High immigration has masked Australia’s economic decline

By Leith van Onselen

Finally a journalist from The ABC has acknowledged the economic elephant in the room: that Australia’s so-called economic out-performance over the past decade or so has been driven, to a great extent, by its world-beating immigration program, which has not raised individual living standards:

Australia has ridden 25 years of economic growth without a recession…

But often underappreciated is the role that migration has played. A huge increase in migration has fuelled headline GDP growth, keeping Australia technically out of recession. But, it’s also masked a dirty secret, individuals haven’t felt the benefit of this record run…

Much of it fuelled by “temporary” migrants, many of which are not captured in these numbers.

These include some students, 457 workers, working holiday and bridging visa holders – who are generally able to work and many of whom end up staying in the country permanently…

Overall Australian population growth has averaged 1.7 per cent over the last decade – that’s more than double the rate in the US over the same period.

Despite the political heat surrounding “boat people” and asylum seekers, there has been bipartisan support for a huge increase in migration to Australia for a long time…

It’s a very simple equation: more people means more economic activity and that gives the government of the day an easy way to keep crowing on about good economic management.

But more people does not mean that the living standards of the existing population also rise. In fact, it can have detrimental economic effects for the people who are already here.

New workers mean greater competition for jobs, which suppresses wages…

More people also mean more demand for scarce goods and services. When there’s already a tight supply of a particular good, it can mean huge price rises…

Perhaps the most illustrative example is housing, where prices continue to rise sharply in Australia’s two biggest magnets for new migrants, Sydney and Melbourne, putting them outside the reach of many first home buyers…

The reason why many people feel that they haven’t benefitted from the Australia’s long stretch of economic expansion, is quite simply because they haven’t.

Their pay packets haven’t gotten bigger while the cost of essential goods like shelter have risen.

High migration makes it nearly impossible for Australia to fall into recession.

The economy keeps getting bigger just because there are more people operating in it.

It’s great for business, because it keeps wages low and there’s more people to buy stuff from them.

It’s great for governments because it means economic growth looks better than it otherwise would.

But it isn’t necessarily good for ordinary workers.

As new Reserve Bank governor Philip Lowe has noted, the role of good economic policy should be to “raise living standards” – not just make the population, and therefore economy, bigger.

Well said.

Australia’s population has grown at 2.5 times the OECD average since 2003 on the back of mass immigration (see below charts).

ScreenHunter_17007 Jan. 19 17.26 ScreenHunter_17008 Jan. 19 17.26

While the federal government regularly claims credit for Australia’s quarter century of uninterrupted growth, the situation is far less flattering when the economy is considered on a per capita basis, with the economy actually sliding backwards in two of those years (see next chart).

ScreenHunter_16457 Dec. 05 10.03

The national accounts clearly show that Australia’s economy is growing largely because of strong immigration and population population growth. Remove these from the equation and Australia’s per capita GDP growth has been very poor (see next chart).

ScreenHunter_16509 Dec. 07 12.09

In fact, Australia’s 10-year annualised growth in per capita GDP is tracking at its lowest level since December 1983 – i.e. even worse than the early-1990s recession (see next chart).

ScreenHunter_16513 Dec. 07 13.41

Moreover, Australia’s per capita GDP growth since the GFC has been far worse than after the 1970s, 1980s and 1990s recessions:

ScreenHunter_16515 Dec. 07 13.54

33 quarters after the onset of the GFC, GDP per capita has risen by only 7.1%. This compares to 11.6% growth after the same point following the mid-1970s recession, 16.0% growth after the early-1980s recession, and 16.5% growth at the same point following the early-1990s recession.

If you add negative externalities like increased congestion, reduced housing affordability, reduced environmental amenity, the dilution of Australia’s fixed mineral endowment, and rising inequality – which are not properly captured in real GDP per capita – it is obvious that incumbent living standards are being made worse-off via mass immigration.

