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Leith van Onselen tackles the growth lobby monster - by Leith van Onselen

Tonight, [Feb 18, 2018] I appeared on the ABC’s National Wrap to debate the Migration Council’s CEO, Carla Wilshire, on Australia’s mass immigration program. Below are notes from the debate explaining my position and refuting Ms Wilshire’s key lines of argument.

By Unconventional Economist in Australian Economy at 11:01 pm on February 18, 2018. First published at https://www.macrobusiness.com.au/2018/02/leith-van-onselen-tackles-growth-lobby-monster/.

Economic modelling on immigration is unflattering and does not reflect real life:

During the debate, we got into an exchange over the purported economic benefits of immigration, as noted by the various Productivity Commission (PC) modelling.

Ms Wilshire argued the modelling shows unambiguous benefits to Australians because GDP per capita is increased, whereas I argued that incumbent Australian workers are made worse-off from falling wages (let alone broader impacts like congestion, higher infrastructure costs, smaller and less affordable housing, etc).

At the outset, it is important to note that economic modelling around immigration is inherently limited and often does not reflect real life.

First, it is generally assumed in these models that population ageing will result in fewer people working, which will subtract from per capita GDP. However, it is equally likely that age-specific workforce participation will respond to labour demand, resulting in fewer people being unemployed, as we have witnessed in Japan, where the unemployment rate is below 3%.

Even if this assumption holds true, the benefit to GDP per capita would only be transitory. Once the migrant workers grow old, they too will add to the pool of aged Australians, thus requiring an ever increasing immigration intake to keep the population age profile from rising.

Second, it is generally assumed that migrant workers are more productive than the Australian born population and, therefore, labour productivity is increased through strong immigration. However, the evidence here is highly contestable, with migrants generally being employed below the level of their qualifications, as well as having lower labour force attachment than the Australian born population (more information here).

Third, these economic models typically assume that immigration allows for either steady or increasing economies of scale in infrastructure (i.e. either assumes that population growth does not diminish the infrastructure stock; that bigger is always cheaper; or there is under-utilised capacity). At the same time, they completely ignore the dead weight of having to build more infrastructure each year, as well as the dis-economies of scale from having a bigger population, which necessarily makes new infrastructure investment very expensive (e.g. tunneling, land buy-backs, water desalination, etc).

Finally, and related to the above, these models ignore obvious ‘costs’ of mass immigration on productivity. Growing Australia’s population without commensurately increasing the stock of household, business and public capital to support the bigger population necessarily ‘dilutes’ Australia’s capital base, leaving less capital per person and lowering productivity. We have witnessed this first hand with the costs of congestion soaring across Australia’s big cities.

With these caveats in mind, what does the PC’s modelling on immigration actually say?

Well, the PC’s Migrant Intake Australia report, released in September 2016, compared the impact on real GDP per capita from:

  • Historical rates of immigration, whereby population hits 40 million by 2060; and
  • Zero net overseas migration (NOM), whereby the population stabilises at 27 million by 2060.

The PC’s modelling did find that GDP per capita would be 7% ($7,000) higher by 2060 under current mass immigration settings. However, all the gains are transitory and come from a temporary lift in the employment-to-population ratio, which will eventually reverse once the migrants age (i.e. after the forecast period):

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 PC also explicitly acknowledges that per capita GDP is a “weak” measure of economic welfare:

While the economywide modelling suggests that the Australian economy will benefit from immigration in terms of higher output per person, GDP per person is a weak measure of the overall wellbeing of the Australian community and does not capture how gains would be distributed among the community. Whether a particular rate of immigration will deliver an overall benefit to the existing Australian community will crucially depend on the distribution of the gains and the interrelated social and environmental impacts.

