Population growth needs to be part of the national economic conversation
The debate over population has dominated the latest meeting between the national and state governments and is set to be a major and heated political issue at next year’s federal election.
After years of bipartisan support between the two major parties for Australia’s high population growth, this consensus is fracturing.
Prime Minister Scott Morrison has unexpectedly taken up the issue, calling for a bottom-up approach to setting the immigration level based on what the individual states would like, recognising that population growth — and its associated costs — are not evenly spread.
He has called for a reduction in immigration of around 30,000 people per year, from 190,000 to around 160,000, arguing it would help take pressure off congested cities.
“The roads are clogged, the buses and trains are full, the schools are taking no more enrolments,” he argued.
The fact that more people means more strain on already struggling infrastructure seems obvious, but there is great debate on some of the more contentious impacts.
Unfortunately, this is a discussion which is difficult to divorce from emotion.
Some supporters of high immigration will accuse anyone questioning the rate of being xenophobic or racist and undoubtedly there are some whose objections do spring from that well.
However, polling has shown that most Australians support the concept of immigration, though there is an argument about what level is appropriate.
Should it be 100,000 people a year or 1 million? The settings will have a large impact on Australia’s economy and society.
Australia’s population growth
First, the numbers.
Australia’s population is growing at more than twice the rate of either the United Kingdom or the United States. With an increase of 1.6 per cent, last year Australia added 388,000 people, roughly the population of Canberra.
It’s driven largely by immigration, with net overseas migration of 236,800 people.
It’s not all people making a permanent move, with Australia’s temporary visa program swelling in recent years.
At the end of September, there were 2.2 million people in Australia on temporary visas, with the vast majority entitled to legally work in at least some capacity. That’s an increase of more than half a million from around six years ago.
Impact on wages
As noted by the Reserve Bank, Australian wages growth is too low and has been for a while.
The below chart shows that Australian workers have not been seeing decent pay rises over the last five years.
Average real wages growth has consistently been falling so far this century. (Supplied: Indeed)
Although the direct relationship between wages and immigration is not clear, all other things being equal, in the short term an increase of the supply of labour through high migration should mean lower wages growth.
This is because there are more people vying for work and so businesses don’t have to pay as much.
Some academics argue that Australia must maintain high immigration in order to avoid a skills shortage in the future. Professor Peter McDonald argues that without high immigration there won’t be enough workers to fill the jobs being created.
Yet, according to the most recent data, there are about 680,000 unemployed Australians and an additional 1 million Australians who have a job, but would like more hours.
This is a large pool of people who could be either trained up for new roles if businesses and the government were willing to invest.
Hiring foreign workers might be cheaper for an individual business, but doesn’t help those currently looking for a job.
When some people talk about a “skills shortage” they mean a business is unable to find a worker for a role for the pay and conditions they are willing to offer.
If there was truly a skills shortage then the laws of supply and demand should mean that the price for the scarce resource, in this case labour, would rise to attract more people into the job. The wages data show this simply isn’t happening in most industries.
Impact on the budget
Put simply, having more people means more economic growth — they’re either working or consuming and most likely both.
Australia likes to laud its record-breaking run of economic success. More than 27 years of uninterrupted economic growth.
But in per capita, that is per person, terms it’s been much less impressive. The per capita increase is currently running at 1.2 per cent, well below the 2.8 per cent headline annual figure that also accounts for the increase in population.
Any reduction in population growth should mean lower aggregate economic growth and consequently a lower tax take for the Government.
Benefits of population growth
Immigration can have many positive impacts on an economy. It adds to the diversity of the country’s skill set and the importation of individuals with unique qualities can also boost the economy.
At times of rapid economic expansion, as seen during the height of the mining boom, it can keep wages growth from getting out of control and thus stop prices from spiralling up too much.
This is good for all those Australians who are owners of businesses, either directly or through investments, including superannuation.
High population growth has also helped push up Australian house prices — great news for those who owned a property and saw its value soar in recent years.
The flip side of course being that it made it much more expensive for those who didn’t own a house to get on the proverbial property ladder.
There’s no doubt that immigration has made Australia’s society and economy the envy of most of the world, but a rational debate on how much population growth is the optimal amount is a much needed addition to the national conversation.