The crazy thing is that the official government projections are for Australia’s population to grow by 400,000 people per annum over the next 40 years, almost entirely via immigration:

ScreenHunter_17009 Jan. 19 17.35

This is the equivalent of adding a Melbourne to Australia’s population each and every decade! To quote former Treasury secretary, Ken Henry:

“The Australian population is growing by something like 400,000 a year. Think of it: a new Canberra every year between now and the end of the century. Or, put it this way, every five years building a brand new city from scratch in Australia for 2 million people.”

“Or put it this way: building a whole new city the size of Melbourne every decade between now and the end of the century”…

“My observation in Sydney and Melbourne today, is that people already think, with very good reason, that the ratio of population to infrastructure is too high. But we have set ourselves on a journey that implies an increase in that ratio. An increase in that ratio that is associated with more congestion, longer commute times to work, increasing problems with respect to housing affordability”…

While mass immigration policy has been effective at masking Australia’s economic decline – by juicing headline GDP – it is equally effective at eroding incumbent residents’ living standards.

In case you missed it, I analysed these issues in great detail in my recent presentation on the economic impacts of immigration.

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Unconventional Economist
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  1. The material is presented in a way that it’s low hanging fruit for Pauline and the Hansonites. They don’t even have to fully understand it.
    Pauline print out A1 colour copies of those graphs and plug them on the TV

      • If you seriously don’t think “we’re being swamped by Asians”, then you haven’t been to Sydney city for a long time.

      • Please don’t bring your ridiculous left wing BS to a sensible discussion. Due to the left constantly derailing any conversation about population, it is literally your fault that Hanson has arisen and is now about race instead of population. Your fault.

        “Lib/Lab/Greens have not been doing the obvious things that need to be done because of their ideology and/or corruption, so Hanson filled the void” rj2k000

      • Ric, I don’t care if it’s Asians or Europeans. Hanson will implode again. You need sensible people (like SAP) to carry the message.

      • “You need sensible people (like SAP) to carry the message”

        While I agree, I can’t see it happening. Australians are just not that smart. Without Greens (and to a lesser extent Labor) in the debate it’s lost.

        I’m now convinced Hanson won’t do a thing about overall population. Someone’s gotten in her ear (probably Abbott). Instead it will be targeted, at as you say, Muslims and Asians. The Greens have created the most ludicrous situation for their cause. Idiots. As I’ve said for a decade and been banned here twice for, this is squarely on Greens shoulders.

      • I’m now convinced Hanson won’t do a thing about overall population. Someone’s gotten in her ear (probably Abbott). Instead it will be targeted, at as you say, Muslims and Asians.

        LOL. So, basically, exactly what the people you constantly deride as idiots were telling you six months ago ?

        And it’s got nothing to do with Abbot, or anyone else, getting in her ear. ON is an anti-azn, anti-darky party first, second, and third. Anything else they offer is distraction or window-dressing around that.

      • Like it or not, Hanson is currently the only one willing and with the high profile who can raise this topic in Parliament, the media and when campaigning in those marginal seats in Queensland which have been hit hard by the collapse of the resources sector. I think she’ll do okay this time, learnt by experience, she cut that ex senator and Queensland candidate loose real quick once they were on the nose.
        Remember the old saying, “the enemy of my enemy is my friend”

  2. Stating the obvious is always going to be low-hanging fruit.

    Lib/Lab/Greens have not been doing the obvious things that need to be done because of their ideology and/or corruption, so Hanson filled the void.

    • ErmingtonPlumbingMEMBER

      This is true, I have many New Australian Customers and often steer the conversation to immigration and It amuses me that many of my Chinese, Sri Lankan, Indian and Arab clients think the Numbers are to high,…and yet at a local branch meeting (labor) late last year, after I bring up Immigration and mentioning some of the cultural impacts I think it has on Australia, this old stalwart of the party, whom I respect enormously as a kind hearted, well spoken and written individual,….comes up to me and shows me some very unsavory pictures on his phone of mostly “white” young, Drunken and Disheveled post Melborn cup revelers at Flemington,…and says,…thats the Australian Culture your wanting to defend!.