It is worth pointing out that the PC’s modelling unrealistically assumed that Australia’s infrastructure stock would keep pace with the extra population, which is vital if economy-wide productivity is not to dimish:

Specifically, the expansion in labour supply through migration is projected to lead roughly to the same proportional growth in capital and output in most industries including infrastructure industries. That is, the modelling broadly assumes that there are constant returns to scale in production…

As the modelling broadly assumes that there are constant returns to scale in production, the economy-wide modelling results are broadly linear. Hence, while the modelling provides insight into the economic impact of NOM, in practice limits on Australia’s absorptive capacity (including environmental factors) mean that constant returns to scale are unlikely to hold for very high rates of immigration.

Clearly, this assumption is at at odds with the Australian economy’s ‘lived experience’, whereby massive infrastructure deficits have accumulated over the last 15-years of hyper immigration, particularly in the major cities.

Most importantly for incumbent Australian workers, the PC’s modelling finds that labour productivity and real wages are projected to decrease under current mass immigration settings versus zero net overseas migration (NOM):

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…

With zero NOM, real wages are projected to increase over time, and at a rate greater than in the business-as-usual scenario. That is, in the zero NOM scenario labour is relatively scarce which puts upwards pressure on real wages and causes a substitution towards capital, contributing to the marginally higher labour productivity relative to the business-as-usual scenario (figure 10.5, panel b). Higher rates of labour force participation through immigration in the business-as-usual case is projected to moderate such wage pressures.

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Therefore, according to the PC’s most recent modelling, 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, beyond the forecast period (2060), the migrants will age and retire, thus dragging down future growth – classic ‘ponzi demography’.

As noted by the PC above, its latest modelling also did not take account of the distribution of gains to per capita GDP, which is vitally important. Thankfully, it’s 2006 major study on the Economic Impacts of Migration and Population Growth did, and the results were unflattering.

Here, 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 “the incomes of existing resident workers grow more slowly than would otherwise be the case”. Below is the money quote:

The increase in labour supply causes the labour / capita ratio to rise and the terms of trade to fall. This generates a negative deviation in the average real wage. By 2025 the deviation in the real wage is –1.7 per cent…

Broadly, incumbent workers lose from the policy, while incumbent capital owners gain. At a 5 per cent discount rate, the net present value of per capita incumbent wage income losses over the period 2005 – 2025 is $1,775. The net present value of per capita incumbent capital income gains is $1,953 per capita…

Owners of capital in the sectors experiencing the largest output gains will, in general, experience the largest gains in capital income. Also, the distribution of capital income is quite concentrated: the capital owned by the wealthiest 10 per cent of the Australian population represents approximately 45 per cent of all household net wealth…

To it’s credit, the PC’s Migrant Intake Australia report does go to great lengths to stress that there are many costs associated with running a high immigration program that are not captured in the modelling but are borne by incumbent residents and unambiguously lowers their welfare:

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 …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.

…there will be additional costs for the community where environmental services that are currently ‘free’ have to be replaced with technological solutions…

Accordingly, the PC explicitly asks that these costs be considered as part of any cost-benefit analysis on the immigration intake, rather than blindly following the results of its modelling.

A prime example of these costs is infrastructure. In its Migrant Intake Australia report, the PC pulls no punches about the higher cost of living imposed on incumbent residents from mass immigration, particularly in the big cities:

…where assets are close to capacity, congestion imposes costs on all users. A larger population inevitably requires more investment in infrastructure, and who pays for this will depend on how this investment is funded (by users or by taxpayers). Physical constraints in major cities make the costs of expanding infrastructure more expensive, so even if a user-pays model is adopted, a higher population is very likely to impose a higher cost of living for people already residing in these major cities.

This follows the PC’s warnings in 2013 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:

The likely population growth will place pressure on Australian cities. All of Australia’s major cities are projected to grow substantially… In response to the significant increase in the size of Australian cities, significant investment in transport and other infrastructure is likely to be required… 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…

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Similarly, in its latest Shifting the Dial: 5 year productivity review, the PC explicitly noted that infrastructure costs will inevitably balloon due to our cities’ rapidly growing populations:

Growing populations will place pressure on already strained transport systems… Yet available choices for new investments are constrained by the increasingly limited availability of unutilised land. Costs of new transport structures have risen accordingly, with new developments (for example WestConnex) requiring land reclamation, costly compensation arrangements, or otherwise more expensive alternatives (such as tunnels).

