ScoMo’s only plan is EXTREME immigration

From Abul Rizvi, former Deputy Secretary in the Department of Immigration, at Inside Story:

Morrison government’s $158 billion tax cuts. A lot has been said since the election about the politics of the cuts, with Labor under intense pressure from sections of the media to pass the necessary legislation, but less about what they reveal of the government’s broader economic plans.

The cuts rest on two assumptions: that Australia’s population will grow more rapidly over the next decade than in any other equivalent period in our history; and that the likely retirement of five million–plus baby boomers will have little or no impact on economic growth, tax revenue or government expenditure.

On that basis, Treasury assumes that the economy will throw off its sluggishness and start growing faster over the next two financial years, then stabilise at around 3 per cent a year. Government receipts will rise, it says, from 25.0 per cent of GDP to 25.5 per cent by 2028, and government payments will fall from just below 25.0 per cent of GDP to around 23.5 per cent.

The government will then be in the happy position of being able to cancel its net debt, deliver steadily growing budget surpluses — 2 per cent of GDP from the mid-2020s — and still make those big tax cuts.

Or will it? Are we really about to enter economic and budgetary nirvana, or are there hidden traps in the government’s plan?

Crucially, this virtuous sequence of events hinges on the rate at which Australia’s population grows over the next decade. And on that question Treasury, and the government, have been less than forthcoming.

In this year’s budget papers, Treasury claimed that Australia’s fertility rate will rise to 1.9 babies per woman from 2021 onwards. But when the Australian Bureau of Statistics last calculated the fertility rate, in 2017, it had fallen to 1.74, the lowest level on record. A return to 1.9 by 2021 would be astonishing. On the basis of this heroic assumption, Treasury expects Australia’s natural increase over the next decade to be 300,000 higher than would be delivered by the recent rate of gain.

CHART 1. POPULATION GROWTH: MIGRATION AND NATURAL INCREASE

Source: ABS 3101 and Budget Paper No. 3

Treasury also predicts rapid growth in net migration: 155,000 more people over the next four years than its 2018 forecast, and 400,000 more over the next ten years. But how can that be reconciled with the prime minister’s March 2019 population plan, which included a 120,000 reduction in permanent migration over the next four years that was necessary, he said, to reduce congestion in the biggest cities?

Source: Commonwealth Budget Paper No. 3, Appendix A, 2018 and 2019

If he sticks to that plan, then Treasury’s rise in net migration inevitably means a huge surge in long-term temporary migration to more than offset the reduction in permanent migration. Not a word was said about this during the election campaign, perhaps because it wouldn’t have helped the government’s congestion-busting argument.

So what is going on?

Treasury hasn’t explained how its population growth assumptions square with the government’s economic, budget and tax plans. Higher levels of net migration and fertility would certainly reduce the rate at which the population is ageing. They would also increase pressure on infrastructure and government services.

But on the question of what would happen to the government’s plans if these assumptions weren’t realised, Treasury is silent. As the organisation well knows, a shortfall in the natural rate of increase is likely, and a shortfall in the net migration increase is even more likely, especially as the 2018 figure has already fallen 11,000 short of Treasury’s forecast.

But it is Treasury’s newfound indifference to the impact of ageing that is most surprising.

Launching the first Intergenerational Report back in 2002, treasurer Peter Costello warned of the impact of an ageing population on the economy and the budget. Lower labour-force participation rates and a declining working-age-to-population ratio would dramatically reduce future revenue. At the same time (though some experts dispute this), big increases in health, welfare and aged care spending would be required. Treasury believed that “the gap between spending and revenue could grow to 5 per cent of GDP by 2042.”

Against this background, the Howard government significantly boosted net migration, partly to reduce the rate at which the population was ageing. This decision has helped Australia achieve higher participation rates — all those young migrants looking for jobs — and age more gradually than otherwise would have been the case. And more gradually than comparable countries.

