Australia can’t build its way out of population ponzi

By Leith van Onselen

The full speech that Ken Henry gave to CEDA yesterday has been released, and Dr Henry pulled no punches in admonishing the Government’s negligence in managing Australia’s mass immigration program. Below are the key highlights:

In the broader community, there is considerably less support for a larger population.  People are concerned about the impact of a growing population on traffic congestion, urban amenity, environmental sustainability and housing affordability.  And they worry about our ability to sustain Australian norms of social and economic inclusion.  These concerns are understandable…

Even with strong growth in the size of government and public debt, we do not have the infrastructure capacity to support today’s population, far less the population of the future.

How will we fund the biggest infrastructure build in our history? And what about infrastructure planning?…

On the basis of official projections of Australia’s population growth, our governments could be calling tenders for the design of a brand new city for two million people every five years; or a brand new city the size of Sydney or Melbourne every decade; or a brand new city the size of Newcastle or Canberra every year.  Every year.

But that’s not what they are doing.  Instead, they have decided that another 3 million people will be tacked onto Sydney and another 4 million onto Melbourne over the next 40 years.

Already, both cities stand out in global assessments of housing affordability and traffic congestion.

And even if we do manage to stuff an additional 7 million people into those cities what are we going to do with the other 9 million who will be added to the Australian population in that same period of time?  Have you ever heard a poltical leader addressing that question?  Do you think anybody has a clue?…

At the very least, we are going to have to find radical new approaches for infrastructure planning, funding and construction.  And that includes energy infrastructure, critical to our economic performance and our quality of life.

The Productivity Commission’s (PC) final report on An Ageing Australia: Preparing for the Future projected that Australia’s population would balloon to 38 million people by 2060 (mostly via immigration) and warned that total private and public investment requirements over the 50 year period are estimated to be more than 5 times the cumulative investment made over the last half century:

ScreenHunter_15679 Oct. 25 14.39

Then in its recent Migrant Intake into Australia report, the PC warned that:

Governments have not demonstrated a high degree of competence in infrastructure planning and investment. Funding will inevitably be borne by the Australian community either through user-pays fees or general taxation.

Blind Freddy can see that running a high immigration program requires massive investment and costs a lot. Australia’s governments have failed dismally on this front, preferring to take the sugar hit from added demand while leaving the problems to be solved down the track on somebody else’s watch (i.e. never).

Unfortunately, Ken Henry stopped short of calling for a lower and more sustainable immigration intake, which surely must be part of the solution. Because as it stands, Australia cannot possibly hope to build enough infrastructure to supply a Canberra-worth of new residents each and every year for decades to come.

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Comments

  1. “read between the lines”

    was pretty clear

    total pea heart for not calling it out explicitly

    P!ss ants. All of them

    • [email protected]MEMBER

      heart of gold

  2. scootytootyMEMBER

    AHH, I see what he did there. Swap ‘immigration’ for ‘population growth’ and then it’s no longer a racist argument even though every point is the same.

    • If only he would drop the corrupted term “housing affordability” and instead use the more appropriate term “grossly over-priced housing”

      • Even better –

        Out of control business costs such as land, rent and energy, which are also the primary drivers of excessive wage claims.

        Easy.

      • If the numbers of Ken Henry mentions are correct, then is housing grossly overpriced?
        The greatest housing prices are in Sydney and Melbourne and apparently the plan is to stuff millions more into these two cities. So are houses in these two cities then overpriced? Unaffordable perhaps but is this the same as overpriced?

    • @ Scooty

      Zactly!

      When someone say beats you in sport and you hate him because of that is not the same as if you hate him because of that and because he’s white.

      The key difference is not to imply that immigration is wrong (as it further implies a plethora of other bad stuff) but to claim that “excess immigration” of all the ethnicities and religions is not sustainable and wrong.

      May seem as hair splitting semantics… but it’s not.

  3. Ok dudes and MacroBusiness, how do we slash immigration?

    Put a $50k/year tax on each 457 visa? Restrict immigration to those with an income of $150k/year or more?

      • How would that slash immigration?

        AUS gives PR visas to people who do a dumbed down “degree” in AUS and work in entry level jobs for $20/hour. That should have stopped 10 years ago.

        I hate low-wage immigration. How does this website want it to be achieved.