In short, there is little hope of achieving the level of investment required to sustain current levels of mass population growth, let alone an increase in the immigration intake to 250,000 (from 210,000 currently), as demanded by the Migration Council.

Overall, the PC’s economic modelling on immigration shows little (if any) material economic benefit to incumbent Australian residents. And once you add the various external costs not captured in the modelling (e.g. more expensive housing, more expensive infrastructure, congestion, and environmental degradation), the overall costs of mass immigration to ordinary Australians almost certainly outweighs the benefits.

Further information on why mass immigration is not in Australia’s interest is explained in MB’s submission to the federal government’s Migration Program review, which is reproduced below. (You can also download a PDF copy here – please share it around).

The Migration Council must believe in exponential population growth:

In responding to my claim that Australia’s NOM is running at triple the historical average, Carla Wilshire argued that when measured in percentage terms (i.e. the rate of growth), it isn’t actually that high and could be increased further. (Again, the Migration Council has lobbied for the immigration intake to be increased to 250,000 from 210,000 currently.)

In taking this line of argument, Ms Wilshire is being very loose with the facts.

First, as noted by the PC’s Migrant Intake Australia report, Australia’s immigration intake as a percentage of population (currently 1%) is very high by historical standards:

Second, and more importantly, it is not the immigration rate that matters for infrastructure, traffic congestion, or the environment, but rather the sheer numbers. Does Ms Wilshire honestly believe in exponential population growth? Because that’s what a stable immigration growth rate implies, which is clearly unsustainable [note: Australia’s current population growth rate in 1.6%]:

Seriously, how big does Ms Wilshire want Australia to become? As noted by The Australia Institute:

Figure 10 shows that under the ABS central forecast, in 2061 Victoria would have the same population as all of Australia had in 1960. In 2061 Queensland would have a larger population than all of Australia had in 1950. It is important to note that these are not the projections of the high growth scenario (Series A), but of the one that most closely matches current trends (Series B).

How much population is enough?

Migration Council is just another mass immigration lobby group:

During the interview, I claimed that the Migration Council’s economic modelling on immigration could not be trusted as it is a vested interest lobby group backed by big business.

Ms Wilshire responded angrily claiming that it was non-partisan and not-for-profit.

Really?

Since its inception, the organisation has lobbied strongly for a ‘Big Australia’ and for the immigration intake to be increased to 250,000 (from 210,000 currently).

It has also been chaired by pro-Big Australia business people and has stacked its board accordingly.

Andrew Jakubowicz, Professor of Sociology, described the formation of the Council in 2010 as follows:

The announcement of the formation of a Migration Council of Australia and its launch by the Governor General on August 1, confirmed by Department of Immigration and Citizenship official Gary Fleming at the Settlement Council of Australia conference in Adelaide in late June, marks a critical juncture in population and immigration policy…

The MCA wants to find a new space to assert the importance of migration and effective settlement, and has brought together some heavy hitters to make this happen. Headed by Peter Scanlon (ex Patricks Chair) – and bringing together Business Council of Australia chair Tony Shepherd, Australia Post head Ahmed Fahour, Ethnic Communities Federation chair Pino Migliorino, Adult Migrant Education Victoria head Catherine Scarth and a number of others – the organisation seeks to build a bridge between those with an economic interest in a big Australia, and those with a social interest in a fair Australia.

Scanlon has been a key figure in building an information base about immigration and settlement through his Foundation… He is also a major real estate developer and will come under scrutiny for how this new lobby group might create benefits for his commercial interests…

Peter Scanlon is a key leader of Australia’s ‘growth lobby’, and has a clear vested interest in mass immigration, as explained by John Masanauskas:

MAJOR investor and former Elders executive Peter Scanlon hardly blinks when asked if his conspicuous support for a bigger population is also good for business.

Mr Scanlon, whose family wealth is estimated to be more than $600 million, has set up a foundation with the aim to create a larger and socially cohesive Australia.

