Labor blindly supports a ‘Big Australia’

By Leith van Onselen

One of the most profound changes affecting the Australian economy and society over the past 12 years has been the massive uplift in Australia’s population growth, which is running at roughly twice the pace of long-run norms (see next chart).

This surge in population growth has been driven by unprecedented levels of immigration, which was raised dramatically in 2004 and has remained elevated ever since (see next chart).

With much of this immigration flowing into the two major cities – Sydney and Melbourne – whose populations have ballooned (see next chart).

Under current immigration settings, Australia is on track to nearly double the nation’s population by 2060 to around 40 million people.

The massive uplift in immigration commenced when former Prime Minister, John Howard, performed a ‘bait-and-switch’ on the Australian people whereby he slammed the door shut on the relatively small number of refugees arriving into Australia by boat all the while stealthily shoving open the door to economic migrants arriving here by plane.

John Howard never articulated to the Australian people that the Government was going to dramatically expand the nation’s immigration intake. Why? Because he knew the electorate would be against it. Instead, Howard scapegoated refugees to give the impression that he was stemming the migrant inflow while proceeding in secret with his ‘Big Australia’ plan.

Rather than being honest with the electorate, the Rudd/Gillard Governments and the Abbott/Turnbull Governments continued the subterfuge. There has never been any community consultation, any national discussion, nor any mandate to proceed with such high levels of immigration.

Last week, Labor shadow treasurer, Chris Bowen, gave a speech entitled The Case for Openness, which committed the Labor Party to maintaining Australia’s turbo-charged immigration intake, arguing that it is unquestionably beneficial for the economy and living standards. Below are the key extracts:

Now, we all know how simple it is for populists to blame immigration for any nation’s problems…

But in the Australian context, immigration has been a vital part of the success of the post war years.

Migrants come here and work hard.

As a 2015 Crawford School report pointed out “on average, migrants have been more productive than non-migrants – as measured by earnings. They have also increased their productivity more rapidly than non-migrants”.

And Bob Gregory of the ANU posited recently in a presentation that “our extra ordinary economic success since the GFC owes a great deal to the increased level of national income produced by the unforeseen population expansions generated by our new immigration program”.

He also suggests that “it is possible that the economic magnitude of the immigrant policy change over the last decade has been as large as the mining boom impact”.

And as the baby boomers increasingly move into retirement, the benefits of migration are likely to be even greater than the previous few decades.

The Migration Council estimates that over the next 35 years, migration will lead to a 5.9 per cent gain in GDP per capita, which will flow through to an even larger gain in living standards.

Migrants tend to be younger than the existing population which means they have a greater capacity to work and participate in the economy.

Younger workers are also better equipped to help Australia lift itself out of the last decade’s productivity slump.

As the incoming Governor of the RBA has pointed out, on average, new immigrants to Australia are almost 10 years younger than the average Australian and that individuals in their 30s and 40s have a higher probability of being entrepreneurial.

To directly quote Philip Lowe:

“the increasing diversity of our population means that we have a constant influx of people coming to our shores, bringing with them new perspectives, new skills and new ideas”…

Analysis of the available data sadly does not support Bowen’s contention that Australia’s high immigration program is improving the living standards of the existing population, which should be the key concern for policy makers. If anything, the evidence suggests that Australians are being made worse-off by high immigration.

First, consider real GDP measured in per capita terms.

As shown in the next chart, GDP per capita has plummeted over the past 12 years as population growth has surged. In fact, the 10-year annualised rate of growth has plummeted to levels not seen since the early-1980s and early-1990s recessions:

The situation is even worse when one considers the growth in real national disposable income (NDI) per capita. According to the Australian Bureau of Statistics, NDI is “considered a good measure of progress for living standards because it is an indicator of Australians’ capacity to purchase goods and services for consumption”.

The next chart plots Australia’s per capita NDI growth over the 50 quarters since December 2003 (when Australia’s immigration intake was lifted dramatically) and compares it to the proceeding 50 quarters:

As you can see, Australia’s living standards, as measured by NDI, have growth at roughly half the pace since Australia’s immigration intake was lifted dramatically by John Howard.

What makes the above results even worse is that Australia has also enjoyed a lift in the terms-of-trade over the past 12 years, which has provided a tail-wind to NDI growth. To quote the Productivity Commission:

Growth in the population can increase the size of the economy but does not, in itself, increase output or income per capita. Growth of per capita income is determined by changes in participation (referred to as ‘labour utilisation’ in figure 2.2), labour productivity, the terms of trade and in net foreign income…

It is worth noting that in 2015 the terms of trade was still 26 per cent above the average level between 1960 and 2015.

The above data shows clearly that Australia’s expanded immigration intake over the past 12 years has not boosted material living standards for the average Australian. In fact, it has very likely had the opposite impact.

So what do we make of the Migration Council’s “estimates that over the next 35 years, migration will lead to a 5.9 per cent gain in GDP per capita, which will flow through to an even larger gain in living standards”?

It is worth noting upfront that the Migration Council is a pro-immigration lobby group, so its views are hardly unbiased. Instead, Bowen should have consulted modelling from the Productivity Commission (PC), which paints a far less favourable picture of Australia’s high immigration program.

Last year, the PC released its draft Migrant Intake into Australia report, which modeled that if immigration at current levels were to persist, then real GDP per person would be some 5% higher than under a zero net migration scenario.

However, all of this gain in per capita GDP comes from “proportionally more of the population participating in employment”, not productivity gains. In fact, labour productivity is forecast to decrease under current immigration settings, as are real wages:

The Commission’s projections indicate that, with NOM converging to the historical average rate of 0.6 per cent of population per year, labour productivity is likely to be lower than the hypothetical without migration case — by around 2 per cent (figure 8.4, panel b).