      I was stunned and about to fire back when a group of people nearby stear the conversation to housing affordability,….but im dying to bring this back up with him at our next meeting and ask him what he would have thought had I pulled out my phone and shown him (a staunch supporter of Reconciliation) a bunch of images, of drunken debauched Indigenous people and said ” theres your Aboriginal culture.

      Cognative dissonance really does leave people morally confused.

      • Most people have very limited cognitive abilities. By the time they are 40 their brains are a sort of foggy haze of reactive memes that bounce off each other. This is made worse by TV and general mental sloth. Use it or lose it. The average aussie is not good at thinking, which is why our pollies get away with so much stupid stuff.

        My guess is that if you could pin that old guy down and try and analyze this issue, you would get nowhere. Every argument would just spawn a reactive meme, meandering around in aimless circles. Our media has been promoting this type of reactive “meme association” for quite some time, so perhaps it is not surprising. The acid test would be for that “stalwart” to write down a coherent summary of his party’s position. Even our politicians can’t do this! Case in point – Lee Riahnon and her Green Left manifesto that amused us all over the Christmas break.

      • Funny that you mention Flemington. How about showing him the car jackings, jewellery store robberies, mass brawls, burglaries, home invasions, muggings and other crimes committed by the African gangs in Melbourne and ask him if this imported culture is better than the current one.

      • My wife is Chinese, and a Hanson and Trump supporter. She cannot understand the high numbers too. Her family overseas cannot understand Australia’s SIV visa program either. I have been hit with the comment “doesn’t your government know many of these SIV’s are mainland crooks”

      • @kiwikaryn, you are correct – the situation in Kensington, North Melbourne and Flemington- all public housing given over to alleged “refugees” and their poor traumatised children is actually severe. While the media labels behaviour as Apex Gangs, the reality is it’s simply a preface to what is coming – the next gen already runs the local parks, leisure centres and have. I fear of police. The situation will get a lot worse till we have draconian family wide deportation rules and end our refugee quota which is decided in Geneva. The original convention on refugees was written in 1951 aftera 6 year world war – it’s still in place as is – except for our major trading partners who aren’t signatories!
        Our future is already here and my children have been victims in multiple occasions in our own streets. I highly recommend watching this image on Europes future, ours is already here: http://m.liveleak.com/view?i=cb0_1447249820.

  3. ..The reason why many people feel that they haven’t benefited from the Australia’s long stretch of economic expansion, is quite simply because they haven’t.

    …But a lot of people have and that’s the point missing in the above argument. People who owned houses in Sydney (for example) have seen their house prices double in just the past 4-5 years. Many who owned houses for longer periods are laughing all the way to the bank.. (literally). Not to mention the ones that collaborated with their neighbors and sold their houses as a group to developers and pocketed 3-4 times the already inflated value of their houses..
    I agree with you that on a per capita GDP growth went backwards and of course the standards of living have gone backwards, but many Australians can care less once they pocket the money and move elsewhere to retire (and many are). This is a con job that the elites managed to pull off while letting some of the wealth trickle down.. I do not think Australians will be convinced by logical arguments and numbers and charts.. Slogans rule in this country.. Sustainability is an empty word for the many who have only their own self interest in mind..

    • Plug into that the equity pull out to finance V8’s, iPad/Pod/Phone and fancy holidays… the wealth perception for many have indeed been tangible.
      This in return fueled new entrants to the scheme

    • It’s not correct to attribute bad per capita GDP to immigration itself. That one is caused by the poor quality of immigrants we attract due to low standards of admission, and the fact we have not invested in anything to improve efficiency. Both of these were an result of entitlement attitude of just pumping asset price higher to get rich rather than real investments and research.

      • The problem is that as the per capita GDP is effectively what we have to bribe the next immigrant to come here, it’s a vicious circle – the more migrants arrive, the lower the quality of the next tranche.

      • @Robert.

        That’s really well put.