The government also provided a range of major tax advantages to older Australians with access to capital income, designed partly to reduce the growth in the number of people receiving the age pension. In the event, the cost of these measures in lost revenue may well be more than the savings on the age pension.

The ageing theme featured again in the latest Intergenerational Report, delivered in 2015 by treasurer Joe Hockey. “The proportion of the population participating in the workforce is expected to decline as a result of population ageing,” said Treasury, and that means “lower economic growth over the projection period.”

Hockey assumed that “average annual labour productivity growth over the next forty years will be 1.5 per cent” and real GDP growth would average 2.8 per cent a year. Combined with controversial actions to limit spending in health services and the age pension — actions that parliament mostly rejected — he anticipated that productivity growth would quickly put the budget into surplus and net government debt would be repaid by the mid 2030s. It was an extraordinary turnaround from Costello’s forecast of the impact of ageing.

Not to be outdone, Scott Morrison seems to have decided that Costello was far too cautious about the future and Hockey was a wimp when it came to achieving surpluses and repaying net debt. A key element of the PM’s ten-year budget plan is its assumption that the economy will soon return to the level of real GDP growth that prevailed over the two decades between 1998–99 and 2017–18.

The problem with this view is that during the first half of that period — the decade to 2008–09 — the number of working-age people as a proportion of total population was rising towards its peak of 67.5 per cent in 2009. Most of the 5.5 million baby boomers were at their income-earning peak and were spending at a high rate. Real GDP growth — at around 3.4 per cent a year — was well above the average of the past twenty years.

With the working-age-to-population ratio peaking in 2009 and falling to 65.3 per cent in 2019, real GDP growth has been much lower, at about 2.5 per cent a year.

Using the average of these two periods as the basis for forecasting Australia’s long-term real GDP growth takes no account of the ageing that has occurred since 2009 and its role in slowing economic growth. More importantly, it assumes further ageing will have no impact over the next decade.

CHART 2. PROPORTION OF THE POPULATION OF WORKING AGE

Source: Parliamentary Budget Office

By 2030, Australia’s working-age-to-population ratio will have fallen to 63.4 per cent. The whole boomer cohort will have moved beyond sixty-five and mostly into retirement. As Costello and Hockey forecast, the downward pressure on participation rates will be considerable.

From 2025, all boomers will be eligible for the pension phase of superannuation and most will be paying no tax on superannuation earnings. Some will be getting large franking credit refunds. Their private household consumption expenditure will fall as they age, and their take-up of health and aged care services and the age pension will increase.

By 2030 the number of Australians aged eighty and over will rise to just under 1.6 million, from around 960,000 in 2016, putting further pressure on the health system. The Australian Medical Association already says the public hospital system is in crisis, and waiting times to enter aged care facilities are under severe strain.

Yet Treasury fails to acknowledge any significant impact of ageing on the economy, tax receipts or the health, welfare and aged-care budgets. Indeed, it now thinks government expenditure as a portion of GDP will fall significantly at the same time as we are ageing.

The independent Parliamentary Budget Office doesn’t agree. In a report released the day before the budget it said:

Since 2011 — when the first of the baby boomer generation turned sixty-five — the share of the population of retirement age has increased significantly and the share of the population of prime working age has begun to fall. This flows through to the budget in the form of a reduction in revenue, due to lower labour force participation, and an increase in spending, reflecting greater demand for government programs that support older Australians. Over the next decade, the ageing population is projected to subtract 0.4 percentage points from the annual real growth in revenue and add 0.3 percentage points to the annual real growth in spending. In real dollar terms, this equates to an annual cost to the budget of around $36 billion by 2028–29.  This is larger than the projected cost of Medicare in that same year.

The government knows the likely negative future impact of ageing on the economy and the budget. When the inevitable debt-and-deficit disaster occurs, will it argue for massive cuts in spending like those Joe Hockey attempted? Does it plan to reduce the role of government according to the American model, opening up more privatisation opportunities for the government’s favoured businesses?