It also happens that Mr Scanlon has extensive property development interests, which clearly benefit from immigration-fuelled high population growth.

“My primary driver in (setting up the foundation) is if we don’t have growth we are going to lose all our youth because the world is looking to train people around the world,” he explains. “Instead of having stagnant growth, we’re going to have a serious decline.”

Mr Scanlon believes that governments aren’t doing enough to sell the benefits of a bigger population so he has put his money where his mouth is…

Peter Scanlon vacated the chair of the Migration Council in 2015 and was replaced by long-time mass immigration booster and Australian Industry Group CEO, Innes Willox, who was affectionately described last year by The AFR “as one of Australia’s top business lobbyists”.

Let’s not pretend that the Migration Council of Australia is impartial in the immigration debate. It is a stealth ‘Big Australia” lobbyist for the business sector.

On a side note, a quick look at the Migration Council’s modelling of immigration’s economic impacts reveals the following howler of an assumption: it “allows for economies of scale in infrastructure”.

You read that right. Their model ridiculously assumes that bigger is always cheaper and/or there is always under-utilised capacity. This flies in the face of the ‘lived experience’ of growing infrastructure bottlenecks and rising congestion costs, as well as increasingly complex and expensive infrastructure projects (i.e. classic dis-economies of scale).  

I’ve already discussed these infrastructure issues above with respect to the PC’s modelling, so I won’t do it again. But clearly the Migration Council has chosen favourable assumptions to get a positive modelling result in support of its Big Australia agenda. Garbage in, garbage out.

Carla Wilshire admits a ‘Big Australia’ will lower residents’ living standards:

Finally, after spending the whole segment arguing that mass immigration will raise Australia’s living standards, Ms Wilshire tacitly admitted that, actually, living standards will fall for those of us living in Sydney and Melbourne:

“…congestion in Sydney and Melbourne is undoubtedly getting to a point where a significant investment in infrastructure is going to have to happen. In fact, one could argue that point was some years back…

One of the ways that we are going to have to solve that problem is decreasing the per capita cost of investment in infrastructure. And migration is part of that solution…

And in some senses it is also about an acceptance that the way in which these two cities function, and the way in which we live in these two cities, is going to change over time. It’s going to be much more about apartment living. It’s going to be much more about public transport. And it’s going to be much more about sustainable cities”…

Only in the Bizarro World of the Migration Council do you solve an infrastructure deficit by adding millions more people. And only in the Migration Council’s world does having to live in shoebox apartments, suffering from greater congestion, as well as making everyone consume less of everything, just so we can make room for mass immigration, equate to higher living standards.

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February 2018

THE BLIND MARCH TOWARDS A ‘BIG AUSTRALIA’

Submission to the Department of Home Affairs’ Managing Australia’s Migrant Intake Review

Summary

At MacroBusiness we support immigration, but at sustainable levels.

Australia’s immigration levels are too high – higher than our cities can absorb. The infrastructure costs of high immigration are excessive and Australia’s infrastructure supply is not keeping up with demand, despite our best efforts.

The economic arguments frequently used to justify high immigration fail the evidence test. Empirical data does not support mass immigration. Excessive immigration also damages Australia’s employment market and the environment.

It is time for an honest debate.

Currently, Australia’s immigration program is overloading the major cities with tens of thousands of extra people each year to stoke overall economic growth (but not growth per person) and to support business (e.g. the property industry and retailers), despite growth per person stagnating.

Meanwhile, individual living standards are being eroded through rising congestion costs, declining housing affordability, paying more for infrastructure (e.g. toll roads and water), environmental degradation, and overall reduced amenity.

The economic evidence for the above is contained in this submission.

The Australian Government needs to stop ignoring these issues. Australia’s living standards are at stake.

MacroBusiness urges the Australian Government to reduce Australia’s immigration intake back towards the historical average of around 70,000 people per annum.

1. Australia’s immigration program is unprecedented:

One of the most profound changes affecting the Australian economy and society this century has been the massive lift in Australia’s net immigration, which surged from the early-2000s and is running at roughly triple the pace of historical norms (Chart 1).

