Does Australian prosperity depend on immigration?


By Leith van Onselen

A week ago, Australia’s Prime Minister, Julia Gillard, pronounced that she supported ongoing high rates of immigration, seemingly reversing her opposition to a “Big Australia” articulated when she took over the leadership from Kevin Rudd:

JULIA Gillard says Australia will continue to run “a sizeable immigration program” as she steers the nation towards a population of more than 40 million by 2050.

The former “big Australia” opponent said she did not anticipate a change in the overall rate of immigration and would not impose population targets…

“We will continue in the years to come in my view to be a nation that welcomes migrants and particularly welcomes skilled migrants, and we continue to operate quite a sizeable immigration program”…

“We will continue to see immigration. It will be important to economic growth,” she said.

The issue of whether high rates of population growth, and immigration in particular, are desirable from an economic, environmental, and social perspective is confounding for most people, and one that I continually battle over in my head. The above video from the ABC, which has been prepared ahead of the Future Forum next week, provides a useful primer on the key issues and the trade-offs involved should Australia opt for a stable or significantly larger population.


For what it’s worth, I want to share some of my thoughts on whether continued high population growth (based primarily on immigration) is desirable for Australia. Feel free to add your thoughts below.

Population growth and the economy:

Advocates of population growth argue that it is required in order to grow the economy and that, without it, growth would suffer, lowering overall living standards.

This view has never sat comfortably with me. From a narrow economic perspective, population growth (immigration) is good only if it raises the real incomes of the pre-existing population (e.g. GDP per capita). While it is true that Australia’s high population growth over the second half of the 2000s boosted Australia’s real GDP (more labour inputs, other things equal, means more outputs), evidence is sketchy as to whether GDP per capita increased due to population growth. In fact, as the below chart shows, real GDP per capita has remained lacklustre since 2007, suggesting that while the overall economic pie has increased in size because of high population growth, everyone’s share of that pie has remained relatively stagnant.

ScreenHunter_12 Apr. 12 10.29

Of course, we don’t know the counter-factual. Growth in per capita GDP might have been worse without such strong immigration. But the arguments for or against high rates of immigration purely on narrow economic grounds appears inconclusive.

We need immigration to ameliorate the affects of an ageing population:


Another common argument from proponents of high immigration is that it is required in order to mitigate the ageing of Australia’s population.

Indeed, the United Nations forecasts that the ratio of workers to dependents in Australia is projected to fall significantly over coming decades as the Baby Boomer generation retires en masse (see next chart).

ScreenHunter_13 Apr. 12 10.39

Nevertheless, the argument that Australia can avoid (rather than delay) population ageing is spurious. The issue of an ageing population will need to be addressed at some point irrespective of the level of immigration. Simply importing more workers to cover the retirement of the Baby Boomers would only delay the ageing problem, pushing the problem onto future generations. Further, what will be the solution in 30 years time when current migrants grow old, retire and need taxpayer support? More immigration and an even larger Australia?


While the current population growth rate of 1.6% seems fairly benign, due to the powers of compounding, such a rate of growth could be devastating over a long time frame (see next chart).

While you might think that the above chart is facetious, as population growth could easily be curtailed at some point in the future, the fact remains that there will always be vested interests pressuring governments to expand population growth in the face of an ever-ageing population.


Population, infrastructure and the environment:

A big negative of high rates of population growth is that it requires costly investments in new infrastructure (e.g. desalination plants) that would not be required absent population growth. It can also impose other costs, including: environmental degradation, water scarcity, increased pollution and congestion, and lower housing affordability.

While some of these issues could be resolved through improved policy (e.g. freeing up land supply and better financing of infrastructure), Australia’s governments have, so far, proven to be inept and have failed dismally in providing for the pre-existing population, let alone millions of extra citizens.

Another issue arising from ongoing high population growth is that it would become increasingly difficult for Australia to reduce its carbon footprint and meet international pollution reduction targets with a substantially larger population.


Population growth and natural resources:

My final concern about ongoing high population growth is that Australia earns its way in the world mainly by selling its fixed mineral resources (e.g. iron ore, goal, and natural gas). 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.

In summary, while I am sure that with improved policy settings and investment, Australia could support a substantially larger population, I don’t hold much faith in our political class or policy making processes, or that a substantially larger population would improve living standards anyway.

I am interested in reader’s views.


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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.