And why is it assuming such an extraordinary increase in population growth — and especially growth in the stock of long-term temporary residents — only to hide the fact in an appendix to Budget Paper No. 3 rather than including it in its much-vaunted population plan?

The next Intergenerational Report, likely to appear with next year’s budget, provides the prime minister with an opportunity to reappraise the challenges that an ageing population will pose. It seems unlikely he will take up the opportunity.

Regardless of the pros and cons of immigration or budget surpluses, Australians are entitled to honesty in politics, in the public service and in the media. The government’s assumptions need to be made clear, so the country can make informed and realistic decisions about its future rather than falling for a fairy tale about the good times rolling on forever.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. C.M.BurnsMEMBER

    soooo. we get the same high levels of immigration that were likely under labor; plus we also get the added bonuses of missing out on the tax policy (NG, CG) reform, we won’t get a federal ICAC, we won’t have a stronger focus on the environment (Adani), Newstart won’t be raised from it’s below-the-poverty-line level, and so on and so forth.

      • reusachtigeMEMBER

        ^^ WTF are you on about? Another revisionist. They were totes Ra Ra Ra Loser Shorten. Only I knew the truth. FFS.

      • Yeah, fair dinkum mate, Straya …. World Beaters.
        Full to the brim with Vibrant Cultural Diversity that is hell bent on racing to the bottom.
        We are becoming more Second World by the day.

    • “we don’t get a stronger focus on the environment” I don’t see any climate change activist’s protesting in front of the Chinese and Indian embassies.

    • The90kwbeastMEMBER

      Yes it was clear to me that a vote for the LNP was a vote for more of the same with no meaningful changes to anything. Australia got what it voted for.

      • Vote LNP back in = no change.

        Vote Labor in = no change

        Wreck Labor = Labor MIGHT change by next election.

        There was only one sensible way to vote and that was to make sure Labor didn’t win.

      • “*Queensland* got what it voted for.”

        The Southern (Cold in Winter) States should start sending its homeless up to sunny, warm Queensland, where it would be more comfortable sleeping on the streets and in the parks.

    • The hope is now that Labor work out what they have to do to win.

      Voting in a Labor government with the status quo would have been an even bigger mistake.

      Labor have to be ruined for Australians to get what they want.

      • anyone who believes voting for the two major parties or the Greens will fix this, hasn’t been paying close enough attention.

      • and what public utterances have the ALP made? they haven’t learnt a fkn thing…all established parties are last or nearest to last on every ballot I complete, for as long as I’m alive

      • “The hope is now that Labor work out what they have to do to win.”
        bahahahaha, pass the buttered popcorn.

      • It’s easy for Labor to win

        1. Do nothing but criticise the LNP.
        2. Have no policies.
        3. Sell yourself on one thing only – we are not the LNP.

        Once they are in office, they can institute the hell out of their policies but only for the first 6 months. By the time the next election rolls round the average punter has forgotten and its business as usual.

    • Oh we also get under the Liberals an economy and budget geared completely towards geriatrics……the most unproductive members of the community because at least children spark joy and have a future.

      • @Nathan both major parties are guilty of this. The baby boomers have dominated Western culture from the time they were aged in their mid-20’s. They used their demographic advantage to obtain political and bureaucratic power and have used it to effectively legislate for their financial benefit.

      • @jimsmith
        I knew you’d reply to my comment

        For someone who claims not to support the Liberals, you sure do spend a LOT of time in these threads defending them by trying to make this all about Labor. Labor went to election with policies to wind back some of this generational unfairness, is you memory so rotten you can’t recall something a few weeks back?

        You can accuse the ALP of a lot of things but they definitely were trying to decrease generational unfairness. Everyone in this thread witnessed the election, so you can take your Orwellian retelling somewhere else, matey.