In the 116 years following Australia’s Federation in 1901, Australia’s net overseas migration (NOM) averaged around 73,000 people a year and Australia’s population grew on average by around 180,000 people.

Over the past 12 years, however, Australia’s annual NOM has averaged nearly 220,000 people a year and Australia’s population has grown on average by 370,000 people.

The principal driver of Australia’s population increase has been the Australian Government’s permanent migrant intake, which has increased from 79,000 in 1999 to nearly 210,000 currently, including the humanitarian intake (Chart 2).

Due to this mass immigration ‘Big Australia’ policy, Australia’s population has expanded at a rate that is more than 2.5 times the OECD average, easily the fastest of advanced English-speaking nations (Chart 3).

This rapid population growth is expected to continue for decades to come, with the Australian Government’s Intergenerational Report projecting population growth of nearly 400,000 people a year – equivalent to one Canberra – until Australia’s population reaches 40 million mid-century (see Chart 1 above).

However, the problem with Australia’s mass immigration policy is not just the extreme volume, but also the concentration of migrants flowing to Australia’s largest and already most overcrowded cities.

As shown in Chart 4, around three quarters of Australia’s NOM has flowed to New South Wales and Victoria, principally Sydney and Melbourne:

In the 12 years to 2016, Melbourne’s population expanded by nearly 1.1 million (30%), while Sydney’s population expanded by 845,000 (20%). There was also strong growth in Brisbane (537,000) and Perth (502,000) (Charts 5 and 6).


The migrant influx helps to explain why dwelling price growth has been strongest in Sydney and Melbourne, and why housing is most unaffordable in these two cities (Charts 7 and 8). While the Australian Government and property lobby likes to blame a ‘lack of supply’, the problem rests primarily with excessive demand from mass immigration.


The chronic problems around housing and infrastructure will only get worse under the current mass immigration policy.

State Government projections have Melbourne’s population expanding by 97,000 people each year (1,870 people a week) and Sydney’s by 87,000 people each year (1,670 people each week) for the next several decades until both cities’ populations hit around 8 million people mid-century.

To put this population growth into perspective, consider the following facts:

  • It took Sydney around 210 years to reach a population of 3.9 million in 2001. And yet the official projections have Sydney adding roughly the same number of people again in just 50 years.
  • It took Melbourne nearly 170 years to reach a population of 3.3 million in 2001. In just 15 years, Melbourne expanded by 34% to 4.5 million people. And the official projections have Melbourne’s population ballooning by another 3.4 million people in just 35 years.

No matter which way you cut it, residents of our two largest cities will continue to feel the impact of this rapid population growth via: traffic gridlock; overloaded public transport, schools, and hospitals; pressures on energy and water supplies; as well as more expensive (and smaller) housing.

It is a clear recipe for lower living standards.

2. No economic bonanza:

Politicians and economists frequently claim that maintaining a ‘strong’ immigration program is essential as it keeps the population young and productive, and without constant immigration, the population would grow old and the economy would stagnate.

For example, Prime Minister Malcolm Turnbull has stated previously that “anyone who thinks it’s smart to cut immigration is sentencing Australia to poverty”. In a similar vein, former KPMG partner and “unabashed supporter of a bigger Australia”, Bernard Salt, has produced reams of articles warning that Australia faces economic and fiscal catastrophe without ongoing strong immigration.

Economic models are often cited as proof that a strong immigration program is ‘good’ for the economy because they show that real GDP per capita is moderately increased via immigration, based on several dubious assumptions.

First, it is generally assumed in these models that population ageing will result in fewer people working, which will subtract from per capita GDP. However, it is just as likely that age-specific workforce participation will respond to labour demand, resulting in fewer people being unemployed, as we have witnessed in Japan, where the unemployment rate is below 3%.

Even if this assumption was true, the benefit to GDP per capita would only be transitory. Once the migrant workers grow old, they too will add to the pool of aged Australians, thus requiring an ever increasing immigration intake to keep the population age profile from rising.

