Does Australia’s prosperity depend on immigration?

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By Leith van Onselen

The Age has published a long-winded article arguing that Australia should maintain its current high rate of immigration, which is running at roughly double historical norms (see next chart).

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From the Age:

BRW’s Rich 200 list is full of migrants who have risen to the top of Australian business. Many of these wealthy refugees fear that Australia’s politically driven focus on asylum seekers is obstructing a mature discussion about the sort of immigration regime the country needs to maintain growth and overcome the risks of an ageing workforce…

Immigration matters, and doing it properly matters. For a big island with a small population, a considered immigration regime – of the type successive Australian governments have refined – is as crucial a resource as capital, oil and trade.

But the topic has been reduced to politicised soundbites…

The benefits of migration are clear. In 2011, for example, it accounted for over half of Australia’s population gain. That same year, almost 37 per cent of people who counted as migrants were of prime working age – between 25 and 44 – and less than 1 per cent was older than 64. In contrast, a smaller 27 per cent of the Australian-born population was of prime working age and almost 12 per cent over 64…

Between 2000 and 2010, Australia’s labour force participation rate – the proportion of working-age people able to or looking for work – rose to 65.9 per cent from 63.1 per cent, almost solely due to migrants, and skilled migrants in particular…

The article goes on to highlight a number of case studies of successful immigration, both from asylum seekers and through official channels.

While I wholeheartedly agree with the article’s premise that the current approach to asylum seekers is cruel, and that past immigration programs have been beneficial to the country as a whole, I take issue with the notion that the current high rate of immigration is unambiguously good for the economy and living standards.

Below are my thoughts on whether continued high population growth (based primarily on immigration) is unambiguously beneficial for Australia. Most of these arguments have been articulated previously, so apologies if you have read them before.

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.

However, 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 barely grown.

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Of course, we don’t know the counter-factual. Growth in per capita GDP might have been worse (or better) 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.

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).

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However, 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 only delays 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 1.8% seems fairly benign, due to the powers of compounding, such a rate of growth is clearly unsustainable over a long time frame (see next chart).

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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. Hence, boosting immigration to overcome an ageing population is no solution at all.

Population growth, infrastructure and productivity:

A big negative of high rates of population growth is that it places increasing pressure on the pre-existing (already strained) stock of infrastructure and housing, reducing productivity and living standards unless costly new investments are made. Indeed, controversial investments like desalination plants would arguably not have been required absent population growth.

Further, when infrastructure and housing investment fails to keep up, it places upward pressure on inflation, requiring higher interest rates, which can then damage productive sectors of the economy. These dynamics were explained in detail in a 2011 speech by the Reserve Bank of Australia’s Phil Lowe (my emphasis):

Currently, housing-related costs – including rents, utilities and the cost of building new dwellings – account for around 20 per cent of the CPI, the largest share of any single group. Broadly speaking, the housing component of the CPI shows the same general pattern as that in underlying inflation, although the recent moderation is less pronounced (Graph 6).

A couple of factors are important in explaining this general pattern.

The first is that the large run-up in Australian house prices that was driven by the adjustment to low inflation ended in late 2003. When the housing boom came to an end, building cost inflation came down and growth in rents was subdued for a few years. These outcomes helped hold down overall inflation rates during this period. But by 2007, the cycle had again turned, with building costs rising more quickly and growth in rents accelerating. This faster growth in rents reflected the changing balance of demand and supply in the rental market, with strong population growth coinciding with relatively slow expansion of supply.

The second factor has been utilities prices. During the middle years of the 2000s utilities prices were increasing at an average rate of 4 per cent, which was slightly lower than that in the previous few years. Then from 2007, utilities price inflation accelerated sharply. The proximate cause was the regulatory decisions allowing double-digit price increases, partly to help fund infrastructure investment, particularly for the distribution of electricity. But a deeper cause was the low levels of investment in previous years, which meant that the capacity of the system to distribute electricity had not kept pace with the growth in demand, particularly during hot weather.

