Falling fertility and longer life expectancy are changing Australia’s labor supply, consumer demand, care needs and fiscal outlook.

Australia’s total fertility rate fell to 1.481 births per woman in 2024, down from 1.795 a decade earlier. The rate has remained below the replacement level of about 2.1 children per woman for almost five decades.

Treasury now expects fertility to fall further, reaching 1.34 children per woman by 2065–66. The 2026 Intergenerational Report also projects that deaths will exceed births during the 2060s.

The economic challenge, however, is not simply that Australia may eventually stop adding people. It is that population growth is becoming increasingly dependent on migration while a larger share of the population moves into older age groups. That shift will change the sources of economic growth, the composition of consumer demand and the pressure on public finances.

Population growth will slow even as Australia keeps adding people

Australia is not projected to enter population decline immediately. The Centre for Population projects the population to reach 31.5 million by 2035-36, while annual population growth is expected to slow to 1.3% in 2025-26. Net overseas migration remains a major source of population growth as natural increase becomes less significant.

The latest population data illustrate that balance. In the year to September 2025, Australia’s population increased by 424,000 people. Natural increase contributed 113,000, while net overseas migration contributed 311,000.

That distinction matters for businesses. A rising population can expand the pool of workers, consumers and taxpayers, but the age structure determines how those gains are distributed. A population with more retirees and fewer young people can produce slower growth in the working-age population even when the total population continues to increase.

Treasury projects Australia’s population to reach 39.3 million by 2065–66, with migration accounting for much of the increase. At the same time, population growth is projected to average about 0.9% a year over the next four decades, compared with 1.4% over the previous 40 years.

Productivity will carry more weight in future growth

Slower population growth does not mean Australia’s economy will stop expanding. Treasury projects the economy will be more than twice its current size by 2065–66, while income per person is projected to be 55% higher. Real GDP per person, however, is expected to grow by about 1.2% a year over the next 40 years, below the 1.5% average recorded over the previous four decades.

That puts productivity at the center of Australia’s long-term growth equation. As the working-age population expands more slowly, future economic growth will depend less on adding workers and more on increasing output from the existing labor force. Technology is one part of that adjustment. Treasury identifies artificial intelligence as a major force shaping Australia’s economy over the next 40 years, but the report does not treat its economic effects as automatic. Any gains will depend on how effectively Australian businesses adopt the technology, reorganize work and build the skills needed to use it.

For businesses, technology adoption is therefore a workforce issue as well as an investment decision. Automation, digital tools and other productivity technologies can help address labor constraints, but they require capital, suitable infrastructure and employees who can work alongside changing systems.

The labor market will have to adjust to an older population

The working-age share of Australia’s population is expected to shrink relative to the number of older Australians. The 2026 Intergenerational Report projects that the ratio of people aged 65 and over to those of traditional working age will rise to about 39% by 2066.

Australia has already seen more older people remain in employment. In June 2025, 16% of Australians aged 65 and over were employed, up from 6.8% in June 1978. Among people aged 15 to 64, the employment rate stood at 77.2% in June 2025.

Higher participation among older Australians can increase the labor supply and partly offset demographic pressure. It does not, however, eliminate the underlying shift in the age structure. Businesses may need to retain experienced employees for longer, redesign roles and invest more consistently in training as the workforce changes.

Employment is still projected to grow. Jobs and Skills Australia expects the number of employed people to reach 16.6 million by May 2035, an increase of nearly 2 million over 10 years. The projections also identify health care and social assistance as the industry with the strongest projected employment growth, partly because the older population is expected to increase demand for health services.

Migration can support labor supply, but it does not reverse ageing

Australia’s September 2025 population figures show how significant migration’s contribution already is. Net overseas migration accounted for nearly three-quarters of annual population growth during the year.

The long-term projections still assume substantial migration, but migration does not change the underlying fertility trend. New arrivals can add workers and consumers relatively quickly, whereas changes in the birth rate take decades to affect the size of the labor force.

Migration can therefore influence the size of the workforce in the near and medium term, but it does not fundamentally change the age profile created by lower fertility and longer life expectancy.

For economic planning, that makes migration one part of the adjustment rather than a complete response to demographic ageing.

The care economy will become more important

The ageing trend is already visible in demand for health and care services. People aged 65 and over represented 17% of Australia’s population in 2024 and accounted for 46% of the country’s total burden of disease measured in healthy life years lost.