      • Ok buddy. The single biggest source of immigration into AUS is 3rd world India. Rich Indians prefer to buy real estate in Dubai legally and not in AUS illegally.

        Rich Chinese love to buy Aussie houses illegally.

        However, the number of poor Indians/Chinese vastly outnumber the rich ones. The ones we see working in petrol stations and restaurants for $6/hour are not rich. Why would a rich Indian work in a petrol station in AUS for $10/hour?

      • Yeah fair enough. I don’t have the number to say for sure, but I’d guess nonetheless it would still contribute. Keep in mind importing parents, grandparents, fake kids and whatever else is common practice amongst the Chinese.

      • “finish the job”? They haven’t even started
        They have had “fifty dedicated staff with advanced data-matching software” for nearly two yrs
        Thousands of offences being committed in plain sight
        Show me a more incompetent prosecution regime anywhere in the world
        It is a sham

  4. Poor old Ken – he’s still got the shits because the ALP shelved his million point plan for Australia and became even more bitter when the conservatives left it on a dusty shelf. As that reptile Howard would say his view is irrelevant. He’s yesterday’s man, and wasn’t a shining example at the time despite having a sexy name and rugged, tallish stature. He could have been anything but petulantly tossed in the towel when he got a wiff of Fraser heading him off for the top job.

    He’s just enjoying revenge, vichyssoise style, now that he’s got another career as one of the faceless banksters. I think we’ve had our fill of these smarmy mainstream economists anyway – they’ve attained the lofty level of being as trusted as used car salespeople. Ignore the loser, he knows shit.

      • I’d be 99% sure that Henry wouldn’t understand the full implications of the serious nature of the debt that is associated with the infrastructure even if we had tried to build it. He’d have reckoned in order to pay for it that selling off whatever assets that were not already in foreigners hands would be quite fine. Fair to say he does not have the nouse to recognise that this is what happens when it is all followed through.
        Secondly henry’s ego knows no bounds.
        So we have, making noise on our side, a man with minimal comprehension of reality and an out of control ego. He’s a dangerous ally.

      • I’m just stating the fact Leith, but I take your point that I didn’t comment on his points, so my bad.

        His points contain touch stones of truth but his view of funding that infrastructure is the usual mainstream problem as to where the funding comes from so we get back into this PPP solution or some kind of “affordable” manner of raising revenue which is just more mainstream blah. The Feds could fund anything they like, but it doesn’t suit their ideology to do so. They don’t have to sell bonds to raise money or tax anyone to provide services because they are a currency issuing sovereign with a floating exchange rate. The only thing stopping them from doing so is the ideology peddled by the Henry’s of this world.

        The other point is that Australian infrastructure has been crumbling for thirty odd years. Immigration is only a recent issue which has just exacerbated the realisation that our cities are more suited to populations of the 1970’s rather than today. So to say immigration has caused this problem is incorrect. The seeds of the problem existed before Howard opened the flood gates and have their roots in the neoliberal influence creeping into the place since Hawke and Keating decided they would abandon full employment and follow the Friedman plan. Quite simply we haven’t moved on from this point.

        So yes, he touched on a few points, but his solution is hindered by his mainstream views, which is really why his tome is being eaten by dust mites as we speak. Unfortunately, Ken has full confidence in the relevance of DSGE models which is why Fraser got the job because he has a more pragmatic and realistic view of how the economy works. While I understand you may have regard for him as a person, I find it difficult to swallow his views on macroeconomics, particularly given the lofty heights he has reached in the profession, but I guess that says a lot. That’s not an attack on his person but on his views. My apologies if I went in a bit hard, but I was just stating the facts as I see them. You may have a different view.

      • ” They don’t have to sell bonds to raise money or tax anyone to provide services because they are a currency issuing sovereign with a floating exchange rate. The only thing stopping them from doing so is the ideology peddled by the Henry’s of this world”

        Come on Malcolm Can’t we get past this mindless repetition of this Barnacle Bill Fairy Dust baloney. if you trash your currency that is a real cost on the well being of the population. If you sell other externally oriented resources to rescue that currency what has been gained or have you not just lost everything? What will, in the Aus economy, building city bridges and railway lines do to balance the extra stress placed on the external account?
        There is no magic wand nor fairies at the bottom of the garden. Can’t we just stick to sensible discussion without this stupid simplistic nonsense of Magic pudding Economics rearing its head?