While these developments in rents and utilities do help explain the particular dynamics of inflation over the recent cycle, they also demonstrate that when the economy is operating up against supply constraints, all sorts of prices – and not just the price of labour – start rising more quickly.

A 2011 report by New Zealand’s Savings Working Group also supported the notion that high levels of immigration tends to put upward pressure on inflation and interest rates:

A country with a rapidly growing population needs to devote resources to building more roads, schools, shops, houses, factories and so on than a country with a low rate of population growth. In a country with a relatively low national savings rate, rapid population growth will put sustained upward pressure on real interest rates and, in turn, the real exchange rate, making it harder to achieve the per capita income gains that people (and the government) aspire to…

Further, given the tight constraints applied to the supply of land for housing, less immigration might also have left New Zealand less exposed to the damaging house price booms experienced in the 1990s and the last decade.

Population growth, natural resources and the environment:

Ongoing high population growth places additional strain on the natural environment, causing greater environmental degredation, increasing water scarcity and pollution, and making it more difficult for Australia to reduce its carbon footprint and meet international pollution reduction targets.

A related concern is 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.

Conclusion:

The Age article presumes that ongoing high population growth is beneficial to both the economy and living standards, and cleverly uses a bunch of case studies to stir-up the reader’s emotions, rather than objectively examining the facts.

As argued previously, while I believe that Australia could probably support a substantially larger population with improved policy settings and investment, like many Australians, I don’t hold much faith in our political class or policy making processes, which have time and again proven to be deficient in providing adequately for the pre-existing population (let also tens of millions more people), or that a substantially larger population would improve living standards anyway.

Supporters of a “Big Australia” need to put forward a better argued case if they are to gain widespread support amongst Australians.

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Leith van Onselen
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Comments

  1. Mmmmm….
    1. The article does not make any mention that our actual deaths double over the next 2.5 decades and our natural growth may drop to zero, or even negative. Immigration can only be talked about with that and our peaking emigration in context.
    Chart 3 shows the falling natural growth quite clearly…
    http://archive.treasury.gov.au/documents/1273/HTML/docshell.asp?URL=IGR_CEDA_Presentation.asp
    “We are presently experiencing a mini-baby boom and the fertility rate has lifted slightly, but it is still significantly below the replacement rate. As a result, natural increase, which is the number of births minus the number of deaths, is projected to continue to decline and turn negative in the 2050s so that population growth will increasingly come from net immigration
    2. 4.1 million boomers born here and now we have to support 5.3 million, 80% of whom will require full or part pensions.
    3. Politically, as our nation ages, there will be a resistance to increasing immigration, as evidenced now by three parties having population growth and its reduction as their main agenda.

  2. No mater what excuse would be used for more immigration, the main motive for it is the growth of housing prices. The problem will be even worse when young people realize that in some other parts of the Western world they can have higher standard of life, because of the lower house prices.

  3. Yeah it does, because our econoic structure has all margins consumed by rent-skkers, that the ONLY way to grow is volume of transactions.

    We have;

    * Land a drag on ALL growth, enterprise can’t even capture reasonable amounts of marginal productivty to re-invest, it gets sucked up by rent increases.

    * Our labour force demanding high nominal wages because they need it to afford their shelter, embeding high marginal costs of production.

    * An entitled class of baby boomers who are, have always been, and believe they always should be, net welfare beneficiaries thus seek wealth creators to syphon wealth away from.

    The GDP / capita, the mrginal growth in wealth can’t occur any more because too many people are suckling that teat dry.

    We’re left with volumes, thus more people, and we can’t even afford to expand our infrastructure to manage their inflow.. because once again, boomers don’t pay their fair share of income tax.

    So what we’re left with is immigrants competing against the lower rungs of our society.

  4. double the immigration , half the construction of new dwellings, and some wonder why houses (especially the ones not in the middle of nowhere) are now at premium.

  5. if I remember you had a link from the PC showing that most of the economic benefits of the immigration flows to the immigrants themselves, the only one better of.

