In 2003 I arrived at the Australian Treasury to begin my career as an economist.
Upon arriving at Treasury, I was introduced to the “three P’s” framework by then Treasury Secretary, Dr Ken Henry.
According to this framework, we were told that Australia must: 1) boost productivity; 2) raise workforce participation; and 3) increase the population via skilled migration, if the nation was to continue to enjoy rising living standards.
Personally, I do not subscribe to the three P’s framework, and would prefer that it was pared back to the “Two Ps” of productivity and participation.
Of the three P’s, boosting productivity is by far the most important driver of rising living standards over the long-term, since it allows more goods/services to be produced (consumed) from less effort.
Raising labour force participation can also raise living standards. However, working more hours (increasing participation) can mean that less time is available for other pursuits, such as relaxing or meeting-up with friends. So while working more will, other things equal, raise incomes and GDP, it can also take away from the other pleasures in life, reducing its benefit.
By contrast, population growth’s impact on living standards is highly questionable. While it certainly does raise headline GDP (more inputs equals more outputs), there are grave doubts over whether it raises per capita living standards, while also placing greater pressure on the environment, pre-existing infrastructure and housing, and Australia’s fixed endowment of mineral resources.
Back in July, Dr Ken Henry – the architect behind the “three P’s” framework – appeared to have second thoughts about Australia’s excessively high population (immigration) growth, noting that “our population is growing at a rate that exceeds the capacity of traditional models of planning, building and pricing access to the nation’s infrastructure and housing”.
Today, Dr Henry has warned that Australia’s break-neck population growth will crush living standards unless Australia’s governments embark on a massive infrastructure building program. From The AFR:
With Australia’s population expected to grow by 400,000 people every year, Dr Henry also said Canberra lacked the sense of urgency required to ensure sufficient new infrastructure is built to maintain the quality of life for the existing population.
“My observation in Sydney, in Melbourne, today is that people already think – with very good reason – that the ratio of population to infrastructure is too high,” he said.
Australia will need to construct a new city every year as big as Canberra or Newcastle to accommodate the expanding number of people, he said. Or, every 5 years,
Australia would need to build an entire new city from scratch for 2 million people; or an entire new city as big as Melbourne every decade.
Without such action, there will be more congestion, longer commute times to work and increasing problems with housing affordability…
Absolutely spot on. The Intergenerational Report projected that Australia’s population would grow by around 400,000 people per year, mostly via immigration, for the next 35 years:
Where is the national plan to cope with this growth? How will Australia’s governments ensure that incumbent Australians’ living standards will not be eroded by the associated pressures on infrastructure, housing , the environment, and the dilution of Australia’s fixed mineral endowment, which is a key driver of our wealth and living standards? And why not reduce immigration to sustainable levels?
