The Australian business lobby’s advocacy for higher immigration rates and higher population growth is relentless. Anyone with an ounce of business nous or economic intuition would realise that the beneficiaries from high population growth are existing big business. In particular those who exert a degree of monopoly power who stand to grow simply as a result of a growing captured market. Think supermarkets and shopping centres, land owners, media monopolies in television and print, banks and private infrastructure owners.
A recent book by Oliver Hartwich, author of previous titles such as Populate or Perish: Modelling Australia’s Demographic Future, and Why a Growing Australia is Nothing to Fear, has framed the population growth debate in a very distorted way. It presents factually incorrect ‘arguments’ on both sides to reveal a distorted middle-ground discussion. Indeed, the book, and the publicity material surrounding the it, perpetuates one crucial myth relied upon by pro-growth lobbyists – that increasing immigration can alleviate the ageing problem.
But thanks to our robust population growth, Australia is relatively well placed to adapt.
Population growth will not stop population ageing but in conjunction with increased workforce participation and improved productivity, it can help meet the costs as Australians grow older.
Some anti-growth campaigners suggest this is some kind of pyramid scheme, where an ever-increasing number of workers is needed to pay for the growing pension and health care costs of their predecessors.
If we have the right policies, such as a shift towards ‘user pays’ health care and pensions (a shift that has already begun via private health insurance and superannuation), it need not be.
As the Productivity Commission points out: “Population ageing can only be conceived as a crisis if we let it become one”. Dramatically cutting population growth is a sure fire way to make that crisis a reality.
One wonders why the author would say that population growth is useless and crucial in the same sentence.
The Productivity Commission has thoroughly debunked the claim that higher rates of population growth can reduce future burdens from higher age-dependency – the ratio of non-working age to working age people in the country.
In fact, high immigration and population growth typically makes the age dependency ratio worse in the long run.
The Productivity Commission forecasts in the table below show that high growth scenarios generate the highest age dependency ratios (see highlighted rows).
In fact, the Productivity Commission’s analysis concludes that:
Allowing for adjustments in the domestic interest rates, population ageing leads to capital deepening and higher wages.
While health costs and pensions rise as share of economic output, education costs drastically reduce. Rarely do we hear much of the countervailing trend of declining child and youth dependency that accompanies ageing and reduces the labour supply of parents. We can see that balancing effect in coming through when looking at Australia’s population pyramid:
The only way population growth can decrease the age-dependency ratio in the long run is if the rate of growth perpetually increases. Hartwich does not deny this fact, even though he suggests it must be irrational to believe it.
Nor are his suggestions to cope with ageing, such as user-pays health care, actually going to make an ounce of difference to the ageing impacts on macro-economic performance. If people are old and utilising health care it doesn’t matter who is paying from a macro point of view. The fact that those providing care are not producing other goods is all that matters. Indeed the only way for health care costs to be brought down is to deliver fewer health services.
The simplest way to reduce the dependency ratio is to encourage people to work longer. The qualifying age for pension in Australia is currently being ratcheted up to 67, in line with similar moves internationally.
Also, we need to consider that ageing is not a unique Australian problem, and is therefore unlikely to impact our international competitiveness as the world comes to terms with its demographic destiny.