  6. I’ve seen Logans Run and this very important documentary taught me involuntary euthanasia is the way.

    Yes that’s silly but no more silly than the let’s increase the growth rate of immigrants indefinitely. There’s much to be said for spending less on medical health and stagnating the life expectancy rate. Extreme again but what is the alternative.

    • Logan’s Run was not a documentary…it was fiction.
      We currently have medically assisted euthanasia now. Just not talked about. Ask any palliative care nurse.

    • Logan’s Run was not a documentary…it was fiction.

      .. I think he was making a funny joke. Well, I found it amusing and with the current crop of boofheads running Oz, we need all the humour we can get.

  7. Logans run a documentary ? Is that a joke ? Involuntary euthanasia ? Is that another (bad) joke ? (in Logans run by the way, the age was 21 for that). We might expect ‘solutions’ like this from Nazi Germany, but not in modern day Australia.

    • We do already have ‘solutions’ in place that dramatically reduce our natural growth rate.

      Don’t be too hasty to separate ‘enlightened’ modern times from the ‘barbaric’ days of yore. We’re still the same species we were 70 years ago.

  8. How many of those migrants got rich from being a property parasite? I can think of at least 2.

    At least Fairfax might get a few more customers, dumb enough to pay for their chardonnay socialist garbage.

    • I know of at least 5 who own between 5 and 20 properties each. Even funnier when one of them complained to me how expensive property is these days in Sydney but in the same breath gloat how much money they made on a particular transaction.

  9. Really good summary of the main points in this debate Leith. I wholeheartedly agree.

    The economic benefits are certainly not clearly positive except for the wealthy owners of Australia’s monopolies and oligopolies.

    It would be a terrific first step if we could shift the immigration debate out of the economic sphere and into the social sphere – what are the moral motivations for refugee intake levels, for family reunions, economic immigration etc.

  10. “Supporters of a “Big Australia” need to put forward a better argued case if they are to gain widespread support amongst Australians.”

    They don’t have to do jack. Most of the idiots think the Libs are favourable to reducing immigration simply because they’ll “stop the boats”.

    • Both parties hide their immigration policies behind the boat people.

      In fact i would suggest that Australians in general do also – it’s easy to fool yourself into seeing yourself as being pragmatic on immigration if you can sum up all your confusion in a pro or anti boat people stance.

      All other issues and their inherent sociological and ethical complexities can then be ignored or buried away from our awareness where they might otherwise keep us awake at night or threaten our pristine view of ourselves.

      pop

  11. Population growth rates should be restricted to LESS than the growth in residential housing stock.

    Either we increase supply of new home builds or we slow down the inward migration flow until building catches up.

    That should be govt policy.

  12. Seriously Leith what chances do we have to have a serious conversation about our immigration levels when left of centre commentators like HnH and Gunnamatta react in pavlovian fashion with calls of racist as soon as rampant immigration is questioned.

    • Even without the ridiculous PC we still can’t have a serious conversation about it.

      There’s probably 3 groups.

      1. People like me who want immigration seriously reduced and to hell with the consequences, imo we’ll just deal with what happens afterwards, we’re not a population of 5 year old girls, and it will result in a house price crash and affordable housing.

      2. People like Willy Nilly who insist we need them to support boomers.

      3. Everyone else who doesn’t want a big Australia, but just votes for it anyway.

      • Bluebird
        You misunderstand me.
        1. I would prefer to see us peak and then decline in population. I think this will happen around 2035.
        2. Increasing our NOM will not solve any ageing fiscal challenges. As I said, 4.1 to 5.3 is an extra 1.2 million people, or approx 1 million to pay pensions to. An extra $5 to $10 billion or so per year.

      • +1 … I can’t recall ever seeing HnH or Gunna state or even imply such a view.

        Let’s be careful not to falsely conflate subjective personal / moral perspectives on the highly politicised refugee policy “debate”, with the much broader topic of immigration volumes generally.

