AS HE prepares to call an election later this year Kevin Rudd, Australia's prime minister, is hoping his government's handling of the global financial crisis might help him win a second term. Australia was one of the few rich countries to avoid a recession. Unemployment in December fell to 5.5%. But a report published on February 1st announces an even bigger challenge for the economy: a population explosion.

The report, from the federal Treasury, foresees Australia's population growing by almost two-thirds over the next 40 years—to 36m—about 25% higher than the Treasury had predicted just three years ago. Some of the boom will be home-grown, as young Australian women are having more children than did their baby-boomer predecessors. But a larger proportion will come from immigration. Up to last year, Australia had been taking about 244,000 immigrants a year.

The big intake will at least help to compensate for an ageing population. Almost 90% of today's immigrants are younger than 40, compared with only 55% of native Australians. Nonetheless the number of Australians aged between 65 and 84 will more than double by 2050, and the number of those aged over 85 will more than quadruple. So many oldies will mean almost half of government spending going to health care and support for the elderly. Yet the proportion of working-age taxpayers will be only about half as big as now.

Mr Rudd has said he believes in “a big Australia”. More people, he argues, will contribute to the country's prosperity and boost its influence in Asia. But since these latest demographic projections, he has been touring Australia's big cities warning that the country must lift productivity, or risk unsustainable budget deficits later on.

Some experts argue that the environmental costs of a big Australia are an even bigger worry than the fiscal ones. A decade of drought has left the country's water supplies depleted. Until recent rains, the Lachlan river had stopped flowing in some of the farming regions of New South Wales, the most populous state. The Treasury's report says climate change poses as serious a threat to Australia as does the ageing of its population. This week Mr Rudd's government brought back to Parliament a bill to create an emissions-trading scheme, though the upper house rejected it twice last year. He seems determined to force a showdown over the issue.

Ken Henry, the head of the Treasury, questions the capacity of a country as hot and dry as Australia to sustain so many people. He is also pessimistic about the prospects for biodiversity. He recently cited the granting of permits over the past decade that have allowed the commercial slaughter of 50m kangaroos “primarily to give household pets a bit of variety in their diet”. This suggests, he said, that even with only 22m people, “we haven't managed to find accommodation with our environment.” The Treasury report does not include a kangaroo-population forecast.