By mid-century, Australia will have about 40,000 people aged 100 and above – well more than 300 times the 122 centenarians there were in 1975, according to the Intergenerational Report (IGR) released on Thursday.

The nation is expected to have 39.7 million people in 2055.

Male life expectancy is projected to increase from 91.5 today to 95.1. Life expectancy for women is set to rise from 93.6 years to 96.6. The number of people aged 65 and above is projected to more than double by 2055.

The ageing of Australia’s population and people’s longer lives will have an obvious positive impact, but bring greater budget costs in pensions and other areas. Older people will also need to work longer to help make up for the demographic changes that will hit the economy.

The government wants to use the IGR both to frame its coming budget and to argue for the importance of the structural reforms – many still unlegislated – which it made in its first budget.

Treasurer Joe Hockey said the report – the fourth since 2002 – was “a social compact between the generations. It represents where we’ve been, where we’re at and where we’re going”.

“What we need to do is frame public policy for the future and that means … empowering individuals to have more control over the government services they access – and government services need to be more flexible to respond to the needs of individuals as they change their lives.”

Hockey talked up the potential of the “grey army” and getting more women into the labour force to combat the projected fall in participation as the population ages.

“Over the next 40 years, the proportion of the population participating in the labour force is expected to decline,” the report says. By mid-century, the participation rate for Australians above 15 is expected to fall to 62.4%, compared with 64.6% currently.

The report foresees that the proportion of Australians aged above 65 participating in the workforce will increase markedly, from 12.9% in 2014-15 to 17.3% in 2054-55.

Female employment is projected to continue to rise, after strong growth over the last 40 years. About 66% of women aged 15-64 are currently employed, to increase to 70% in 40 years.

“Nonetheless, Australia’s female participation rates remain lower than some other advanced economies such as Canada and New Zealand, and more can be done to encourage women to enter and stay in the workforce,” the report says.

“Policies that help to continue to boost female participation will help Australia achieve and even higher level of future prosperity,” it says.

Over the next four decades, continuing improvements in living standards will primarily depend on continually improving productivity “and require us to take every opportunity to increase participation rates”.

Given an ageing population, economic growth is projected to be slightly lower over the next four decades than in the last 40 years. “Slower growth is due to slightly lower projected population growth and declining participation rates,” the report says.

It says repairing the budget “is well underway”. But what has been legislated so far “would not see the budget in surplus at any point over the next 40 years. If all outstanding measures – or alternatives of similar value – were implemented , the budget would be on track to a sustainable surplus”.

As it is, the report suggests “we are living beyond our means. The Australian government is currently spending over $100 million a day more than it collects, and is borrowing to meet the shortfall.”

Australian government spending on health is projected to increase from 4.2% of GDP to 5.5% in mid century under the government’s “proposed policy” scenario – much of which has not been able to be got through the Senate and some of which, notably the co-payment, is now abandoned.

The report says that non-demographic factors – higher incomes, health sector wages growth, technological change – are more important drivers of the projected increase than demographic changes.

“The area of largest growth is Medicare services, which is projected to increase by over 15% per person in real terms over the next decade.”

Payments made through age and service pensions are projected to rise each year. In current dollars, spending per person is set to rise from almost $2000 currently to about $3200 by mid century.

“As a share of GDP, these payments are expected to broadly stabilise. This is as a result of the structural changes to indexation and age of eligibility proposed in the 2014-15 budget.” However, a number of these measures have not been able to be legislated.

Shadow treasurer Chris Bowen condemned the report as political. He recalled that Hockey had said Labor’s 2010 Intergenerational Report contained more hot air than the Hindenberg.

“He was predicting his own Intergenerational Report five years later,” Bowen said.

“An Intergenerational Report should be used to lift the public debate, to move out of day-to-day issues of politics and to talk about a vision for the future of Australia. This government and this Treasurer are just incapable of doing that.”

Greens leader Christine Milne condemned the report as “politics, spin, and utter rubbish”, which ignored the challenge of climate change and the environment.

Michael O'Neill, chief executive of National Seniors Australia, said the report puts to bed some of the “doom and gloom we’ve seen associated with ageing in this country for the past decade.

"The economy and the outlook for the economy is actually quite positive in this report. Significantly, we’re seeing increased participation rates amongst older Australians continuing to grow,” O'Neill said. But while the news was encouraging in terms of increased participation by older people, he said there remained a very significant challenge for people in their 50s who lost jobs.

The Australian Industry Group said the report vindicated calls from business for reforms to stimulate investment, innovation and workplace participation. “This is a sobering document, reinforcing that Australians need to face up to slowing growth, an ageing population and flatlining productivity,” chief executive Innes Willox said.

Listen to the latest Politics with Michelle Grattan podcast, an Intergenerational Report special with Tim Colebatch, here.