  13. Someone said to me the other day – “this boat people thing is all rubbish, its the ones coming by plane we should watch out for”.

    This person is a nurse who thought they would have a job for life, watching nurses slowly being replaced by cheap non-skilled labour.

    • “This person is a nurse who thought they would have a job for life, watching nurses slowly being replaced by cheap non-skilled labour.”

      Rubbish!

      You need to be qualified to become a nurse in an Australian hospital. You also need “right to work in Australia” status if you’re coming from overseas.

      Tell your friend to adapt and upskill or starve on welfare.

      • Some nursing acquaintances have started offering what their hospitals call Enhanced holistic therapeutic services, which is really just a fancy name for handjobs. It’s a decent supplement to the average nurses’ wage, and where funds don’t cover them, most patients are happy to pay out of pocket.

      • You don’t need any qualification to become an enrolled nurse (EN). Hospitals I’ve worked in are teeming with them, all FOB. The current trend seems to be to ‘transition’ the ENs to do RN work via fairly cursory training courses.

        Greconomics, I hope you don’t rue your words next time you’re in a hospital and you can’t communicate with your nurse, or you are the victim of a medical error.

        Be kind to nurses, they stop doctors from killing you.

      • You don’t need any qualification to become an enrolled nurse (EN).

        False. The minimum requirement in NSW is a Certificate IV in Nursing. From next year, a Diploma in Nursing will be required.

      • I’ll cop ‘inadvertently misleading’, but not ‘false’ – most of the swarms of non-registered nurses I’ve seen in hospitals have been unqualified student ENs. While they are ostensibly working under ‘supervision’, the autonomy provided to these unqualified nurses while they train on real patients causes me a great deal of concern. Similarly the trend to replace highly educated RNs with cheap, poorly skilled labour in the forms of ENs, be they students or TAFE Cert IV ‘graduates’. Calling it a diploma is a rhetorical fig-leaf for the cursory training these ENs receive, in my view.

    • Junkyard she/he has a good head on their shoulders, the boats debate is just a sideshow while both sides of politics leave the front door wide open.

  14. wasabinatorMEMBER

    No, it doesn’t depend on immigration. It depends on organised laundering operations allowing non-residents to purchase pretty much anything they like via some dodgy company fronting them.

    • Who says it has to be dodgy? Did anyone notice the article in Fairfax today about how Chinese buyers are running out of properties to buy in Melbourne’s CBD? Having literally bought hundreds of millions of dollars worth, it looks as though their options are now limited (because they’ve already bought everything) so they are now looking at buying in Doncaster and Box Hill.

      Read more: http://www.smh.com.au/business/property/asian-buyers-face-shortfall-20130910-2ti5n.html#ixzz2eZWpTqvd

      In Singapore and China, they are trying to slow down their property bubble and limit property purchases, but here in Australia, there is no limit as to what foreign purchasers can buy. On the contrary, they are actively encouraged.

      Interestingly though, the article states: Charter Keck Cramer director Robert Papaleo said the motives of offshore residential developers were not necessarily ”grounded in meeting the needs of local occupiers”.

      So yes, wasabinator, it doesn’t depend wholly on immigration, not when we have a combination of factors to prop up the bubble.

  15. Just out of interest, has anyone put forward a well reasoned argument for the ideal population for Australia?

    Despite the vast size of the continent there must be resource constraints even with ideal planning and resource allocation.

    • wasabinatorMEMBER

      Yes I believe the CSIRO did and their conclusion that an optimal Australian population was sonething like 19 million.

    • Mmmm… based on an Aboriginal history of perhaps a 100,000 year span, maybe 3 million for zero impact on the environment. They proved it.

      Based on modern technology? 25 million maybe?

    • I guess that the problem we have is that whatever the optimal population is, there is no negative feedback to slow the increase down.

      The people who want a Big Australia are completely insulated from any adverse effects. They will always have a great lifestyle even if the peasants are clinging four deep to the tops of buses.