Indeed, the Productivity Commission (PC) has for more than a decade debunked the myth that immigration can overcome population ageing. For example, in its 2010 submission to the Minister for Population, the PC explicitly noted that “substantial increases in the level of net overseas migration would have only modest effects on population ageing and the impacts would be temporary, since immigrants themselves age”.

Academic demographer, Peter McDonald, has also previously stated that it is “demographic nonsense to believe that immigration can help to keep our population young” .

Second, it is generally assumed that migrant workers are more productive than the Australian born population and, therefore, labour productivity is increased through strong immigration. However, the evidence here is highly contestable, with migrants generally being employed below the level of their qualifications, as well as having lower labour force attachment than the Australian born population (more information here).

Third, economists and their models generally ignore obvious ‘costs’ of mass immigration on productivity. Growing Australia’s population without commensurately increasing the stock of household, business and public capital to support the bigger population necessarily ‘dilutes’ Australia’s capital base, leaving less capital per person and lowering productivity. We have witnessed this first hand with the costs of congestion soaring across Australia’s big cities.

Moreover, the cost of retro-fitting our big cities with infrastructure to cope with larger populations is necessarily very expensive – think tunnelling and land acquisitions – with costs borne largely by the incumbent population. This fact was explicitly acknowledged by the PC’s recent Shifting the Dial: 5 year productivity review:

“Growing populations will place pressure on already strained transport systems… Yet available choices for new investments are constrained by the increasingly limited availability of unutilised land. Costs of new transport structures have risen accordingly, with new developments (for example WestConnex) requiring land reclamation, costly compensation arrangements, or otherwise more expensive alternatives (such as tunnels)” .

Finally, while economic models tend to show a modest improvement in real GDP per capita, the gains are more likely to flow to the wealthy, whereas ordinary workers are made worse-off.

In 2006, the PC completed a major study on the Economic Impacts of Migration and Population Growth, which modelled the impact of a 50% increase in the level of skilled migration over the 20 years to 2024-25. The modelling found that even skilled migration does not increase the incomes of existing residents. According to the Commission: “the distribution of these benefits [from skilled migration] 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” .

Of course, there are other costs borne by incumbent residents from immigration that are not captured in the economic modelling, such as worsening congestion, increased infrastructure costs, reduced housing affordability, and environmental degradation – none of which are given appropriate consideration by politicians nor economists.

Adding a Canberra-worth of population to Australia each and every year – with 80,000 to 100,000-plus people going to Sydney and Melbourne – requires an incredible amount of investment just to keep up. Accordingly, Australia’s infrastructure deficit has fallen badly behind over the past decade, and will continue to do so under Australia’s mass immigration program, thus eroding residents’ living standards.

3. Empirical data does not support mass immigration:

While the economic models might show small per capita gains from immigration-fuelled population growth, based on faulty assumptions, the actual empirical evidence shows no link between population growth and prosperity.

Since Australia’s immigration intake was expanded in the early-2000s, trend GDP per capita growth has plummeted to recessionary levels, suggesting falling living standards (Chart 9).

Chart 10 plots the growth in GDP per capita versus population change between 2000 and 2016 across OECD nations and shows no correlation (Australia denoted in red):

Meanwhile, there is a slight negative relationship between labour productivity and population growth (Chart 11):

Whereas there is zero correlation between population growth and multifactor productivity across OECD nations:

A recent study by economists at the Massachusetts Institute of Technology (MIT) also found “that even when we control for initial GDP per capita, initial demographic composition and differential trends by region, there is no evidence of a negative relationship between aging and GDP per capita; on the contrary, the relationship is significantly positive in many specifications” (Chart 13).

There is also evidence to suggest that mass immigration is partly behind Australia’s trade and current account deficits, as well as the nation’s ballooning foreign debt.

The lion’s share of Australia’s export revenue comes from commodities and from Western Australia and Queensland in particular (Chart 14):

However, the majority of Australia’s imports and indeed private debt flows to our biggest states (and cities), New South Wales (Sydney) and Victoria (Melbourne). Sydney and Melbourne also happen to be the key magnets for migrants (see Charts 4,5 and 6 above).

