With Australia’s population set to hit 24 million this year, ABC’s 7.30 Report last night tackled the “Big Australia” debate.
The program featured interviews with The Australia Institute’s (TAI) Richard Denniss and KPMG’s population ‘demographer’ Bernard Salt (amongst others).
Bernard Salt noted that he has been quite shocked at the pace of population growth compared with other nations in the OECD – a viewed confirmed in the latest Intergenerational Report:
The ABC reporter also noted that “in the 15 years since 2000, migration numbers to Australia have outstripped those seen in the 1950s, ’60s and ’70s combined”.
Richard Denniss raised concern that with 400,000 being added to Australia each year, Australia needs to build a city equivalent to the size of Canberra just to keep up. Moreover, he cautioned that the Government seems happy to take the extra tax revenue that these extra workers bring, but has been reluctant to fund the infrastructure and services needed to cope with the expansion – including education and health – thus lowering living standards. As such, he thinks “politicians are just taking the easy way out”. He also questions why the government has no “plan to house them”.
Bernard Salt believes that Australia’s cities need to decentralise from their current monocentric structure built around one CBD to pluricentric (“multinucleated”) cities with multiple CBDs – similar to how Texan cities are structured.
While the report raises some good points, particularly around infrastructure and services not keeping up with rapid immigration, I was disappointed that it did not explicitly mention the deleterious impacts of high immigration on productivity.
As noted by Fairfax’s Ross Gittens earlier this month:
What economists know but try not to think about – and never ever mention in front of the children – is that immigration carries a huge threat to our productivity.
The unthinkable truth is that unless we invest in enough additional housing, business equipment and public infrastructure to accommodate the extra workers and their families, this lack of “capital widening” reduces our physical capital per person and so reduces our productivity.
Think of it: the very [Intergenerational] report announcing that our population is projected to grow by 16 million to 40 million over the next 40 years doesn’t say a word about the huge increase in infrastructure spending this will require if our productivity isn’t to fall, nor discuss how its cost should be shared between present and future taxpayers.
Dr Katherine Betts from the Monash University Centre for Population and Urban Research, has similarly warned that the broader economy can suffer as investment to support the growing population crowds-out productive investment and capital deepening (you can read a summary article here):
The Productivity Commission report on ageing points out that the infrastructure spending needed to manage population growth over the next 50 years will be five times the total that was needed over the last 50 years. This investment in capital widening must seriously weaken Australia’s capacity to invest in the capital deepening that would boost productivity.
Despite this, Treasury continues to emphasise its ‘three Ps’: population, participation and productivity. While Treasury treats these three variables as if they were independent some commentators argue that population growth has a positive effect on productivity. But there is a contrary argument. Population growth imposes pressures on infrastructure and adds to congestion; in so doing it depresses productivity.
International comparisons show that there is no association between population growth and growth in per capita GDP. This is not surprising as comparative data on 32 OECD countries show no positive association between population growth and growth in labour productivity…
Assertions that immigration-fuelled population growth will boost productivity remain conjectural. There is no empirical evidence that such growth in an advanced economy increases productivity.
Similar concerns have also been raised by researchers at the Reserve Bank of New Zealand and New Zealand Treasury.
It’s about time that economists and policy makers in Australia acknowledged that high immigration is not an economic bonanza, and is in fact more likely to damage productivity and living standards.
If all we are doing is growing for growth’s sake, pushing against infrastructure bottlenecks, diluting our fixed endowment of minerals resources, and failing to raise the living standards of the existing population, where is the benefit?
Time for a rethink.