The number of very old Australians will also increase sharply. The Centre for Population projects that 1.9 million Australians will be aged 85 and over by 2065–66, more than three times the current number. That demographic shift has direct implications for aged care, health services and businesses supporting independent living.

The pattern of care is changing as well. As of June 2024, 275,000 people were using home care, up from 142,000 in June 2020. Over the same period, permanent residential aged care use increased from 184,000 to 190,000.

The shift toward home-based support has business implications beyond residential facilities. Demand can extend across home care, allied health, accessibility improvements, medical services and assistive technology.

Government policy is already incorporating that shift. The Support at Home program provides separate funding for eligible assistive technology and home modifications intended to help older people live safely and independently at home.

The care workforce faces its own demographic pressure

Meeting rising demand will depend on people as well as technology. Australia’s aged care industry employed an estimated 549,000 people across five service types in 2023, including 414,000 direct care workers. Among directly employed nursing and personal care staff, 43% were aged 45 or older.

That creates a double demographic pressure: the ageing population is increasing demand for care at the same time that a significant share of the sector’s existing workforce is approaching retirement.

Technology may help providers manage scheduling, administration, monitoring and some routine tasks. It can improve how services are delivered, but it does not remove the need for nurses, personal care workers, allied health professionals and other staff whose work depends on human interaction.

Public finances will face longer-term pressure

Ageing affects government finances through both expenditure and revenue. A smaller share of the population in traditional working ages can limit growth in the tax base, while demand for health, aged care and retirement-related programs rises.

The 2023 Intergenerational Report estimated that demographic ageing would account for about 40% of the projected increase in government payments through 2062–63, concentrated in health, the Age Pension and aged care. The 2026 report continues to identify ageing and the care economy as major long-term economic transitions.

Health spending is one of the clearest areas of pressure. The latest projections indicate that health spending could rise from about 4% of GDP to 6.2% by the mid-2060s. Public hospital funding is expected to account for more than 60% of additional Commonwealth health spending over that period.

The fiscal pressure therefore extends beyond pensions. Health care and aged care will become increasingly important parts of the long-term budget equation, making productivity and workforce participation more consequential for public finances. Consumer markets will change with the age structure

Demographic change also affects household spending. Reserve Bank research found that ageing has contributed to slower growth in aggregate household income and consumption. It also found that older households have become wealthier and continued to spend more than earlier generations of older households.

The spending profile varies substantially across age groups. RBA analysis found that households aged 55 to 64 had higher average consumption in 2017–18 than households aged 35 to 44, while households aged 65 and over generally spent less as they moved further into retirement.

The implication is not simply that older Australians will spend more or less. Spending patterns will shift as households move through different stages of later life, creating different demands across health services, housing, financial products, leisure and household support.

For Australian businesses, demographic change does not mean one consumer group will simply replace another. Companies will have to account for differences in income, wealth, health needs and consumption across an ageing population rather than treating older consumers as a single market. The geographic impact will also vary. Capital cities are projected to grow nearly twice as fast as rest-of-state areas, while regional populations are generally older than populations in the capital cities. That can produce different labor and customer-demand conditions across Australia’s regions.

Fewer births will affect the economy slowly, but persistently

Australia’s Population Statement says fertility intentions have declined since 2001, while smaller families have become more common. The average age of mothers at first birth also increased from 26 to 31 between 1992–93 and 2021–22.

A child born today will not enter the labor force for many years. That makes fertility a long-term demographic variable rather than a near-term solution to labor shortages. Even a sustained increase in fertility would therefore have limited effects on the size of Australia’s working population in the near term.

Workforce participation, migration, productivity growth and investment can affect Australia’s economic capacity sooner than fertility changes can.

Australia’s long-term economic equation is changing

The 2026 Intergenerational Report projects continued population and economic growth, alongside slower population expansion, a higher share of older Australians and increased pressure on health and care services.

For businesses, the central issue is how Australia generates growth when demographic expansion becomes a weaker source of economic momentum. Productivity, technology adoption, workforce participation and migration can influence that adjustment, while rising demand for care will add pressure to labor markets and public finances.

The unresolved question is whether productivity gains, workforce participation and migration can keep pace with the economic demands of a population that is living longer, having fewer children and requiring more health and care services.