        I literally only see your comments when something bad is written about the Liberals or if you can pile onto Labor for some reason. that and your lack of membership tells me you are probably a Liberal operative paid to spread misinformation

      • No Jim, you can’t blame both major parties.

        Labor has been in power for only 6 of the last 23 years, nor are they in power now.

  2. Based on Chart 1 approximately 60% of our population increase is from immigration. This does not augur well for the composition of our population and culture in 30 years.

    • It’s too late for Australia. Instead of conquest by standing armies we have been the victims of conquest through the backdoor via immigration and cultural dilution. And #Racism #Xenophobe will be the weapons deployed to keep the locals at bay lest they rise up and revolt.

      • LOL @ “Rise up and Revolt”
        Sheep are incapable of this.
        Sheep can only bleat louder and hope that the shepherd and his sheep dog do their job.
        Only nowadays, both the shepherd and the sheepdog no longer give a %^&*.
        In fact, they can’t wait until the herd is sold off and taken to the slaughterhouse. After all, there is money to be made.

    • White Australia is clearly a failed experiment that has produced a weak culture. No point being sad or nostalgic, roll with it. Enjoy your cheap labor and your thai brides… just make sure your kids learn some mandarin.

    • Australian Culture is an oxymorons. And therein lies the rub. A nation devoid of spiritual strength that embraced the American fuck-you-give-me-mine attitude.

    • Importing from cultures where equality and charity are not values to behold, then what is going to happen to the Australian culture?

      Corruption, nepotism, fraud and only operating with self-interest will become the standard behaviour.

  3. His daughter, Jamila Rizvi, published a contradictory article a couple of months ago:

    Why isn’t the government doing more to help Millennials afford kids?

    While Australia’s fertility rate is much lower than it was 30 years ago, we’re in far less dire straits than Japan or South Korea where fertility hovers marginally above 1.1 births per woman.

    lol. Japan now has less people than it did in 2000! If Japan thinks that flooding itself with cheap third world labour will make Japan better, Japan can easily open the immigration floodgates.

    It’s not that the Millennial generation doesn’t want to have children but, rather, economic pressures are holding them back from doing so.

    The reduced immigration program promised by the current government would only worsen the situation.

    https://www.smh.com.au/lifestyle/life-and-relationships/why-isn-t-the-government-doing-more-to-help-millennials-afford-kids-20190412-p51dln.html

    lol. Most comments under her article disagree with her.

    • Lenny Hayes for PMMEMBER

      Japan has close to 2% unemployment and the youth have their pick of careers/jobs.

      Many Aussie kids are also working in Japan and language skills are not necessary.

      It is perhaps easier for Aussie grads to get jobs in Japan than their own country.

      • HadronCollision

        Wait, what? No language skills necessary? Is this true?
        Our 4yo is learning Japanese in pre school.
        I think French/German might be useful in order to fkoffski to the land of Helvetica

    • Unfortunately, you are right. The Commonwealth Treasury has lost its backbone and is becoming slowly filled with quasi-politicians who wouldnt know frank and fearless public service if it bit them in the behind.

      If you want to see what a real public service Treasury looks like, turn your eyes to NZ. Far fewer psychopaths working there than in Aust (although, the did just hire an Aussie to run their Treasury…..).

      I may be wrong, but it seems like the Rudd years were the start. Chaotic management/expectations of the public service bred success in the corrosive personality types that now run the place.

      • I think you are right about the Rudd-era.
        NZs treasury might have fewer psychos in it, but I suspect their immigration dept might be housing all the loonies as it is being used as a back door to get to Australia. Thanks cuz.

  4. DominicMEMBER

    GDP measures quantity
    More quantity = more GDP
    Simple.

    Prudent economic stewards

    • Stewardship, lols. Not in Australia. Our mates across the ditch are trying/succeeding at that, but Australia turned its back on that stewardship stuff years ago.

      • oh, your derision was clear. My reciprocation, less so. But yes, we’re on the same page now.