Increasing the number of people via mass immigration does not materially boost Australia’s exports but does significantly increase imports (think flat screen TVs, imported cars, etc.). Accordingly, both New South Wales and Victoria have driven huge trade deficits as the extra imports have far outweighed exports (Chart 15):

All of these extra imports must be paid for – either by accumulating foreign debt, or by selling-off the nation’s assets. Australia has been doing both.

Australia would improve its trade balance and current account deficit, as well as reduce the need to sell-off assets and binge on debt, if it simply cut immigration.

Australia will ship the same amount of hard commodities and agriculture regardless of how many people are coming in as all the productive capacity has been set up and it doesn’t require more labour.

4. Lowering immigration would raise wages:

Hand wringing over Australia’s anaemic wages growth (Chart 16) hit fever pitch recently, with politicians, economists and media all searching for answers.

One cause that has received scant attention is the role caused by mass immigration in driving-up labour supply and reducing the bargaining power of workers.

Employer groups often argue that a strong ‘skilled’ migration program is required to overcome perceived labour shortages – a view that is supported by the Australian Government. However, the available data shows this argument to be weak.

The Department of Employment’s 2016-17 Skills Shortages report revealed that Australian skills shortages “continue to be limited in 2016-17”, and that there are a high number of applicants per job (Chart 17):

The Department of Employment also revealed a record number of Australians studying at university (Chart 18):

Of whom many graduates cannot gain meaningful employment (Chart 19):

The Australian Bureau of Statistics’ labour force data also shows that Australia’s underutilisation rate remains high, especially for Australia’s youth, despite the recent improvement in the labour market (Chart 20).

Curiously, Australia’s permanent skilled migrant intake is significantly higher today (128,550) than it was at the peak of the mining boom in 2011 (113,850). Why? Unlike then, labour shortages are “limited”, wages growth is running near the lowest level on record, and labour underutilisation is high. What is the economic rationale for running the highest permanent migrant intake on record when economic conditions do not warrant it?

Standard economic theory claims that net inward migration has minimal long-term impact on wages. That is, when the quantity of labour increases, its price (wages) falls. This will supposedly increase profits, eventually leading to more investment, increased demand for labour, and a reversal of the initial fall in wages. Immigration, so the theory goes, will enable the larger domestic population to enjoy the same incomes as the smaller population did before.

However, a recent study by Cambridge University economist, Robert Rowthorn, debunked this argument. The so-called ‘temporary’ effects of displacing incumbent workers and lower wages can last for up to ten years. And if there is a continuing influx of migrants – as is the case in Australia – rather than a one-off increase in the size of the labour force, demand for labour will constantly lag behind growth in supply .

In other words, if the Australian Government was to stem the inflow of foreign workers, then workers’ bargaining power would increase, as will wages growth. It is basic economics.

As noted in April last year by The Australia Institute’s chief economist, Richard Denniss, the very purpose of foreign worker visas is to “suppress wage growth by allowing employers to recruit from a global pool of labour to compete with Australian workers”. In a normal functioning labour market, “when demand for workers rises, employers would need to bid against each other for the available scarce talent”. But this mechanism has been bypassed by enabling employers to recruit labour globally. “It is only in recent years that the wage rises that accompany the normal functioning of the labour market have been rebranded as a ‘skills shortage'” .

Australia’s youth is effectively caught in a pincer by the Australian Government’s mass immigration program. Not only does it hold down their wages, but it also inflates their cost-of-living via more expensive housing (both prices and rents).

5. It’s time for a national debate and population policy:

The Australian Government under both the Coalition and Labor has long supported mass immigration and a ‘Big Australia’ on flawed economic grounds.

Behind the scenes, the ‘growth lobby’ of retailers, the banking sector, the property industry and erroneously named ‘think tanks’ all push the growth-ist agenda, while completely ignoring the cost burden on ordinary residents.

At the same time, many on the left pursue the globalist agenda of ‘open borders’ citing spurious social justice concerns.

