IGR deliberately ignores costs of immigration

As we know, the The Australian Treasury’s latest Intergenerational Report (IGR) is being used by Treasurer Josh Frydenberg as an excuse to ramp-up immigration:

Our population is growing slower and ageing faster than expected…

Over the last 12 months which has seen population growth at just 0.1 per cent, the lowest in 100 years.

Migration levels are forecast to get back to where they were in 2024-25, but do not recover the ground lost during COVID-19.

As a result, Australia’s population is expected to reach 38.8 million in 2060-61, six years later than was forecast in the last IGR.

On top of this a lower than expected migration intake contributes to the ageing of the population as the average age of migrants is below that of the existing population…

Only by growing the economy can we continue to guarantee the essential services Australians rely on.

The IGR also claims that net overseas migration (NOM) is an important ingredient to lifting productivity:

Migration directly boosts population growth and, because migrants tend to be younger and higher skilled, this population growth can also support labour force participation and productivity.

It then forecasts higher annual NOM than prior IGRs – 235,000 from 2025-26 onwards versus 215,000 per year in the 2015 IGR – centred around a 30,000 increase in Australia’s non-humanitarian permanent migrant intake to 190,000 (from 160,000 pre-COVID):

From 2025-26 onwards, NOM is assumed to remain at a fixed level of 235,000. The age and sex distribution of both arrivals and departures are assumed to reflect the 5-year historical average distribution observed from 2012-13 to 2017-18.

The NOM assumption of 235,000 people per year over the long run reflects:

• the Government’s migration planning levels (reviewed and set by the Government on a yearly basis) of:
– the permanent Migration Program (190,000 people per year from 2023-24)
– the Humanitarian Program (13,750 people per year)

• the flows of temporary migrants who reside in Australia for several years but do not transition to permanent residency (assumed to be a net inflow of 66,250 people per year, based on a historical average of the net inward flow of such migrants prior to the onset of the COVID-19 pandemic);

• the flows of Australian citizens (assumed to be a net outflow of around 15,000 people per year, based on a historical average), as well as the number of permanent residents who subsequently emigrate (assumed to be a net outflow of around 20,000 people per year, based on a historical average).

As usual, the IGR gives minimal acknowledgement of the many negatives of strong NOM, other than it needing to be “well managed”:

Migrants are expected to continue to be the largest source of population growth. Migration contributes to economic growth and can help offset population ageing. However, migration needs to be managed well to ensure it supports higher living standards…

Migration should be kept at or below the capacity of the destination city or region to absorb new migrants, taking into account impacts on incumbent populations…

Governments at all levels need to ensure that planning and infrastructure provision keep pace with current and future migration rates and ensure that migrants have access to essential services – such as public transport, support services and housing – and can meaningfully integrate into society.

This is curious because the actual modelling used by the Australian Treasury for the IGR ignores these costs entirely, alongside the costs imposed on state budgets from providing the many goods and services required to sustain bigger populations (e.g. infrastructure, education and social services):

The OLGA [OverLapping Generations model of the Australian economy] and FIONA [Fiscal Impact of New Australians] results presented in this report do not capture the broader economic, social or environmental effects of migration such as technology spillovers or congestion. The FIONA results presented here do not capture the fiscal impacts of migration on state or local governments.

This shows that the whole immigration program is really about numbers – the ‘Treasury numbers’ needed to sustain Australia’s headline rate of economic growth and the Commonwealth’s projected tax revenues.

Given Treasury has responsibility for federal government revenue (whereas the Department of Finance controls expenditure), it always has a strong bias towards higher immigration, since more migrants means bigger personal and company taxes.

However, the Treasury never takes proper account of the costs of big migration – either financial or non-financial – since these are borne primarily by the states and residents at large.

This explains why the IGR bangs on about the rise in healthcare and pension costs from population ageing, but completely ignores the gigantic cost of infrastructure required to house an additional projected 13.1 million people over the next 40 years – the equivalent of adding another Sydney, Melbourne and Brisbane to Australia’s existing population. These infrastructure costs are borne by the state governments and residents (via user charges), so can be dismissed altogether by Treasury.

I bet if the federal government was required to internalise the cost of immigration by paying the states $100,000 per permanent migrant that settles in their jurisdiction, so that the states can adequately fund the extra infrastructure and services required, then Treasury would no longer tout the ‘fiscal benefits’ of immigration.

Making the federal government share the benefits and costs of immigration would be a surefire way of reducing the intake back to sensible and sustainable levels.