  5. reusachtigeMEMBER

    I think it is a brilliant plan because bringing in freshly imported human capital is great for our economy so everyone benefits.

  6. SnappedUpSavvyMEMBER

    don’t know how it will work, a recession has possibly just kicked in, and we don’ bring in high net worth anymore, they’re all uber drivers and brick layers

    also after more then a decade of out of control male immigration there must be millions of female brides and elderly parents coming out now

    • reusachtigeMEMBER

      That’s sexually racialist. Yes we may bring in lots of those IT freak type males but we also bring in lots of massage babes to equal them out. They now probably know each other and have experienced good relations together. I can’t see a problem with this.

      • SnappedUpSavvyMEMBER

        don’t get ya cans in a knot, my point was the human capital coming in now wont be buying an investment property any time soon

      • darklydrawlMEMBER

        That’s ok. They can rent from Reus. I believe he offers a range of payment plans. Not all of them involving actual money too.

    • We aren’t getting high-net worth/contributing migrants, that’s for sure; and the government is finding out they aren’t the big consumers GDP contributors they thought they would be, and that they are heavier users of Medicare.

      • Once a Jolly Swagman

        +1000.

        The mantra is live on $2 noodles and smoke illegally imported untaxed cigarettes, work cash in hand and if possible also lodge a DSP claim for a back injury suffered overseas. Use Medicare to the maximum extent possible either legally if you have PR or borrowed Medicare card otherwise. Send every cent possible overseas to family.

        Yes, this is working out really well for the economy.

      • Medicare deals with smoking-related diseases; whilst the government gets none of the tax from cigarettes that are suppose to fund the medical care caused by smoking! Great!

  7. The federal government is lucky that the rest of the world is full of naive hopefuls ready and willing to be fodder for the cruel destroyer of dreams that is modern Australia. I see a future of rage, futile rage on behalf of the legacy citizens, our new citizens and our imported slaves because no government is for turning from this course it seems. I see a future where rivers of bitter tears are cried by all three groups. Many will accept their lot but there will be some souls who will be roused into action when the pain of their misery and the hopelessness truly hits home. Perhaps when the standards of public services/goods they thought were their right don’t materialise, who knows what will be the tipping points of various individuals? Some of that action will be violent, some action will be funneled into producing positive change. It will be interesting to see where and how that rage will be directed by the 3 different groups

    • darklydrawlMEMBER

      There is some truth to this. Numerous Uber and delivery drivers I have spoken to (all immigrants I might add) have had zero luck getting employed based on their training (mainly engineers, IT types, analysts from the folks I have spoken with). They are surviving, not thriving. They have been sold an illusion as much as everyone else. The whole thing is a rort.

      • But in the age of free communication, with WhatsApp, surely word has gone out over the past 12 years during turbo-charged immigration, that it is all an illusion?

        I have no sympathy for them.

  8. At this rate, the welfare state will cease to exist within the next decade. Schools, hospitals and other services provided by the government are already under strain, but the sheer volume of the population increase means that welfare will be cut. It is now only a matter of when (my guess within the next 10 years) and by how much.

    • Jumping jack flash

      First privatisation, and then the gouging to boost their workers’ wages to whatever they need to be to obtain as much debt that is required to succeed.

  9. Jumping jack flash

    Of course this is the only answer for the economy when it is one that is based on infinite debt growth to give the illusion of actual growth.

    When all the worker-plebs are replaced by an army of cheap imports all working for 1 hour a week, providing services, and all the business owners are stealing as much income as they can to “leverage” for debt, to attach to houses, making their prices grow, enabling additional debt to be added as “capital gains” and “equity” (simply fancy names for debt and debt capacity), then we will have reached the limit.

    There is still a lot of capacity in the workforce for more casualisation, stealing worker-pleb’s wages after their substitution with cheap imported labour to boost the wages of the next tiers, so they can have the extra income to obtain the extra debt that is required to grow the economy. Don’t forget it only requires 1 hour of paid employment to not be unemployed.