        This argument is about human nature. We’ve decided to take now at the expense to our offspring. Some of us are working hard to hoard as much as we can, at others expense to provide for our offspring. It’s real dog eat dog. That’s what governments are for; to curb human nature, stop excessive greed and selfishness, and provide for the greater good of the nation and it’s future. Our government has been failing us for decades and because of it, future Australia looks bleak in my opinion.

  4. SchadenfreudeKing

    The average person understands none of this, and lacks the ability to read more than 10 words. Unless some charismatic politician runs this line while stroking the voters ego (most likely by demonizing foreigners and blaming them for every problem under the sun), nothing will change.

    It’s continued high immigration, or widespread xenophobia and nativism. Australians lack sufficient introspection for it to be any other way.

    There is a third option, which is that events beyond your control will slow immigration. Short of that happening, and given the failure of the Sustainable Australia Party to garner votes compared to the One Nation rabid nutjobs, I rate the chances of lower immigration based on rational policy in Australia as about zero.

      • Yep. our debt pumped housing equity is making us rich beyond Crassus’s wildest dreams. And Spain was quickly closing in on Germany in 2007….

      • That’s not strictly false, individually we are productive, but a lot of the produced work are not valuable. E.g. I remember recently one article about one single house that has been resold 6 times in two years. I’m sure the agents, brokers, accountants and lawyers spent many productive hours for the 6 transactions, but all that productivity ultimately produced zero value.

      • We’re totally getting more productive! Instead of taking 2 years to sell a house 6 times, that is now done in a week or two.

    • There is a third option, which is that events beyond your control will slow immigration.

      Such as

      – A weaker jobs market in Oz compared to other OECD countries making it more attractive for developing world migrants to go to the other OECD countries or
      – Ageing populations throughout the OECD (and large swathes of the rest of the world) making the other OECD countries compete harder for migrants or at least open their doors wider or
      – Slowing population growth and rising wages in many parts of the developing world removing some of the impetus for migration
      – Or some kind of combination of the above?

      In the meantime, the slogan ‘It’s the planes, not the boats’, seems short enough even for an Australian to understand, and seems to be getting some traction, so you never know what might happen. (and if unemployment gets much over 6%, my guess is the portcullis will drop in double quick time or the government will tossed out and the next lot in charge will drop the portcullis)

      • ‘It’s the planes, not the boats’

        First time I’ve heard it. I like it. It’ll still be seen as racist.

    • Its good that one mainstream outlet is talking about the issue. But i’m yet to see any of the big news outlets or TV news talk about it.

    • Ah, it’s good to see that the budget emergency is suspended when we are talking about propping up the real estate bubble.

    • If this happens then what would be the impact to our army of investors. Ignoring the marginal buyers who source their funds offshore wouldn’t it match the effect of removing NG? More attractive than investors these home buyers would quickly vacate rentals with the most expensive starting first. I don’t know the effect on demand as it may put investors into greater equity but add cashflow problems. Upgraders may start kicking in but affordability will be more about how much you earn rather than when you were born.

      • What would that do to our credit rating? Or is the LNP going to cut health and education to make up the shortfall?

  5. DodgydamoMEMBER

    congratulations Leith and MB on getting your ‘elephant’ noted on the ABC, wouldn’t have happened without you!

  6. “A huge increase in migration has fuelled headline GDP growth”

    I once clumsily said something like that in a job interview. … when answering a question about budgets and business acumen.

    I told the guy interviewing me that most high level executives and sales and marketing types were helped in some way by immigration. Without immigration we’d see who’s who; who’s been swimming naked.

    I didn’t get the job.

    • Most likely he considered that “rayciss” – not because of what that really meant.

      (and yes – I am aware of the difference between racism and xenophobia)

      • More likely because the person interviewing escobar was high level executive and doesn’t like anyone pointing out he/she is not wearing any clothes (while swimming).

  7. Great work at carrying the torch Leith and MB – good to see the message is finally finding a broader audience.

    Influence the Influencers!

