Australians living longer and in better health, but it comes at a cost

Australians are set to live longer and be in better health into their later years, but that means future generations will need to shoulder a bigger tax burden to pay for it.

Those are some of the major findings of the government’s much-anticipated Intergenerational Report, to be released on Thursday by Treasurer Jim Chalmers.

The report, the fifth of its kind produced over the past 20 years, makes key social and economic forecasts about the next four decades – and what needs to be done to sustain those changes.

It will show life expectancy is set to rise to 87 years for men and 89.5 years for women by 2062-63.

The proportion of the population aged over 65 is forecast to double, while the number of people over 85 is set to triple, which the report concedes is “an ongoing economic and fiscal challenge”.

The economic consequences of those changes will be significant, with health spending expected to increase sharply, Dr Chalmers said.

Four other main expenditure areas of the Commonwealth budget, being aged care, the National Disability Insurance Scheme, interest on debt, and defence – will leap from one-third of total government spend to one half.

In particular, the so-called ‘care economy’ will almost double from eight per cent of GDP to about 15 per cent in 2062-63.

“Whether it’s health care, aged care, disabilities or early childhood education – we’ll need more well-trained workers to meet the growing demand for quality care over the next 40 years,” Dr Chalmers said.

“The care sector is where the lion’s share of opportunities in our economy will be created.”

Productivity, which has slumped for several tears now, is expected to remain flat and the report has revised down growth “from its 30-year average of around 1.5% to the recent 20-year average of around 1.2%”.

“Placing more weight on recent history better reflects headwinds to productivity growth, such as continued structural change towards service industries, the costs of climate change, and diminishing returns from past reforms,” it reads.

“This downgrade is consistent with forecasts in other advanced economies.”

Australia’s population in 40 years’ time is projected to hit 40 million, although the rate of growth will slow. The economy will rely more greatly on migration to meet skills shortages.

Dr Chalmers said the Intergenerational Report is a warning of the need to ensure the coming changes “work for us and not against us”.

“We’ve shown and demonstrated a willingness and an ability to make difficult decisions to put the budget on a more sustainable footing,” he said.

The report’s findings will spark renewed debate about the need for broad-based tax reform, forecasting a growing reliance on income tax as other revenue – like company tax and the GST – plateaus in the next decade.

One section of the report reads: “Structural changes to the economy are projected to put pressure on the revenue base over the coming decades.”

But rather than raising the GST, Dr Chalmers has flagged tax reform targeting multinationals, the petroleum resource rent tax, high-balance superannuation and cigarettes as possible areas of focus.

Ahead of the report’s release, the Business Council of Australia this week unveiled its national plan to grow productivity and increase competitiveness via a package of reforms.

“If we want sustained wages growth and to maintain full employment, the nation needs a reinvigorated economic growth agenda driven by large-scale investment, higher productivity and greater innovation,’’ the group’s president Tim Reed said.

“Our [plan] outlines how to deliver that agenda – putting forward the big ideas to dramatically alter Australia’s economic trajectory to deliver higher living standards.’’

Among its proposed policies are calls for microeconomic reform, a 10-year net zero roadmap and an overhaul of taxation.

Chip makers are fighting to assure investors that the artificial-intelligence boom is racing forward. Wall Street might not believe it until Nvidia’s NVDA -0.98%decrease; down pointing triangle Jensen Huang says so.

When Huang steps up to the mic for his company’s earnings call Wednesday, he will have the world’s attention. What he says about Nvidia’s present will preview the future of AI, dictate the path forward for a tech-crazed stock market and influence an American economy increasingly tethered to hopes that the boom won’t go bust.

The $5 trillion chip maker has provided the key building blocks for AI since the launch of ChatGPT in 2022 set off a race for dominance among OpenAI, Anthropic and established Silicon Valley giants. Now, as Nvidia backstops sprawling data-center projects and an exotic money pipeline to boost chip demand, the company’s influence is arguably bigger than ever.

