The first intergenerational report (IGR1) in 2002 showed Australia faced substantial future challenges from demographic change.

This is the second intergenerational report (IGR2). It shows that the Australian Government's long-term fiscal sustainability has improved since IGR1. We face the future from sound foundations as a result of strong policy frameworks, robust economic growth and a strong fiscal position.

The fiscal gap ‑ the difference between government spending and revenue collected ‑ now is projected to be around 3½ per cent of Gross Domestic Product (GDP) in 2046-47. In IGR1, the fiscal gap was projected to be 5 per cent of GDP after 40 years in 2041-42.

Demographic and other factors will continue to pose substantial challenges for economic growth and long-term fiscal sustainability.

The projections in IGR2 show that over the next 40 years:

• the population will continue to increase in size but with a higher proportion of older people;
• economic growth per person will slow as the proportion of the population of traditional working age falls; and
• substantial fiscal pressures will emerge due to projected increases in spending, particularly in the areas of health, age pensions and aged care.