Jessica Irvine: Throw open Australia’s borders

By Leith van Onselen

Last month, Fairfax’s Jessica Irvine penned a highly spurious piece championing high immigration and a Big Australia, which got comprehensively debunked on this site (see “Jessica Irvine goes population ponzi mad”).

Rather than learning her lesson, Irvine has returned today calling for Australia to throw open its borders to as many people as possible because “it’s the right thing to do”:

Economists have battled for some time to get their numbers straight to prove that migrants add more to the economy than they take. Recently they’ve honed their estimates.

In a report released by the government in September, the Productivity Commission estimated that, compared to closing our borders completely, Australia’s current migration intake, if sustained, will boost economic output per person by about 7 per cent in 2060 – worth around $7000 each in today’s dollars…

Take your pick of messenger, but the bottom line is clear: the total benefits of Australia’s migration intake to the economy exceed the costs…

Our ultimate goal should be to boost the wellbeing of citizens, not the value of their economic production. It matters if income gains are eroded by more time spent sitting in traffic, or having to pay more for a home, which clearly, they have been to some degree.

Again, however, that’s not an argument for halting migration, but for stepping up our efforts on urban planning and investment in critical infrastructure. We don’t tell children to stop growing because they’re busting out of their pants. We buy them new pants…

So let me be clear: we should keep our borders open to as many souls as possible because it’s the right thing to do…

If individuals decide they can best pursue their happiness by moving here and living in the most prosperous and peaceful nation on earth, who are we to deny them? Surely, they are right… it’s not the job of a politician in Canberra to decide how big Australia should be.

Irvine’s claim that “the total benefits of Australia’s migration intake to the economy exceed the costs” is simply wrong. If she had cared to look deeply into the Productivity Commission’s (PC) research on this issue, she would have figured this out for herself.

In 2006, the PC completed a major study on the Economic Impacts of Migration and Population Growth, which 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 (more labour inputs equals more outputs).

The PC also found that real income per person would increase ever so slightly. That is, 20 years later real income per head would be 0.7%, or $380 a year, higher than would otherwise be the case.

However, “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“.

Hence, according to the PC in 2006, opening the spigots to skilled immigration would make the existing resident workers worse-off because they would earn less income than would otherwise be the case.

Last month, the PC released more modelling, which also found that maintaining positive net immigration would boost economic activity in per capita terms by increasing the proportion of the population participating in employment. Although this boost would be transitory:

Assuming that net overseas migration (NOM) continues at the long-term historical average rate (0.6 per cent of the population), by 2060 Australia’s population is projected to grow to nearly 40 million, with NOM adding some 13 million people to the population.

The continuation of an immigration system oriented towards younger working-age people can boost the proportion of the population in the workforce and, thereby, provide a ‘demographic dividend’ to the Australian economy. However, this demographic dividend comes with a larger population and over time permanent immigrants will themselves age and add to the proportion of the population aged over 65 years.

The Commission’s economy wide modelling projects that with NOM continuing at the long-term average rate with its current young age structure, by 2060:

– real gross domestic product (GDP) per person is projected to be some 7 per cent ($7000 in 2014 dollars) higher than if NOM was set to zero. In practice, this result cannot be extrapolated — limits on Australia’s absorptive capacity in terms of economic, social and environmental factors mean the modelling results do not shed light on the likely economic impact of very high rates of immigration

– a higher employment to population ratio associated with immigration will relieve some of the pressure of ageing on government expenditures (as a proportion of GDP), and moderate wage pressures particularly in high growth sectors…

However, labour productivity is forecast to decrease under current immigration settings, as are real wages, versus a zero NOM baseline:

Compared to the business-as-usual case, labour productivity is projected to be higher under the hypothetical zero NOM case — by around 2 per cent by 2060 (figure 10.5, panel b). The higher labour productivity is reflected in higher real wage receipts by the workforce in the zero NOM case.

Thus, the PC’s latest modelling showed 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 would only be transitory, with the migrants themselves aging and dragging on growth after the forecast period.

Most importantly, the PC explicitly cautioned that higher real GDP per person does not capture the negative externalities from immigration, such as worsening housing affordability, infrastructure bottlenecks, and environmental degradation. Nor does it account for any distributional impacts. Hence, policy needs to take a broader focus that improves “community wellbeing”:

While the modelling suggests that the Australian economy will benefit from migration in terms of higher GDP per person, whether migration delivers an overall benefit to the existing Australian community will also depend on other factors, including the distribution of those economic benefits, and the broader impacts of immigration, notably the associated social and environmental impacts…

High rates of immigration put upward pressure on land and housing prices in Australia’s largest cities. Upward pressures are exacerbated by the persistent failure of successive state, territory and local governments to implement sound urban planning and zoning policies…

Urban population growth puts pressure on many environment-related resources and services, such as clean water, air and waste disposal. Managing these pressures requires additional investment, which increases the unit cost of relevant services, such as water supply and waste management. These higher costs are shared by all utility users…

Immigration, as a major source of population growth in Australia, contributes to congestion in the major cities, raising the importance of sound planning and infrastructure investment. While a larger population offers opportunities for more efficient use of, and investment in, infrastructure, governments have not demonstrated a high degree of competence in infrastructure planning and investment. Funding will inevitably be borne by the Australian community either through user-pays fees or general taxation.

