Labor immigration extremism threatens inequality agenda

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By Leith van Onselen

In yesterday’s address at the 2017 Economic & Social Outlook Conference, Labor treasury spokesman, Chris Bowen, launched a classic straw man argument against cutting Australia’s mass immigration program, disingenuously conflating the issue with rising global trade protectionism [my emphasis]:

This brings me to the broader context in which the budget debate must been seen: the development of economic policy at a time of declining real wages, record high levels of income inequality, record high underemployment and ongoing concerns over regional inequality.

The facts and the challenges are clear:

  • Income inequality in Australia is at 75 year highs.
  • Real wage growth is currently negative.
  • Home ownership and particularly first home ownership rates are at record lows.
  • The nearly 1 in 5 young people that are underemployed, with underemployment for this group the highest in 40 years
  • People in regional areas of Queensland and South Australia for example facing unemployment rates at closer to 10%, not the 3-4% we take for granted in many cities.
  • Half of all jobs in Australia over the past decade were created within 2 kilometres of the Sydney and Melbourne CPOs.

Now there is a tendency for some commentators and participants in the political debate to describe policies designed to deal with these concerns as “populist”.

On the contrary, well designed policies to deal with low wages growth and rising inequality are far from populist: they are essential in ensuring a dynamic, growing and fair economy.

A Government which proposes allowing a cut in wages for weekend workers in this environment simply doesn’t understand the nature of the challenge.

There is of course a populist offering available in both Australia and around the world.

A populist offering which blames false causes of immigration and open trade and offers simplistic, counter-productive solutions.

The Productivity Commission has highlighted this week the potential costs of going down this road.

Did Chris Bowen or his speech writers read the Productivity Commission’s (PC) report, entitled Rising Protectionism: Challenges, threats and opportunities for Australia? If so then they are deliberately misrepresenting it. It referred to the growing threats caused by global trade protectionism, not immigration.

Given they would never do such a thing we can only conclude that they did not read it. Nowhere in the PC’s report is the term “immigration” even mentioned.

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Besides, low immigration mono-cultures like the Chinese, Japanese and Germans aren’t exactly struggling in the globalised world. In fact, they have each become export powerhouses without the need for mass immigration.

Moreover, most of the dot point concerns raised above by Bowen would be alleviated by Australia running a more moderate immigration program – commensurate with that which existed in the century after Federation.

Income inequality and home ownership would be improved as there is less upward pressure on house prices, particularly in Sydney and Melbourne, and less economic rents flowing to the owners of capital (who benefit the most from mass immigration while ordinary residents bear the costs).

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Wages growth would also improve, other things equal, as there is less competition for jobs and workers’ bargaining power is increased, which would also help to reduce inequality.

There would be less youth unemployment, as employers are incentivised to hire and train young workers and graduates rather than taking the easy route of importing a migrant.

Australia’s economic growth and job creation would also become more broad-based and less concentrated in inner Sydney and Melbourne. Lower population growth would take pressure off interest rates and the currency. Thus, the Australian dollar would fall more quickly than otherwise helping to cushion the post mining-boom adjustment as tradable sectors become more competitive more quickly. This would spread benefits much more widely than just the “citizenship export” sectors of education, as well as simply piling more unproductive consumers into Sydney and Melbourne (blowing the current account deficit and increasing debt).

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Lower population growth would also lift productivity and income by decongesting cities and, over the long run, shares the depleting Australia’s fixed national endowment of resources over fewer people, also ensuring higher income per capita.

To Bowen’s straw man speech, you can add another that will be delivered today by Labor leader Bill Shorten, who will argue that inequality threatens Australia’s economy and social cohesion and is driving voters to fringe “populist” parties like One Nation. From The Guardian:

Shorten will tell an economic conference in Melbourne the system as it stands is “accelerating inequality, rather than addressing it, entrenching unfairness, rather than alleviating it”…

He will say inequality has consequences beyond the economic and the social – it is also creating a fault line in politics by fostering a “sense of powerlessness that drives people away from the political mainstream, and down the low road of blaming minorities, and promising to turn back the clock”…

Labor, Shorten will say, is prepared to reach into the “too-hard basket” and look at tax policy, subsidies and expenditures for the next election – “including reforms that in the past we might have dismissed as too politically difficult”.

He says inequality speaks for a fracturing of a nation and a fraying of old links: “The link between hard work – and fair reward, the link between playing by the rules – and getting ahead, the link between Australians’ daily lives – and the political debate”.

“Inequality kills hope,” Shorten will tell Friday’s conference. “Inequality feeds the sense that the deck is stacked against ordinary people, that the fix is in and the deal is done. That it’s not what you know but who you know”…

The Labor leader will tell the conference inequality isn’t just an abstract economic term. “It’s Australians going years without a decent pay rise – but paying more tax than their boss.

“It’s women working the first two months of the year for free, compared to their male colleagues, because of the gender pay gap.
“It’s young families demoralised by a housing market where they can barely afford to rent, let alone buy.”

He will contend the Turnbull government has no ideas for how to tackle inequality, and has been engaged in a “belligerent defence of trickle-down economics”.

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While Shorten’s concerns are valid, how is maintaining a mass immigration program – which is projected to flood Sydney and Melbourne with 87,000 and 97,000 people a year respectively for decades to come – compatible with a fairer, more sustainable and socially cohesive Australia? Such turbo-charged immigration necessarily will make housing affordability worse, dilute workers’ bargaining power, enrich the capital owners and wreck overall livability (e.g. via worsening congestion).

Delivering those outcomes will jeopardise the multicultural consensus.

Labor is onto a good thing addressing inequality and its reform matrix to deliver it is better than the Coalition’s. But why it allows pro-immigration extremism (remembering that nobody here is arguing to cut it beyond the historical average) to work against those very outcomes is the question we must ask.

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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.