16 September 2011

Reality check on growth

The 35-million projection was prepared by the Commonwealth Treasury. It parallels recent Australian Bureau of Statistics and state government population projections. All assume that the current record high net migration levels and high fertility (relative to a few years ago) will continue.

If Australia reaches 35 million by 2050, choices about desired family size will play a minor role. The projections all assume that fertility will remain below the long-term replacement level. As a result, some 85 per cent of the projected growth from 22 million today to 35 million will derive from net overseas migration (including children born to migrants once in Australia).

In other words, the projected growth will largely be a consequence of deliberate government migration policy.

It is most unlikely that projections which assume that record high migration will continue unabated will come to pass. Our history is littered with such failures. For example, in the late 1960s, when migration and fertility were both high, the Melbourne Metropolitan Board of Works projected that Melbourne would reach 5 million by 2000. It reached 3.4 million. Pursuit of the migration-driven 35 million target will generate increasing vexations as governments struggle to accommodate the extra numbers. Opposition will increase, as will critical attention to migration policies.

Yet the 35-million projection has been seized on, indeed embraced, as a welcome challenge by the Rudd Government. Wayne Swan and his Treasury love rapid population growth. The economic activity deriving from the recent population surge prevented Australia from experiencing a recession. As a consequence, real aggregate gross domestic product increased by 1 per cent between 2007-08 and 2008-09. But during the same period, real GDP per capita, which is a better measure of economic welfare, fell by 0.9 per cent.

Those involved in the building needed for the housing, services and employment required by new residents have a direct interest in high population growth. They include Victoria’s state government leaders, who are aware that the state’s main growth industry is city building.

The Rudd Labor Government’s stated justification for its high migration policy is linked to the impending retirement of the baby boomers (those born in the 1950s and early 1960s). The Government asserts that this will lead to a decline in the rate of labour-force growth in Australia and a decrease in the ratio of workers to people in the post 65-year age group.

The Government is correct that some policy response is required, although the issues will only seriously emerge in a decade or so and thus do not justify high migration now.

In any case, it is questionable whether high migration is the answer. For a start, the gloom about workforce decline has been overstated. Our projections (which match those used by the Rudd Government) indicate that even with net overseas migration reduced from its current high of at least 285,000 to a more ”normal” net 90,000 per annum, Australia’s workforce will still grow by about a million over the decade from 2008 to 2018. Though less than half the recent rate of growth, it is still healthy.

The past decade has also seen a remarkable increase in the proportion of men and women aged 55-plus in employment. If encouraged by workplace reforms and tax policies, this increase should continue.

More fundamentally, there is enormous potential to better utilise Australia’s domestic workforce, mainly by training the younger generation in the skills needed for tomorrow’s workplace. Most future job growth will be at the professional, managerial and technical level, where a university degree is the minimum entry requirement. There has been little growth in higher education training for Australians and, as a result, Australia depends heavily on immigrants to fill the gaps.

Continuing this immigration-dependent policy in order to boost the ratio of workers to retirees is not in Australian residents’ interests. Lower migration would mean less need for city building and more scope for investing Australians’ limited savings in increased productive capital per worker.

Victoria’s dependence on city building, fuelled largely by population growth in Melbourne, has helped the state do better during the recent economic slowdown than the resource states of Queensland and Western Australia. Nevertheless, the day of reckoning is approaching. Victoria’s overseas exports of goods and services declined in the past decade at the same time that its imports exploded. By 2008-09, according to Bureau of Statistics national accounts, some $63.1 billion in imports were sourced to Victoria, compared with just $33.6 billion in exports of goods and services.

This is not sustainable. It is doubtful whether the other states will stand idly by should Victoria’s demands on the national finances for its city building and peopleservicing activities continue to increase.

Bob Birrell is with the Centre for Population and Urban Research at Monash University.#
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