      • Fair points Malcolm. Though I would question the assertion that Fraser is a more pragmatic and realistic Treasury Secretary. Having had, er, some dealings with the man, I feel pretty confident saying he’s a mixed bag. On the good (even admirable) side: he’s a very staunch believer in APS independence. I know this site has more or less written off Treasury as politically compromised, but that has not been my observation. If anything, I’d argue Treasury has very stubbornly (and correctly) stood its ground when the Treasurer’s office has wanted certain things a certain way. On the bad side of things: Based on what he perceives as the most pressing economic issues, and based on conversations I’ve had with people who most definitely have insight into Fraser, I get the strong impression he’s a wing-nut.

        It’s a pity, because the APS badly needs leaders willing to fight for its independence (or what little of it remains).

    • Malcolm, I take it you haven’t seen the inside of a public hospital Emergency Department recently? Not too many of the punters waiting 6 hours to get their hands sewn up or for their elderly parents to get into an acute bed would think his views irrelevant.

      • I’ve spent the last two years in and out of public hospitals, respite centres and aged care facilities with both in-laws until their recent deaths so I’m acutely aware of the shortcomings of the public hospital system and the need for urgent attention. This is not all infrastructure issues, but mainly service issues caused by vertical fiscal integration which has forced the states to their knees at the behest of the Federal Government who want us all to rely upon the private system like in the US. My son had a heart attack recently and carries the highest cover with Medibank but was out of pocket for private emergency to the tune of $2500. Further scans and tests as an outpatient added another $1500 to the bill and it’s not the end of it as his condition is ongoing. The reason is federal defunding of Medicare for procedures removed from the schedule at the whim of the Feds. This is not an infrastructure issue but a funding issue for ongoing services which is why we wait 6 hours for attention at a public ER if we are lucky as some deemed non urgent may wait up to 24 hours in the northern Adelaide hospital system.

        So to answer your first question you are incorrect as I have been inside an ER and the public and private systems recently. None of these issues have a scrap to do with infrastructure funding, which is what we are talking about in case you haven’t been paying attention.

        To address your second point I am not talking about whether or not we need the infrastructure, that is a given and at no point did I make that assertion. What I am saying is that while Henry hits some points, his solution relies upon the funding via discredited mainstream think such as PPP’s, bond issuance or other FIRE funding approaches. I am saying this is wrong because the sovereign currency issuer is in a position to create those funds via it’s fiat currency to get this infrastructure issue addressed. They can afford to do it, but like Henry, the Conservatives and the ALP act as though we are back in the gold standard era where we could only produce currency up to our gold reserves. This applied forty years ago but is not applicable in a modern economy. I’m not saying the Government has unlimited funding capabilities, as it is limited by the value of it’s real resources, but we have ample of these so the constraints Henry is assuming simply don’t exist. The one and only reason is ideology. That is the road block and nothing else.
        I appreciate you taking the interest to comment, but you should think through your comment before making assumptions about my knowledge and putting your words in my mouth. That type of behaviour is shallow and trite.

      • Again that last paragrapgh is just plain stupid nonsense which shows that you have not thought through how an economy actually works.
        If you can’t understand it that is OK – it seems few in the modern world do. But don’t call the rest of us fools because you can’t understand.

    • Come now, willy_nilly. You were just in a thread where this was discussed (about four hours ago). NOM’s contribution to population growth has trended upwards from ~10% in 96/97 to just shy of 14% in 2015, and it looks more likely to be heading upwards at the moment. Remember this chart? http://i.imgur.com/3ToGaVn.png

      Yes it has fallen 34% since 2009, so you’re technically correct (the best kind of correct!). But I’m assuming you’re smart enough to realise that this was because NOM was running at an unprecedented 18% and then the GFC hit. For some reason, you’re ignoring every other data point (not to mention the unambiguous upward trend) and are selectively presenting the two data points that best support your (argument | bank balance | identity). Essentially, what you are saying is this: http://i.imgur.com/D1JDK5Z.png

      For reference, here’s the thread you participated in, just in case you forgot what happened/where you were four hours before you made this comment: http://www.macrobusiness.com.au/2017/02/economics-lesson-population-ponzitiers/#comment-2817864

      • Noted, however since 2009, the trend is down. That is a fact. Is NOM still above historical averages, yes. Is our NOM still to high in my opinion, yes. What would I like to see the NOM at? about 40k to stabilize our population.