I've embraced and the responsibility of future governments over that 40-year period uh will be to cut income taxes where we can afford to do that. you know, we've cut income taxes five times. Uh, and because we've done that, the share of um personal income taxes paid by workers is a couple of percentage points lower uh in this IGR than it would otherwise be. Now, I understand that there will always be uh those who want us to cut income taxes uh further and faster. I'm enthusiastic about that. Uh you got to make sure that you can pay for it. So over time, whether it's our government or subsequent governments, not pretending that we'll be in office uh for the next four decades, I think every government will look seriously at taking as much of the burden off workers as he can afford to do in the context of all of these other pressures. And again to come back to uh some of the um parts of Jade's question before you know one of the reasons why we took some difficult decisions in the 2026 budget about better aligning the tax treatment of income from work and income from assets uh knowing that there would be a reaction to that is because we can see this issue coming at us and accelerating over time. Uh and so in order to fund those tax cuts for workers uh we've made difficult decisions uh elsewhere in the budget uh and that's to try and strike a better balance which recognizes the pressures on workers in particular. >> Does the IGR take into account those that desire to continue cutting income tax cuts as you say does it capture that? It does in the sense that and this goes to John's question before uh about assuming that the tax to GDP number doesn't climb forever. Uh and so imposing a a realistic assumption about the return of bracket creep in the IGR as part of that. Uh but also I mean look at our record of cutting taxes. Um that's the other thing I would I would encourage you to look at. If it weren't for our efforts to cut taxes, the problem identified in the IGR would be much worse. uh our government and other governments of both political persuasions I suspect will look to cut income taxes uh further when the budget can afford it. >> Thank you, >> Treasurer. We're pretty well out of time. Um can I just ask you one question without notice before we wrap up? Um and that is if we think back to John Howard's uh answer to a question, I think it was from Liz Jackson when he talked about a country that he wanted to be comfortable and relaxed. When you think about this intergenerational report, when you think about the country in the long term, when you think about the political divisions we see in the country at the moment, what sort of country do you want to see over the next coming decades? >> Well, I think my motivation, whether it's in the IGR or in, you know, the reason I'm here more or less, is because um I want more Australians to be beneficiaries of change. And as the pace of that change picks up uh so does our uh inter the pace of our intergenerational obligations. And so the country that I want to see as a country which is uh has the the capacity to you know be the the the world's most successful in the context of all of this change that's happening around us. uh and you know a country which is much more modern uh a country where uh we find much more opportunity in all of the uncertainty and much more security as well. Uh and it comes back to your original question. You know, if we if we have the ability to focus on the here and now and think about the future, we give ourselves a really good chance of making our people beneficiaries, not victims of all of the change that you can see in this IGR today. Thank you very much. Can I invite Chancellor Gordon De Brower to uh move a vote of thanks? Thank you very much. >> Uh thank you very much uh treasurer um for coming here to uh this uh beautiful noneal Nambbury country uh to this beautifully restored um uh university house on the Australian National University. It's a real honor uh to have you here uh and presenting the IGR. The IGR is an extraordinary opportunity to have a conversation about the future of Australia and it can set out what the challenges are that we face. But I think more than that, it's uh there is always a very good path to the future no matter what the future holds and no matter how distressing the future is. I'm not saying anything that you don't know. I I I know that's how you think uh of what what's the path through, what's the good path through. I I do want to say for the university, we want to be a partner with you in that. Uh I I thought I'd go back. I've been reading the history of the A&U and uh going back to over 80 years ago, Nugget Kums's view around the close but independent relationship between the government and the Australian National University. Nugget Kums was very keen on having something in the preamble to the A&U act that ultimately the solicitor general rejected. uh but can I just read it out because it is this idea of how do we have a social debate about the issues that we face and what's the role of institutions in that and in that what's the role of the Australian national university so the bit that nugget kums lost uh and the solicitor general won was whereas a free democracy has its basis in the decisions of the people and if those decisions are to represent wisdom and maintain truth it's essential that facilities be granted for the attainment of knowledge and for the fearless and informed discussion of vital issues. So that's part of the role of the university. I I want to thank you very much treasurer for coming here today to talk through those issues in an open and and free exchange. So Mark is going to give the treasurer and I wanted to thank you too Mark and and the center very much for organizing this annual lecture. But as Mark gives a small gift to the treasurer, could you please join with me in in thanking the treasurer of Australia? [applause] >> Thank you, Chancellor Dauer. And uh Jim, I know you're a runner um around the lake in the morning. Um, a slow runner, you say. Uh, I'm miked and you're not. This is a disadvantage you're at at the moment. Um, but look, this is a gift. It's a, uh, people who can't see it from the back. It's a democracy sausage cup. Um, which you can use to drink when you return from your run. And I've even got a democracy sausage sausage t-shirt, which you can be wearing as you uh, circumn the lake. Thank you very much for delivering this lecture. [applause] There you go.