Currently, there is no coherent plan other than to inundate the major cities with extra people each and every year to stoke overall economic growth (but not growth per person), to support big business (e.g. the property industry and retailers), and to prevent Australia from going into recession (despite growth per person stagnating).

Meanwhile, individual living standards are being eroded through rising congestion costs, declining housing affordability, paying more for infrastructure (e.g. toll roads, water and energy), environmental degradation, and overall reduced amenity.

Never have Australians been asked whether they want a population of 40 million-plus mid-century. Nor whether they want Sydney’s and Melbourne’s populations to swell to eight million mid-century.

Yet immigration and population growth affects every facet of Australian life, including: how long one spends stuck in traffic; whether one can get a seat on a train or a spot in hospital or school; and/or whether one can afford a good sized home within a decent commute to where one works. It is a key determinant of living standards above all else, yet is rarely questioned by the media nor politicians.

Without mainstream political representation on this issue, divisive elements like Pauline Hanson’s One Nation party have emerged to wrongly use the ills of overpopulation to attack the small number of refugees arriving in Australia, as well as Muslim and Asian immigration.

As this submission has shown, there is strong justification to reduce Australia’s permanent migrant intake back to historical levels primarily by slashing skilled migration, which has been the driver of the influx. This would take the strain off the major cities, put a floor under wages growth, and safeguard Australia’s environment.

Australia could achieve such immigration cuts without affecting its global obligations via the humanitarian migrant intake. Indeed, much of Australia’s 130,000 strong permanent skilled migrant intake comes from countries where skills are more desperately needed than in Australia. Australia’s immigration program is depriving these countries of skills, and we have a moral obligation to limit the brain drain.

More broadly, Australia desperately needs a national debate and a population strategy, led by the Australian Government. The Government needs to conduct a population plebiscite asking Australians how big they want the nation to become, and then set immigration policy accordingly. The Australian Government also needs to provide a comprehensive plan detailing how and where it will accommodate all the extra people, while safeguarding incumbent residents’ living standards.

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Comments

Carla says that people in Australia must eventually accept the changes that population growth necessitates. She needs to accept that if high population growth driven by high migration cannot be changed then Australians especially in the cities will take some time to get to this. The Kubler-Ross 5 stages of grief are 1. denial 2 anger 3. bargaining 4.depresion 5. acceptance. I am not sure what are up to at present.

I suspect we are up to around stage or 4 or 5:

"The Kubler-Ross 5 stages of grief are 1. denial 2 anger 3. bargaining 4.depresion 5. acceptance"

But the trouble is, the stages only apply in situations where there is no more options. There are more options after acceptance in society - i.e acceptance that something is seriously wrong - and that is definitely the stage we do not want to reach, as that is the stage when things get decided ugly as people with nothing more lose not only disengage, but then turn against the system that they see as causing their pain. I suspect the USA is entering into this 6th stage, and that that is also the path we are on, and policy makers are digging the grave of Australian society as we knew it up until the mid-1980's, and even the remnants of that society which still exist today, will all be swept away - first by the systemic onslaught against living standards and families, then by the publics' (mainly young people's) reaction to that.

It is very dangerous ground we are entering into. Young people have massive debts, are under enormous stress, and many I suspect wonder if they have a future. What keeps the system going despite all this is the bubbles of mining and housing (which although indebting young people, also keeps them in work building and renovating each others' houses - all on borrowed coin). Take this bubble employment away, and there is not much left but anger or despair. I am sure the policy makers know this, that is why they dare not do anything that will deflate the bubble, yet inevitably it will deflate, and the longer it goes, it worse it seems to be getting.

Matt

Do we really have to re-iterate that migrants have made a great contribution to Australian society when discussing immigration numbers? "We" have made both good and bad contributions over the last century plus. The level of planned immigration is a policy issue that should be in the interests of the people already living in Australia and not in the interests of economic measures such as GDP or even GDP per capita if the latter more useful measure does not translate into a better quality of life for population already in the country. This serious matter that drastically affects liveability and the environment needs to be kept separate in discussion from the personal realm.