Slow wage growth, falling retail figures and investment panic have experts giving us a grim warning for Australia’s economic future. So what's going on with our economy?

Government plans to force tens of thousands of new migrants to settle in regional towns will do nothing to stop the population explosion in Australia’s two largest cities.

In fact, it could do more harm than good with a throttling back on immigration leading Sydney and Melbourne to sate its thirst for new workers by emptying regional towns and cities of skilled workers, a leading demographer has said.

Adelaide is most in the firing line. The voracious labour appetite of Sydney and Melbourne was causing a brain drain that was increasingly “sucking in” skilled residents from elsewhere.

Professor of demography at Melbourne University, Peter McDonald, said it wasn’t just Adelaide — Perth and even New Zealand could see more of their population leave for Australia’s two largest metropolises as well as Brisbane.

In March, Prime Minister Scott Morrison said permanent migration would be capped at 160,000 annually while 23,000 skilled migrants per year seeking a pathway to permanent residency will now have to live in regional areas for three years.

That lowers the migration cap down from 190,000. However, in reality, Australia has already hit that target with around 162,000 new residents entering the country last year.

Speaking at the AFR National Infrastructure Summit in Melbourne earlier this month, Prof McDonald said his advice for government would be between 160,000 and 200,000 migrants a year.

A target at the lowest end of that range risked slowing Australia’s economic growth and posing challenges to companies looking for skilled workers.

While Australia’s population was growing, many of those people are also older and so fewer of them are of working age. Australia’s average age has increased by two years, to 37, over the last two decades.

“Behind it all lays labour demand and these days there’s a big emphasis on big cities, so Sydney, Melbourne and, to some extent, Brisbane are advantaged in that regards,” he told news.com.au.

“If international migration is reduced then some of the demand for labour in Sydney and Melbourne will not be met, so if the demand is strong enough they will draw from the rest of Australia and also from New Zealand.”

Despite being outside Australia, New Zealanders don’t need a visa to work here so are an easy source of labour.

“Sydney, Melbourne and Brisbane are already sucking in labour from the rest of Australia. And in the case of Adelaide, there’s a lot of movement from Adelaide to Melbourne.

“There are skilled people in Adelaide; they are trained in Adelaide at Adelaide’s cost — and then they move to Melbourne.”

Prof McDonald said in the long run it could be detrimental to South Australia’s economy if they can’t hang on to their workers or attract new ones.

SA’S GROWTH WEAKER THAN OTHER STATES

He pointed to South Australia’s relatively weak employment growth figures. Year-on-year, the number of jobs in the state grew by 2.3 per cent, while according to the Australian Bureau of Statistics between 2013 and 2018, South Australia created 4.3 per cent more jobs in the state.

But that’s below the 8.8 per cent Australian average and is far below New South Wales which saw 12.2 per cent employment growth over the same period and Victoria, which was out in front with 14.4 per cent.

Overall SA’s population growth year-on-year is only 0.8 per cent, compared to 1.8 per cent Queensland and 2.2 per cent for Victoria.

In May, SA’s Minister for Skills David Pisoni conceded “more work needed to be done” but said a rise in jobs reflected the still relatively new Government’s “policy shift that is stimulating the South Australian economy, with businesses and employers responding favourably”.

Over the five year period, only WA fared worse in terms of employment growth with fewer jobs in the state. But that was largely due to a single event — the end of the mining boom.

“Perth grew very strongly during the mining boom but as soon as that was over it collapsed and people are moving away in big numbers, and to Melbourne,” Prof McDonald said.

Earlier this month, the Regional Australia Institute, identified food processing and tourism as two employment growth areas in South Australia, with 21 per cent of people in the Barossa engaged in wine making.

Prof McDonald warned pushing people to regional areas wouldn’t stop the growth in major cities, with 41 per cent of Australians already living in Sydney and Melbourne.

“The regions have difficulties, they have key labour shortages and GPs are a classic example. We are producing lots of GPs in Australian universities but we still have trouble getting them into country towns because graduates, just like everyone else, want to be in Sydney and Melbourne.”

Just last week, his observations were echoed by NSW Treasurer Dominic Perrottet who took a swipe at SA in an attempt to persuade Canberra to give the state government more cash for new road and rail projects.

“No one who comes to Australia goes to Adelaide. They go to Sydney and Melbourne.”

In March, the government said it would splash $2 billion on a high speed rail line from Melbourne to Geelong and commission business cases for similar projects to Albury and Traralgon and others emanating out from Sydney and Melbourne.

But Prof McDonald says new regional rail lines will do little to put the brake on the big cities’ people boom.

“This rail system they’re talking about, which is a good thing, will take 15 to 20 years to build by which time Melbourne’s population will have grown by four times the population in those cities.

“So it’s an issue of scale and a fast train to Bendigo won’t solve population issues.”

But there was no point railing against the brain drain black holes of Sydney and Melbourne — Australia is better off with them, he said.

“Without Sydney and Melbourne, Australia would just be an international backwater.”

benedict.brook@news.com.au