The lower labour productivity could be reflected in lower real wage receipts by the workforce in the with NOM case relative to the without migration case.

Based on current patterns of workforce participation, the higher employment rate is projected to outweigh the lower labour productivity and, as a result, GDP per person is projected to be 5 per cent higher with NOM in 2059-60. This would amount to $5100 per person (in 2013 14 dollars).

To add insult to injury, the positive impacts on workforce participation will only be temporary, and will eventually drag on real per capita GDP growth after the forecast period as the migrants age:

In the long term, larger cohorts of immigrants will themselves add to the proportion of the population aged 65 and over as they age and, thus, reduce the impact of further immigration intakes on the age structure of the population (PC 2013a)… immigration cannot realistically prevent Australia transitioning to an older
population.

Thus, the PC’s 2015 modelling shows a situation whereby ongoing high immigration improves per capita GDP by 2060 by boosting the proportion of workers in the economy, but this comes at the expense of lower labour productivity and lower real wages. Moreover, the benefits on workforce participation are only temporary, with the migrants dragging on growth after the forecast period.

In 2006, the PC also conducted a major study on the Economic Impacts of Migration and Population Growth. There, the PC modeled the impact of a 50% increase in the level of skilled migration over the 20 years to 2024-25 and found that it caused real GDP to be 4.6% higher than would otherwise have been the case in 20 years time.

The PC also found that real income per person would be 0.7%, or $380 a year, higher than would otherwise be the case in 20 years time.

But here’s the kicker. According to the PC, “the distribution of these benefits varies across the population, with gains mostly accrued to the skilled migrants and capital owners. The incomes of existing resident workers grow more slowly than would otherwise be the case“.

So according to the PC’s 2006 study, opening the spigots to skilled migrants, let alone unskilled migrants, would actually make the existing resident population worse-off because they would earn less income than would otherwise be the case.

Hardly sounds like a slam dunk for mass immigration, does it?

We also shouldn’t forget that the PC’s modelling has not included the adverse environmental impacts of a substantially larger population, nor the adverse amenity impacts from much higher levels of congestion, which will not only reduce the living standards of existing residents, but also lower productivity.

Perhaps Chris Bowen should instead have taken a leaf from The Australia Institute’s chief economist, Richard Denniss, who has considered these issues and provides a sobering assessment of Australia’s high immigration program:

“Australia is one of the fastest growing countries in the developed world and our infrastructure isn’t keeping up. It isn’t keeping up now and hasn’t kept up for the last 10 years, and it’s not budgeted to keep up in the next 10.”

“What politicians are doing is every year they announce record spending on this and a new that, but what they don’t point out is that on a per person basis, per person we are spending less on health, per person we’ve got less access to transport, per person the reason the queues in the hospital keeps getting longer is because we are not building hospitals as fast as we are growing our population. They all know it, they just don’t say it”…

“If you want to double your population – and that’s our plan – we want to double our population – you have to at least double your infrastructure to maintain people’s standard of living… We’re talking schools, we’re talking hospitals, we’re talking trains, we’re talking roads, we’re talking police”…

“Population growth costs a lot… If you double the number of citizens then you double the number of teachers and double the number of nurses. It’s pretty simple math. But of course, you don’t have to double them if you gradually plan to lower the number of services. If you are happy for us to gradually lower the number of services in our health system, our aged system, if you are happy for congestion to gradually get worse, if you are happy for the amount of green space per person to decline, then you can do what we do”.

Ross Gittins has also painted a sobering picture (here and here):

…immigration carries a huge threat to our productivity.

The unthinkable truth is that unless we invest in enough additional housing, business equipment and public infrastructure to accommodate the extra workers and their families, this lack of “capital widening” reduces our physical capital per person and so reduces our productivity…

Lower immigration would help reduce a lot of our economic problems…

Even outgoing Reserve Bank governor, Glenn Stevens, has taken a veiled swipe at Australia’s high immigration program:

It need not be the case that per capita growth would be any lower, if the lower growth simply reflects slower population growth…

Our collective ability to deliver social policy outcomes, to enjoy the benefits of a ‘good society’, or at a more basic level to provide public services and even to defend ourselves, ultimately rests on a productive economy…

Let’s be clear that this is not ‘growth at any price’… If we care about wellbeing in the broadest sense, we should care about things that affect potential output per head…

Effectively, all Australia’s high immigration program has done is create the illusion of economic growth (more inputs equals more outputs), while lowering overall productivity, increasing traffic congestion, reducing housing affordability, and degrading the environment. Meanwhile, living standards of the existing population have slid backwards.

We also should not forget that Australia’s fixed mineral endowment (resources base) – the main driver of our wealth – is diluted by mass immigration. For example, if the population doubles over the next 40 years, then this implies that Australia’s per capita resources base will be diluted by a corresponding amount. It also means that our fixed endowment of resources must be sold-off twice as quickly just to maintain our standard of living, other things equal.

If all Australia is doing is growing for growth’s sake, pushing against infrastructure bottlenecks, diluting our fixed endowment of minerals resources, and failing to raise the living standards of the existing population, where is the benefit?

Australia desperately needs a frank and honest national conversation about population policy, which focuses on raising the living standards of the existing population. Not the ‘grow and hope’ position displayed by Chris Bowen, which blindly assumes that mass immigration is beneficial, and maintains the current ‘Big Australia’ plan without community consultation and support.

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