      We could load up the nation to 100 million and have the capitals swarming with ghettos and the elites would make a documentary about how the suffering of the poor is a thing of beauty. Like David Attenborough watching a herd of wildebeasts plunge into a river full of crocodiles, the teeming masses would be an entertaining spectacle.

      • Not only that, but we’re never asked for our feedback. Looks as though they’ll just keep filling up the big cities and then someone will say, “why didn’t we do something before we got ourselves into this mess?” Of course, by then it will be too late.

  16. Obviously, I need to link this again. (sigh)

    http://www.youtube.com/view_play_list?p=6A1FD147A45EF50D

    The Most IMPORTANT Video You’ll Ever See

    Over 4 million views for an old codger giving a lecture about arithmetic?? What’s going on? You’ll just have to watch to see what’s so damn amazing about what he (Prof. Albert Bartlett) has to say.

    When I saw this lecture at a conference in 1995, I came out blasted, thinking “This needs to be required listening for every person on the planet. Nothing else will matter if we don’t understand this.” The presenter is Albert Bartlett, a retired Physics prof. at U of Colorado-Boulder.

    The presentation is titled “Arithmetic, Population, and Energy,” and I introduce it to my students as “The most boring video you’ll ever see, and the most important.” But then again, after viewing it most said that if you followed along with what Bartlett is saying, it’s quite easy to pay attention, because the content is so damn compelling.

    If you forward this to everyone you know, we might actually stand a chance in staving off disaster in the global finance system, peak oil, climate change, and every other resource issue you can think of. Without a widespread understanding of what Bartlett’s talking about, I think we won’t be able to dodge ANY of those issues.

    BE ABSOLUTELY SURE you catch the parts about “the bacteria in the bottle” (in Part 3) and the list comparing things that add to the problem and things that address the problem. If we don’t choose from that right-hand column, nature will choose for us.

    • Unfortunately, these ideas are not accepted by the majority. We have had centuries of growth with no bad effects and most people hold this to be sufficient evidence that the exponential function is a failed theory. Economists scoff at the exponential – they have much better ideas such as the always cheerful “Efficient Market Hypothesis” and the far less gloomy “General Equilibrium Theory” (discovered by a walrus in Greenland would you believe?).

      Banks have also proved empirically that the exponential function is a dud. If you put a large amount of money in a bank, despite the fact that they pay compound interest, it will become less valuable over time. Proof positive that Malthus was an idiot.

      Besides, the exponential function is no match for the human intellect. Regardless of how fast anything grows, we can always out-think it before it bites us in the bum. That is known in the trade as “Smart Growth” or for Mac enthusiasts, “iGrowth”.

      • I would say it is not a failed theory. If any thing the fact that population growth rates have been dropping and the world population ceiling has been revised lower multiple times says the exponential holds.

        The most important thing that everyone fails to realize is that all these things that you mention have happened only in the last 100-150 years. 3 generations….and yet we are ready to say that this is normal.

        It is easy to kick the can down the road and say we have solved all the problems.

      • Damn! … I thought the walrus joke would have given away my feeble attempt to give the economics profession a friendly poke in the eye.

  17. In case anyone’s interested, check out the headline policies of the “Stable Population Party”. They’re actually not bad. That said, maybe they need to find a catchier title.

    They picked up only 0.11% of the vote in Victoria (about 22% the vote of the Motoring Enthusiast’s Party, who have been thrown a seat in the Senate….what a joke).

    • Yes – I think the name might be a problem it is a bit too mealy mouthed.

      But finding a good name is a challenge with the alliance between big business and the ‘touchy feely’ brigade and the religious ‘god made the world for man’ crowd painting anyone who questions population growth as a sheet wearing xenophobe.

      Possible alternatives:

      No Big Australia party

      Oz Population Party

      Population Party

      • ‘Peak Population Party’
        ???
        maybe new to lose population out of it and talk more about ‘sustainable?’

