What the Intergenerational Report means for long-term portfolios

Each new Intergenerational Report arrives as a single package of projections, and the headlines usually treat every number in it as equally credible. Emanuel Datt, chief investment officer at Datt Capital, thinks that approach misses the point.

He reads the 2026 report, released on 21 September and mapping the economy and the budget out to 2065-66, as a set of forecasts that deserve very different levels of trust.

“A 40-year forecast is a list of guesses. The task is to sort them by the strength of the evidence,” he says.

Demographics first

Datt starts with the projection he considers most reliable. Everyone who will be over 85 in 2066 is already alive, and their number is set to triple to 1.9 million.

“Demand for aged care and health services is as close to certain as forecasts allow,” he observes.

The supply side moves far more slowly. Datt notes that beds, staff and well-placed sites are all tight and slow to grow. In his view, that imbalance tends to reward the owners of scarce assets.

There is of course a counter argument to that logic. Certain demand does not guarantee healthy returns, because government funds most aged care and sets much of its pricing. Residential operators reported thin margins or outright losses across the years following the 2018 royal commission, even as demand for their services climbed. Investors chasing the demographic tailwind still need to understand who controls the price.

Population by design

The fertility figures show why migration will become the main lever on growth. Australia’s fertility rate has stayed below the replacement level of 2.1 for more than 50 years, and it is set to fall from 1.48 to 1.34. By the 2060s, deaths will outnumber births, and from then on migration will drive all population growth.

That shifts the debate from how many people arrive to who they are. “The question is who should come. The answer is young, skilled workers,” Datt argues.

The age profile supports his case, with the median migrant at 26 compared with 38 for the rest of the country. Datt points out that skilled arrivals in their twenties add to the workforce and the tax base for around forty years. They lift both output per person and the total headcount. He sees selection by skills and age as the clearest way to shape both population and GDP.

He attaches one condition, namely that housing and infrastructure must keep pace with arrivals. Datt treats any shortfall as a supply problem for governments to fix rather than grounds for a lower intake.

Testing the AI assumption

The report’s more optimistic sections draw Datt’s sharpest criticism.

“The AI forecasts need more scepticism.”

The improved debt outlook relies on long-term productivity growth of 1.2 per cent a year, with AI expected to deliver much of it. “That may happen, but Australia’s recent record does not support it,” he says. Productivity growth has disappointed through much of the 2020s, and a new technology offers no guarantee of reversing that on a government timetable.

Datt focuses instead on the effects visible today. AI consumes large amounts of energy, data-centre space and critical minerals, and Australia supplies all three. For long-term investors, the more dependable opportunity might just lie in the physical inputs to AI rather than in a productivity dividend that has yet to show up in the national accounts.

Capital markets have moved his way since, with credit investors spending the final months of 2026 asking harder questions about returns on AI infrastructure spending. Hyperscaler bond spreads widened, and five-year credit default swaps on Oracle reached a record 288 basis points on 15 October. Scepticism about the productivity dividend has stopped being a contrarian position.

Deficits and small caps

Datt also urges caution for anyone hoping for tax relief. The report still projects budget deficits for the next 40 years, which leaves limited room for meaningful tax cuts across that horizon. That outlook has consequences for client expectations about after-tax returns and retirement planning.

He then links the report’s themes back to the share market. Many of the companies most exposed to these long-term trends are small caps listed on the ASX, and Datt put them at their widest discount to large caps in 20 years when he spoke in September 2026.

Valuation discounts can persist for long stretches, so the size of one proves little on its own. What has changed is that buyers have started acting on it. Offshore bidders moved through October 2026 to acquire discounted Australian small and mid caps rather than paying ASX 200 prices, and a trade buyer funding a control premium from its own balance sheet makes a sterner test of value than any screen.

The Intergenerational Report will shape budget debates for years to come. For portfolio construction, Datt’s approach of weighting each projection by the strength of its evidence gives advisers and their clients a sturdier starting point than any single headline forecast.