  8. ErmingtonPlumbingMEMBER

    So much Cognative dissonance around this issue,…the Greens in paticular with a radical Aboriginal reconciliation stance, spitting venom over the “Invasion” of Australia on the one hand and on the other hand, wanting the country’s doors wide open to the World, diluting the voice of Indigenous Australians even further.
    Its totally illogical! Aboriginal Australians, I have NO doubt, are amoungst the biggest losers of Mass Immigration and yet the Greens are amoungst the biggest supporters of an expanded intake.

    Australia Day: Anarchist Greens call for the flag to be burned in sick anti-Oz campaign | Daily Telegraph

    • Absolute shame how Aboriginals have drifted so far out of the national spotlight. A culture that should be celebrated and embraced in our national identity.

      • Mining BoganMEMBER

        Well, maybe they should buy more houses then. To be a part of this fine country one should own a little piece of it.

    • You are quoting from an article from News Ltd… Is there any evidence they anarchist are representative of the general greens? Or actually related to the greens at all? Or is News Ltd is just trying to whip up a frenzy?

      P.s. Cannot read the article myself because of paywall.

    • So much Cognative dissonance around this issue,…the Greens in paticular with a radical Aboriginal reconciliation stance, spitting venom over the “Invasion” of Australia on the one hand and on the other hand, wanting the country’s doors wide open to the World, diluting the voice of Indigenous Australians even further.
      Its totally illogical! Aboriginal Australians, I have NO doubt, are amoungst the biggest losers of Mass Immigration and yet the Greens are amoungst the biggest supporters of an expanded intake.

      No they’re not.

  9. I don’t understand any of this, I’m probably too old and my brains fried by dumb memes but it seems to me that people are either part of the solution or they’re part of the problem. This implies that more people are either the solution or again the problem.
    If we look at the end points it’s rather obvious that Zero population pretty much equates to zero GDP, theres nobody available to do any work so nothing happens.OK so lets look at the other extreme and I’d guess it’s set by the carry capacity of the country. From a relative (Australia vs other highly populated countries) I don’t believe we are anywhere near the absolute carry limits of Australia. So that leaves us with the middle bit and the dynamics of the system of population growth.
    OK so wrt the Dynamics of population growth: it’s undeniable that growth stresses existing infrastructure suggesting that high growth periods should be constrained to time frames during which the country can support this growth. It’s hard for me to imagine a better time for sustained population grow than during/after a-once-in-a-century Terms Of Trade explosion. Brings me to the conclusion, if not n ow than when? if we can’t grow Australia when so many of the underlying economic metrics are so positive than when do we believe that this growth will be possible? It’s a simple question really: Will the dynamic problems associated with growth magically become easier if/when the economy stagnates? I can’t see it myself, but I’m ready to be educated, so please UE cure my stupidity and tell me when population growth will be possible, please tell me how our Economic, Political and Social forces will evolve to make this transition possible, making it easier at some future date than it is today?

    • While the ‘carrying capacity’ of Australia is not yet reached, the carry capacity of our capital cities is beyond its limit in transport, education and health. We need a different place to put the extra people, and we’ll need them to make things beyond cafe lattes. Unless and until that happens, any increase in population will decrease the living standards.

      • OK so you basically agree that population growth is a dynamic problem.
        Just leaves the question WHEN will there be a better time for this growth?
        Or maybe you’re more interested in matching the Rate of Population Growth to some other Economic indicator, if so please tell me, which parameter should we use to determine maximal or even sustainable population growth?

  10. boomengineeringMEMBER

    Harry Dent once said when the world economy takes a dive Australia will fare better because of high immigration, he also said Australian property was going to crash, mmm.

  11. Actually we should really ramp up aggregate demand and fiscal stimulus to private companies (neo capitalism) such as serko and transfield by doing a Europe. More 3rd world migration has been the answer so far. This massive, violent influx seen in this video is shocking but hey after the assimilation teething pains, that’s 2 million more consumers with birth rates in the 10’s!