Hardly sounds like a slam dunk for mass immigration, does it Jessica? Quite the opposite in fact. If you want traffic congestion to get worse, to pay more for utilities and housing, and to see the environment get degraded, then continue with current mass immigration settings.

Irvine’s suggestion that we should just build more infrastructure to cope with the greater population is also wishful thinking.

In already built-up cities like Sydney and Melbourne, which also happen to be the major magnets for new migrants, the cost of retrofitting new infrastructure to accommodate greater population densities can become prohibitively expensive because of the need for land buy-backs, tunnelling, as well as disruptions to existing infrastructure.

We have seen these diseconomies of scale time and time again. For example, projects like Melbourne’s now defunct East West Road Link was expected to cost 18 billion, whereas Sydney’s North West Rail Link would cost $8 billion. That’s an astounding $350 million to $1 billion per kilometre.

Hence, running a high immigration program becomes increasingly costly for existing residents. The huge infrastructure costs also force unpopular asset sales, increased debt borrowings and austerity – none of which is a desirable outcome.

In November 2013, the PC released its final report on An Ageing Australia: Preparing for the Future, which warned that total private and public investment requirements over the next 50 years are estimated to be more than 5 times the cumulative investment made over the last half century:

Australia’s population is projected to increase to more than 38 million by 2060… The likely population growth will place pressure on Australian cities… In response to the significant increase in the size of Australian cities, significant investment in transport and other infrastructure is likely to be required. This is true both within the cities themselves and for the links between regional and major cities. Policies will be needed to reduce congestion problems, and to ensure adequate infrastructure funding and investment efficiency…

Total private and public investment requirements over this 50 year period are estimated to be more than 5 times the cumulative investment made over the last half century, which reveals the importance of an efficient investment environment…

The report also warned that without such massive investment, multifactor productivity – the key driver of living standards – would fall:

With MFP growth projected to be 0.7 per cent per year under the base case, the remaining share of labour productivity is driven by the accumulation of capital. Given assumptions about the capital share of income, this study estimates that the capital/labour ratio would increase by around 1.8 per cent per year over the projection period, only slightly less than the long-run growth rate from 1974-75 to 2012-13 (figure 4.7).

The implied level of investment to drive such capital accumulation is large — estimated at around $38 trillion dollars over the projection period in constant 2011-12 prices (table 4.4). To put that in context, in the more than fifty years from 1959-60 to 2012-13, total investment in Australia has been around $8.2 trillion. While different assumptions about capital income shares, multifactor productivity growth and depreciation affect the projections, they all produce qualitatively similar outcomes: Australia will be buying and building a large amount of physical capital. Without the efficient allocation of that capital, the achievable labour productivity growth rate would be considerably lower.

The bottom line is that running a high immigration program requires massive investment and costs a lot. Australia’s governments have failed dismally on this front, preferring to take the sugar hit from added demand while leaving the problems to be solved down the track on somebody else’s watch (i.e. never). Yet Irvine magically believes that the situation can be turned around and that Australia can easily accommodate the flood of new residents without straining infrastructure, the environment, or living standards.

Irvine’s claim that “we should keep our borders open to as many souls as possible because it’s the right thing to do” and that “it’s not the job of a politician in Canberra to decide how big Australia should be” is ridiculous.

It is first and foremost the job of our politicians to look after the interests of its residents. This necessarily requires setting the immigration program to maximise wellbeing of existing residents and basing it on a framework founded on evidence as well as community consultation and support. Again, to quote the PC:

FINDING 3.1

With low and stable rates of natural population growth, decisions about the size of the permanent and temporary immigration intake amount to a de facto population policy.

The Australian Government’s judgments about immigration levels and population growth should be better informed by:

• a broad range of evidence which identifies, quantifies (where possible) and analyses the impacts of immigration and population growth on the wellbeing of the existing Australian community

• the Australian community’s values and perspectives on the importance of different impacts, that are well-informed by evidence

• the impact on future generations, incorporating a well-informed consideration of Australia’s absorptive capacity

• the effectiveness of policies that are best equipped to address these impacts. Enhancing the Australian community’s wellbeing is likely to be consistent with a range of immigration rates depending on the settings of many other complementary policies.

RECOMMENDATION 3.1

The Australian Government should:

• develop and articulate a population policy to be published with the intergenerational report

• specify that the primary objective of immigration and the Government’s population policy is to maximise the economic, social and environmental wellbeing of the Australian community (existing Australian citizens and permanent residents) and their future offspring.

Australia’s immigration and population policy should be better informed through:

• genuine community engagement

• a broad range of evidence on the economic, social and environmental impacts of immigration and population growth on the wellbeing of the Australian community

• a published five yearly review of Australia’s population policy. The Australian Government should calibrate the size of the annual immigration intake to be consistent with its population policy objectives.

Indeed, MB has for a long time called for a frank and honest national conversation about population policy, which focuses on raising the living standards of the existing population. Not the current ‘grow and hope’ position displayed by Irvine, which blindly assumes that mass immigration is beneficial, and maintains the current ‘Big Australia’ plan without first undertaking community consultation and gaining its support.

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