• NSW facing $17b hole in its finances

The guardians of the NSW Treasury have peered into the future. They see a state that's richer and more densely populated but one with creakier knees and where social services are under pressure.

The state government's five-yearly intergenerational report, to be released on Thursday, gauges the impact of demographic changes on the state's finances over the next 40 years. It also sheds light on what life will be like in NSW beyond mid-century.

Population

By 2056, about 11.2 million people will call NSW home - that's 50 per cent more than today. NSW will still be Australia's most populated state by mid-century but, because population growth here is expected to be a little lower than the national average, NSW's share of Australia's total population will fall from 32 per cent to 29 per cent over the next 40 years. By that time, Melbourne will be vying with Sydney for the mantle of Australia's biggest city.

The report predicts that the Millennial generation, born between 1982 and 2000, will gradually take over from Baby Boomers and become a major social force during the next 40 years. That cohort will make up the largest proportion of the population into the 2030s.

"This is partly an 'echo' effect - they are the children of the Baby Boomers - but also reflects migration," the report says.

By mid-century NSW will be considerably greyer. One-quarter of the state's population will be aged 65 and over in 2056 compared with about one-sixth today. A key factor here is our longer lifespans – by 2056, life expectancy will be 91.4 years for women and 88.6 years for men.

The report predicts a surge in the number of very old people living in NSW. In 1976 there were fewer than 100 people in the state aged over 100 years. That number now stands at about 1500 but by 2056 it will rise to more than 18,000.

The impact of population ageing is underscored by change in what demographers call the aged dependency ratio, which is the ratio of those aged 65+ to those aged between 15 and 64 (the traditional working-age population). The report predicts the aged dependency ratio to increase from 24 per cent now to 42 per cent by 2056. That will mean 2.4 people of traditional working age supporting each person aged 65 and over, compared with four now. The impact of the ageing will be "especially pronounced" in the regions, the report warns.

Economy and work

The services sector already employs about 80 per cent of NSW workers and the report says there could be an even greater emphasis on services jobs in future. In 2056, work patterns are set to be even more flexible - and maybe more precarious for some. Businesses are likely to outsource more functions to specialist independent contractors and consultants. Many of them will work from home or in "co-working facilities" where contractors and consultants share office space.

"Portfolio careers (holding multiple jobs with multiple employers on a part-time basis), telecommuting and remote working may become the norm, rather than the exception in some industries," the report says.

A much bigger share of the population will keep working beyond the traditional retirement age, especially women. The report predicts that by 2056 more than 18 per cent of those over 65 will still be in the workforce, compared with 12 per cent today. But there will be lower rates of workforce participation among those aged 15-24 as young people stay in education for longer. That means the typical NSW worker of the future will be more skilled, which will help boost productivity. The state's older age profile means there will be more jobs in the aged care sector and other services for retired people.

The NSW economy will be much larger and wealthier by 2056 than it is today. The report forecasts the economy to grow to over 2½ times its current size in real terms; that is, from $507 billion currently to just over $1.3 trillion by 2055-56 (in 2013-14 dollars). Living standards are projected to be about 1¾ times higher.

But the ageing population will put growing pressure on state services, especially health. Health expenses are expected to rise from about 28 per cent of the state budget today to 36 per cent by 2056.

Surprisingly, the report doesn't canvass how climate change will affect economic activity and the lifestyle of people in NSW 40 years from now.

Neighbourhoods

The 50 per cent increase in population expected in the next 40 years means NSW will become increasingly urbanised. Apartment living will become more common, especially in Sydney.

"A clear trend that has emerged in Sydney is a gradual movement towards smaller high-rise housing within commuting distance of employment centres," the report said.

Providing an adequate supply of housing will be critical for the state's economic health and the report estimates about 1.8 million new homes to be built in NSW between now and 2056.

About half of the state's projected population growth over the next 40 years will be from migration so local neighbourhoods across the state are likely to be even more diverse and multicultural by 2056.

The ageing of the population means many suburbs will host far more older people in future and their needs will become increasingly important in urban design.

"Housing and infrastructure investments also need to accommodate broader societal needs," the report says. "For example, appropriate housing will be required for older and retired Australians wishing to downsize in their local suburb or the so called 'seachangers' or 'treechangers' who move away from employment centres after retirement."

Lifestyle

The report uses a fictional 20-year-old citizen called Zachary to sketch what life might be like in 2056.

"He will be part of an extremely tech-savvy generation, where the virtual and the real world operate together," it says.

Zachary is most likely to be working in the service sector, probably as a freelancer. He will earn more than previous generations and his standard of living will be almost 2½ times higher than his grandparents. Part-time and flexible work arrangements will be the norm.

To get to work, Zachary will walk or take public transport. He will use one of the city's public driverless electric cars to visit family in the suburbs or get out of the city on his days off. The automation of the driving process means that vehicles will operate in harmony and traffic flows more quickly and safely.

The report predicts "smart-wear" will be commonplace in 2056. By embedding smart technology into clothing, Zachary monitors his own health for signs of stress or illness. Medical breakthroughs may allow Zachary's doctor to treat him immediately for a common cold before he starts showing symptoms and feeling sick. His healthcare will be customised to his lifestyle, medical history, genome and preferences.

Because more high-rise buildings will be constructed in urban areas, Zachary will live close to work in an apartment that is part of an energy-efficient, mixed-use development surrounded by amenities like floating parks (on top of buildings), schools and day care centres. He will regularly visit his parents in regional NSW, where after moving out of the city they will live semi-retired and work remotely to help pay bills.