Longer lifespans and rising temperatures will shape the future of Australia’s economy, a new Treasury forecast to 2063 has found.

Treasurer Jim Chalmers said one of the main conclusions to draw from the sixth Intergenerational Report released on Thursday was for Australians not to be indifferent about future challenges.

“Climate could ravage our economy. We might not build the workforce that we need. We might miss this kind of new productivity frontier. We might not make the most of our advantages. We might leave ourselves more vulnerable to a world that is getting riskier,” he said.

But the future is not all bad news. Here are the five points you might have missed.

The big picture

Longer lifespans and lower birth rates will transform Australia’s economy.

Over the next four decades, life expectancy is projected to climb to 87.0 years for men and 89.5 years for women, up from 81.3 and 85.2 years, respectively, in 2022-23.

The country’s median age is expected to reach 43.1 years by 2062-63, an increase of 4.6 years from today.

By 2063, Australia will have more than 40 million people.

But with the numbers of those aged 65 and older more than doubled and those aged 85 and older tripling, the challenge of funding the care (and finding the workforce) to look after an ageing population looms large.

Much is riding on climate change

The report warns that Australia faces severe economic consequences if global warming is not restricted to 2 degrees Celsius or less.

For the most physically intense, heat-exposed jobs – machinery operators, drivers, labourers and tradies – global warming is expected to hit hardest and limit their daytime work.

But its effects will be economy wide.

For the Australian economy, the difference between a world where rises are kept at 2 degrees instead of 3 degrees, is about $155 billion in lost productivity.

That’s up to 41 million hours’ worth of future work in 2063.

Meeting targets may be a global challenge, but governments can still promote productivity in a warming world, the Treasury says, by promoting the design of better buildings or planting trees to cast shade.

The future won’t be cheap

Australians living longer and in better health will put more strain on government-funded health and aged-care services.

Today, people aged 65 or older comprise about 16 per cent of the population but account for 40 per cent of the health budget.

In four decades, the amount we spend on people over 65 is expected to grow six-fold; for those over 85, it will increase about nine-fold.

Other spending pressures are mounting, too, including the National Disability Insurance Scheme, paying off debt and defending our borders.

Last year, the government spent just under $24,000 for every Australian. It jumps to $40,000 by 2063, the report forecasts.

Productivity

Over 40 years, the future of Australia’s economy does not seem as rosy as its past.

Four decades on, the economy will be 2.5 times its current size, while our incomes will be 50 per cent higher.

This growth rate will be slower than in the past, with an average annual increase in national incomes per person of 1 per cent over the next four decades, compared to 2.1 per cent over the previous four.

The projections reflect the effects of Australia’s changing labour force and a revision of expectations of how productive it can be.

But a comparison of the projections in the report released on Thursday with those in previous editions shows that our idea of the future is never set in stone.

New possibilities

By the middle of the century, Treasury predicts, the cash cow of the Australian economy – the mining industry – will be winding down production of some commodities as our trading partners’ economies mature.

But new possibilities will emerge, not just in technology and artificial intelligence.

The race to achieve net-zero emissions by 2050 is expected to lead to an anticipated 350 per cent surge in demand for critical minerals in coming decades,

Minerals such as lithium, cobalt and manganese are used to make batteries for renewable energy and the magnets used to power wind turbines or electric cars.

Even with the limitation of global temperature increases to 3 degrees, demand for lithium alone is projected to quadruple.

Capping temperature increases to 1.5 degrees could push demand for it to more than eight times current levels.

Australia is already home to some of the world’s largest known reserves for minerals like nickel, but its geological potential for more is high.

Only 20 per cent of Australia is covered by established mining regions, leaving 80 per cent largely under-explored.