Federal Labor backbencher Kelvin Thomson says Australia's projected population explosion will have a "catastrophic" effect on the environment and he has called for immigration levels to be cut.

The latest Intergenerational Report predicts Australia's population will rise to 35 million in 40 years' time, up from about 21.5 million people at present.

Higher migration and women having more children will account for the boost in numbers.

Federal Treasurer Wayne Swan says the forecast population growth presents as great a challenge as climate change.

And Mr Thomson says now is the time for population reform.

"We are sleepwalking into an environmental disaster," he said.

"There will be impact on the availability of food, water, energy and land. These things are already stretched and a 60 per cent population increase will only drive up the cost of these essentials and lower our living standards.

"And what about the impact on our major cities? Declining housing affordability, traffic congestion, over-crowded concrete jungles.

"Australia is blessed in the quality of life that we have and I believe that we have an obligation to pass onto our children an environment and a country in as good a condition as the one our parents left to us."

Mr Thomson wants Australia's immigration rate cut.

"I think what we need to do is to go back to the sorts of levels that prevailed in the early to mid-1990s and indeed for many years prior to that; that will produce better outcomes than the ones we're getting now," he said.

Aging population

This projection of 35 million people is significantly higher than those that were produced in the second intergenerational report. The projection there was 28.5 million in 2047.

Speaking at the launch of the new Australian Institute For Population Ageing Research, Mr Swan said that over the next 40 years, the number of people aged 65 to 84 would more than double and there would be four-and-a-half times the number of people over 85.

"I think along with climate change, this is the most substantial challenge we face," Mr Swan said.

"It's an intergenerational challenge, it's an economic challenge, it's a social challenge and it goes to the core in the end of the type of country we want to be."

The Government has already pushed up the retirement age but Mr Swan says more will need to be done.

"The Government needs to facilitate the significant contribution that older people can make to the economy and the community, and that also means an unparalleled degree of social engagement and changes of approach in that area," he said.

There is good news in the figures: there will be more younger people than predicted in previous intergenerational reports.

A demographer at the Australian National University, Peter McDonald, says the younger people will help pay for the costs of a rising population and a growing number of older Australians.

"The demographic changes we've seen are making us relatively younger than we would have been otherwise," he said.

"And the effects there are quite substantial on budget because a lot of the costs associated with ageing are health costs and the income support costs.

"They won't be quite as big as, relatively, compared to the size of the labour force, as we'd predicated in the past.

"As we've gone through these intergenerational reports the first one was very pessimistic, the second one was a bit more optimistic and now this one is even more optimistic again in respect to the costs of ageing."

Infrastructure and environment

But Mr McDonald says the increase in population will provide some challenges, particularly for cities.

"Cities will be bigger than we'd projected in the past and ... we already have problems in our cities," he said.

"So urban infrastructure is going to be very, very important.

"We have to be considering the potential environmental effects of a bigger population but I think we can deal with those.

"What we're talking about here is a bigger labour force and that labour force will be generating wealth, and so Australia is liable to be quite a wealthy country.

"I think that's going to give us the income to make all the environmental changes that we have to make."