But there are signs of trouble ahead. Political pushback to AI is growing. A bond selloff propelled borrowing costs to their highest levels in years. The hyperscalers that include some of Nvidia’s key customers—once cash-printing machines—are relying more on debt. OpenAI recently told investors its revenue rose by a tepid 18% in the second quarter while its losses deepened.

Nvidia is increasingly stepping in to shore up potential weak points across the market. Earlier this month, the company teamed up with six of Wall Street’s biggest firms on a $500 billion AI-financing plan, pledging to backstop lending to customers that can’t afford its chips otherwise. The chip maker last week also took a stake in Cloverleaf Infrastructure, which arranges power for data centers, and struck a $6 billion deal with startup Poolside aimed at developing a powerful open-weight AI model.

After watching shares in other chip makers and the so-called Magnificent Seven tech companies swing wildly in recent months, Wall Street is hoping Nvidia can beat expectations—again. The countdown is on.

“It’s kind of becoming more and more like the World Cup final than the Super Bowl at this point,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “It’s just gotten to be that big.”

The company has smashed analysts’ earnings estimates for each of the 14 quarters since the AI boom kicked into high gear. Nvidia posted 210% annual growth in net income in its last three-month period, according to FactSet, making Wall Street’s 126% projection look pedestrian.

Expectations for a blowout second quarter have risen rapidly over the course of this year. All Nvidia will have to do to beat this target: outrun 95% annual earnings growth to more than $51.5 billion. Analysts project the chip maker will report record sales of $92 billion for the period, up from a forecast of $78 billion at the start of this year.

In July, big-tech earnings sparked volatility. Concerns about runaway capital spending spread across the sector after Alphabet’s and Tesla’s results, driving a $890 billion wipeout that contributed to the unwind of hedge fund Situational Awareness. Microsoft posted the largest one-day gain in market capitalization by any company, ever, after a quarter proving that it could still show investors the money. SpaceX rocketed higher after a record-breaking initial public offering, only to see $1 trillion in value evaporate.

Surging memory prices and borrowing costs have fueled fears that those and other companies will be unable to keep plowing more money into supplies including Nvidia chips. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, has recently bought dips in AI-infrastructure stocks when Wall Street has strained to absorb massive debt issued by Silicon Valley.

“The macro data is really quite robust,” he said. “Of course, there’s a level at which everything breaks.”

Investors have kept pumping money into the AI trade despite concerns around chip consumers—and to the benefit of chip producers. That is why Nvidia’s outlook for semiconductor demand could send ripples through counterparts such as Micron Technology and Sandisk, developers of the data centers in which their chips reside, and a supply chain of power producers, contractors and other specialists that underpin the globe-spanning AI build-out.

“We joke internally that we’re all Nvidia analysts now,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management.

The irony is that investors have tended to sell Nvidia stock immediately after blockbuster earnings, with shares falling each trading session after its four past quarterly reports. Some are betting that will be the case this time around, too.

The options market is pricing in a 5.3% swing, higher or lower, in Nvidia shares during the session following earnings, according to Option Research & Technology Services. That is higher than the 4.8% average move in Nvidia’s stock over the last 12 months after the company reports quarterly results.

In recent days, some of the most actively traded Nvidia options have been put contracts tied to the stock falling from its Friday value of $214.75 to $205 and $210 apiece, according to Cboe Global Markets data. Put options give the right to sell a stock by a set price and typically represent a bearish wager.

Many analysts remain optimistic. Frank Lee, global head of tech hardware and semiconductor research at HSBC Global Investment Research, recently raised his price target for Nvidia shares to $360 from $325, citing, among other things, Nvidia’s strategic partnerships with suppliers and its role as a top contributor to open-source AI.

Australians living longer and in better health, but it comes at a cost

The Federal Government’s Intergenerational Report flags changes to employment and taxation as the number of older Australians is set to double

Nvidia’s earnings will test Wall Street’s confidence in the AI boom.