        ‘Sustainable Australia Party’…..nice. That is why I get the big bucks…lol

      • Sustainable Australia Party – not bad, though perhaps sounds a little too left-wing to score big on the donkey vote.

        I wonder if you can change the name of your party once elected? If so, I might go with “make every weekend a long-weekend” party. Sure it’s got nothing to do with policy, but sure as hell you’d get some votes from the same crowd that declare themselves as “Jedi” in ABS Census.

  18. For me Immigration limits is a funny concept, it implies that Australians are in control of their global destiny. Reality is that we live in a VERY crowded world where at least 80% of the worlds population suffers with a standard of living lower than Australia welfare recipients. As their wealth increases, relative to ours, their degree of global control also increases and ours decreases in direct proportion, yet we believe we still have a choice.

    Control is definitely a funny concept if you have no choice!

    • Actually, we do have a choice – well not us as in you and me, but the government decides who to let in and how many immigrants we can take. They choose to take in a massive number of immigrants to keep the housing bubble going, but could just as easily limit the number as they did increase the number. Not that they will, if it means house prices would fall.

      If we were given a choice as to whether we want a Big Australia or not, I’m willing to bet at least 80% of the population would vote against.

      If immigrants (and our existing population) moved to rural areas, I guess we could take a lot more immigrants, and it wouldn’t lessen our standard of living, but seeing that’s not going to happen in a hurry, I’m all for hanging out the “We’re full” sign.

      • Do you seriously believe Australia can really choose what it does in this world.

        Google “pig iron Bob”. Did he have any real choice but to ship Japan our scrap iron/steel? knowing this would later be used to make guns ships…and be used to kill Anzacs? Tony Abbot will also have no choice if China breaks bad and decides to retake all the parts of its former empire. We’ll ship IO because thats what we do, also not shipping IO creates a more immediate risk of retaliatory action than does shipping IO.
        We also have that nasty problem of external debts and the Vig alone will kill us if we refuse to sell our only viable products (IO, coal, LPG, and some others). If Aussies miners go on strike just wait and see how long it takes for Chinese replacements to be found, I guarantee you it wont take long and I also guarantee you that our politicians will find some language that makes it seem like a win-win situation.

        I mean take the US FTA, can anyone tell me a single benefit that Aussie businesses derived from that brilliant bit of negotiation, why would a Chinese FTA be any different?

        Truth is Australia must jump when it’s told to.

        So wrt population do you honestly believe 23M Australians can continue to occupy an entire continent? AND do this in a world with shrinking supplies of natural resources and diminishing areas of arable land. Do you think wealthy Chinese and Indians will continue to accept this historic distortion? if so for how long 10 years, 20 years? than what?

        So the truth is we have no choice but to move towards a solution of greater equality and that means sharing this island with a lot more people, the only real choice we have is with the process by which this change occurs. we can be proactive and “control” it or be obstructive and await the day that change is forced upon us.

      • China-Bob, I still think we do have a choice. During the GFC, Kevin Rudd made the choice to turn on the immigration tap in response to falling house prices. We now have the highest rate of immigration per capita in the world.

        As for wealthy Indians and Chinese, sure, they’re eyeing our property, and it’s all up for grabs. But shouldn’t there be some degree of loyalty on the part of the government to the Australians already here? Why do we have to have unrestricted foreign investment and massive immigration at the expense of Australians not being able to afford their own place to live?

        Australia has a lot of wide and open space, but you wouldn’t know it looking at Melbourne and Sydney, where most immigrants choose to move to. I can understand they move to the large cities for the jobs and other services, but what’s wrong with the government making a concerted effort to decentralise and move jobs and services to the rural areas? What’s wrong with building some infrastructure before ushering in more people than we can cope with?

  19. Leith,

    HnH and Gunnamatta tagged teamed me months back after I questioned the value of skilled immigration, HnH accused me of racism citing my Nic as evidence.

  20. Population growth rates:
    1.8% – Australia with a nice big Current Account Deficit
    0.3% – Norway with a nice big Current Account Surplus