    It will be the ultimate 2-speed economy: you’ll have the (mostly imported) worker-plebs who are working for 1 hour a week for $10/hour or less after theft.
    You’ll have the displaced local workers who need to either jump on the bandwagon and start stealing wages from imports, or perish, crushed under the mountains of debt they all have and need.
    Then you’ll have the “elite”, the employers and business owners, who reap the benefits from the cheap slave labour and obtain the new debt to grow the economy by attaching it to houses.

    During all this the cost of living will be continuously gouged to increase incomes of those workers so they can obtain the necessary amounts of debt to succeed. Cost of living providers need not care about imported slave labour. They just charge whatever they need to charge to boost their incomes to whatever they need to be to obtain as much debt as required to succeed at life. People will just have to pay the prices they ask or go without essential goods and services for sustaining life, or provide them themselves – which is quickly becoming too expensive.

    Slaves are the natural progression of capitalism entering the extreme end of the spectrum, as is a debt-based economy run by banks – the masters of capital (actually, debt, but debt is the new wealth. In a properly functioning economy banks are irrelevant, as are interest rates) – dependent on nonproductive debt growth to grow, instead of actually making useful stuff, skillfully, to sell to the world for profit.

  10. Interesting that the article was written by a former senior public servant. Of course he wouldn’t write that or voice those opinions when employed. That would have been frank and fearless. In any case, immigration will slow down when new entrants can’t get jobs. They’ll be temporary residents and not eligible for social welfare benefits and so will have to rely on charity or go home.

    • darklydrawlMEMBER

      I think we are getting close to that. Plenty are working, but not in their chosen profession. Can’t imagine riding a deliveroo bike on a cold, wet and windy Melbourne winter evening holds much long term appeal for, well, anyone. Uber income is not likely to cover the wear and tear on the vehicle.

    • Jumping jack flash

      ” immigration will slow down when new entrants can’t get jobs”

      There’s a LOT of capacity and demand for cheap labour.
      One hour a week is all it takes to be employed.

      “Can’t imagine riding a deliveroo bike on a cold, wet and windy Melbourne winter evening holds much long term appeal for, well, anyone.”
      They’ll cheerfully ride that bike in the freezing rain for an hour to deliver noodles to an elite for $5 – after wage theft.
      They’re just happy to be here in luxurious Australia, earning valuable Australian dollars.

      Employers are not going to complain.
      Locals with mountains of debt requiring expensive wages to service will be the ones who can’t find jobs, but nobody cares about them. They’ve served their purpose and taken on a mountain of debt to make someone else instantly rich.

      The migrant workers will be fine! As they progress up the chain and rise to the point where they can start to steal wages, they can become a brick in the pyramid, take on an enormous debt mountain, and make someone instantly rich beyond their wildest fantasies.

      The statistics will conveniently report on migrant employment, which will look awesome and prove the point that more migrant workers are required because they can easily find jobs, therefore there must be shortages everywhere just waiting for the next load to arrive to snap them up.

  11. Denis413MEMBER

    Looks like LNP applying Labor’s 2 foreign parent policy but are yet to announce it yet.

  12. St JacquesMEMBER

    I thought we’ve already been having extreme immigration for the last sixteen years.

    • They’ve been hell-bent on getting Melb and Sydney to 8 million each asap. So what if we get there sooner than expected? And then what… we’re not going to stop there so yes, it has been extreme immigration, only now it will become more extreme. And like frogs in a boiling pot, we won’t notice on a day-by-day basis, and by the time we do, it will be far too late to do anything about it.

  13. Hmmm… I think we are becoming a giant Singapore. Multicultural, FIRE economy, no pre-existing resident has any babies EVER (and frankly why would you, is there any reason to do so outside of family pressure, for anyone?). Do a few labour market reforms and set and forget.