By Leith van Onselen

Former head of the Business Council of Australia (BCA) and Audit Commission chair, Tony Shepherd, has called on the Government to lift Australia’s immigration intake in a bid to raise living standards and add $1.6 trillion to the economy. From The Australian:

Tony Shepherd, has warned that the ­migration intake should be maintained at current levels and then rise in the years ahead to confront the challenges of an ageing population… In a sign that Australians will live healthier and longer lives, by mid-century there will be about 35,000 people over the age of 100. The continued arrival of young migrants will be essential to dealing with the ageing of the population… “As the population rises we should consider raising the rate, having regard to our capacity for absorption”. …keeping net overseas migration at current levels will add $1.6 trillion to the Australian economy every year by mid-century, driving almost half the country’s economic growth over the coming decades.

That Mr Shepherd has backed a “Big Australia” is hardly surprising, given his long-time role as a mouthpiece for Australia’s biggest companies. After all, it is big business and the owners of capital that are the primary beneficiaries of Australia’s high immigration intake.

You see, rising population is an easy way for businesses to sell more goods and services. Immigration also gives businesses access to lower cost workers. And there’s less need to become more efficient when your customer base is growing inexorably. Rather, just sit back and watch the profits flow.

Take, for example, Australia’s banks, which get the double bonus of not just having more consumers to sell debt to, but also extra demand for housing, which helps to support house prices and their loan collateral, especially given the urban consolidation policies operated by Australia’s states.

However, while the big end of town is a clear winner from rapid population growth, it doesn’t wear many of the costs. That is borne by you and I.

It is you and I that will be forced to spend more time in traffic jams as Australia’s infrastructure – already straining after a decade of rampant immigration – fails to keep up with population growth.

It is you and I that will be called upon to pay for expensive new infrastructure (e.g. roads, rail and desalination plants) in a futile bid support the rapidly growing population.

It is our children that will be required to live in smaller and more expensive housing, often further away from the CBD, as more people flood into our major capital cities.

And it is our children that will be called upon to once again ramp-up the immigration intake once the current batch of migrants grows old and needs support – the very definition of a ponzi scheme.

Perhaps the silliest claim from Shepherd is that without strong immigration, the economy’s growth would suffer – as if growth in overall GDP is the be all and end all. What he fails to mention is that economic growth through population is an illusion – it expands the economic pie (more inputs equals more outputs) but leaves everyone’s share of that pie unchanged.

One only needs to view the below chart to see what I am talking about. Despite enjoying the biggest mining investment boom in history, per capita real GDP has risen by a paltry 4.8% since September 2008, versus 15.9% growth in overall real GDP (see next chart).

That’s right, more than two-thirds of Australia’s economic growth has come entirely from population growth, with growth in per capita terms anaemic, despite the huge mining investment boom.

And then there’s Shepherd’s claim that a strong migration intake is required to offset the ageing of the population. This view has been debunked by the Productivity Commission, which found that immigration’s effect on Australia’s age structure is only modest and temporary:

…several studies, including some undertaken by the Commission, indicate that policy-induced changes to Australia’s population are unlikely to significantly affect the ageing trends. Improvements in longevity are the major cause of population ageing over the long run. In recent projections, Commission researchers estimated that an increase in the long-run total fertility rate from 1.85 to 2.10 births per woman — even if it could be achieved — would be associated with only a 1.1 percentage point reduction in the proportion of people aged over 65 by 2051. Similarly, 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. The Commission has estimated that an increase in annual net migration from 150 000 to 300 000 would lower the proportion of those aged 65 or over by less than 3 percentage points by 2044-45. As an illustration of the challenge, the Commission showed that delaying an increase in the dependency ratio by 40 years would require a net migration-to-population ratio of 3 per cent per year, leading to a population of around 85 million by 2044-45. It follows that, rather than seeking to mitigate the ageing of the population, policy should seek to influence the potential economic and other impacts.

Moreover, Shepherd’s claims that high immigration is required to raise living standards is bunkum. The broader economy can suffer as investment to support the growing population crowds-out productive investment and capital deepening, as explained by Dr Katherine Betts from the Monash University Centre for Population and Urban Research:

The Productivity Commission report on ageing points out that the infrastructure spending needed to manage population growth over the next 50 years will be five times the total that was needed over the last 50 years. This investment in capital widening must seriously weaken Australia’s capacity to invest in the capital deepening that would boost productivity. Despite this, Treasury continues to emphasise its ‘three Ps’: population, participation and productivity. While Treasury treats these three variables as if they were independent some commentators argue that population growth has a positive effect on productivity. But there is a contrary argument. Population growth imposes pressures on infrastructure and adds to congestion; in so doing it depresses productivity. International comparisons show that there is no association between population growth and growth in per capita GDP. This is not surprising as comparative data on 32 OECD countries show no positive association between population growth and growth in labour productivity… Assertions that immigration-fuelled population growth will boost productivity remain conjectural. There is no empirical evidence that such growth in an advanced economy increases productivity.

Shepherd has also failed to acknowledge that Australia earns its way in the world mainly by selling its fixed mineral resources (e.g. iron ore, coal, natural gas, and gold). More people means less resources per capita. A growing population also means that we must deplete our mineral resources faster, just to maintain a constant standard of living.

No, the key criteria that needs to be met in deciding whether to expand the immigration intake is: “will it improve the living standards of the pre-existing population”? The answer to this question seems to be a resounding “no”. Therefore, policy makers should definitely not proceed with Shepherd’s plan, or preferably should curtail immigration to a level that provides net benefits to the existing population.

If all we are doing is growing for growth’s sake, pushing against infrastructure bottlenecks, diluting our fixed endowment of minerals resources, and failing to raise the living standards of the existing population, what’s the point?

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