Ken Henry attacks immigration economy he created

In 2003 I arrived at the Australian Treasury to begin my career as an economist.

Upon arriving at Treasury, I was introduced to the “three P’s” framework by then Treasury Secretary, Dr Ken Henry.

According to this framework, we were told that Australia must: 1) boost productivity; 2) raise workforce participation; and 3) increase the population via skilled migration, if the nation was to continue to enjoy rising living standards.

I never bought in to the three P’s framework, instead preferring that it was pared back to the “Two Ps” of productivity and participation.

Population growth’s impact on living standards is highly questionable. While it certainly does raise headline GDP (more inputs equals more outputs), there are significant doubts over whether it raises per capita GDP, while also placing greater pressure on the environment, pre-existing infrastructure and housing, as well as Australia’s fixed endowment of mineral resources (see here for a detailed run-down of the issues).

Australia’s economy is a case in point. While it has enjoyed 28 years of aggregate GDP growth, thanks to Australia’s rapid immigration-driven population growth, the rate of per capita GDP growth has declined rapidly over the past two decades, with per capita GDP actually falling 2018-19:

In July 2016, it seemed that Ken Henry had his Damascus moment warning about Australia’s excessively high population (immigration) growth [my emphasis]:

Here are a few things most Australians know. They know that the budget is unsustainable and that a government that refuses to address the quality of the tax system is not going to fix the problem.

They know our population is growing at a rate that exceeds the capacity of traditional models of planning, building and pricing access to the nation’s infrastructure and housing. They know that productivity growth will not be boosted significantly without a substantial contribution from economic infrastructure and without further investments in education.

Ken Henry then doubled down in December 2016 warning us that Australia’s break-neck population growth will crush living standards unless Australia’s governments embark on a massive infrastructure building program:

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…

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…

But in 2017, Ken Henry backed down somewhat, claiming that Australia simply needs to shift population growth to the regions [my emphasis]:

“We’re in a period of much stronger population growth now, and it’s going to go on for decades”..

“There is an unprecedented opportunity for many regions in Australia now if they’re backed by the right expertise, if they’re backed with the right infrastructure, if they’re backed with the right access to finance from banking partners who understand them, and understand their future, and who are committed to their community,” he said.

If these things occurred, Dr Henry said, “I think there’s an extraordinary development opportunity here for Australia”.

Then last year, Ken Henry gave a speech where he again lamented the population pressures afflicting the Australian people and environment via the federal government’s mass immigration program:

…the fact we have the highest rate of population growth in the developed world has obvious implications for the utilisation of the nation’s infrastructure, including roads. Yet the revenue bases being relied upon to finance road construction and maintenance are falling relative to the total tax take, and we have almost no functional ability to manage congestion. This is unsustainable.

Yesterday, Ken Henry gave another speech where he lambasted Australia’s ponzi-driven economy, which is besieged by poor productivity, declining housing affordability, stubbornly low wage growth, and environmental degradation:

Dr Henry, speaking in front of a group that included Australia’s chief scientist Alan Finkel and adjunct professor Sue Richardson, said there were a string of “catastrophic” policy failings facing the country that could deprive a large proportion of people of the opportunity to work.

He listed a string of policy failures including Australia’s “truly terrible” broadband service, the deterioration in housing affordability and “extraordinary” low rates of productivity growth that had underpinned “stagnant real wages for several years”.

Dr Henry also cited poor quality infrastructure that had led to congested major cities unable to deal with the fastest population growth in the developed world and wide-scale cases of environmental degradation…

He said governments over the past decade had claimed to have fixed many of these problems when the truth was the opposite.

“In fact every one of them provides a case study in government failure,” he said.

If Ken Henry was genuine, he would be honest enough to acknowledge that a primary driver behind the “the fastest population growth in the developed world”, as well as the deteriorating natural environment, housing affordability, wages and infrastructure, is the federal government’s mass immigration program, which was ramped-up massively from the early-2000s, supported by the Australian Treasury:

It is this mass immigration program that has Australia’s population projected to grow to around 43 million people mid-century – some 17.5 million more than would occur under zero net overseas migration:

Ken Henry should acknowledge that the “population” part of his “three-P’s” framework was an error, Australia’s immigration intake is now far too high, and should be at least halved to boost productivity and take the pressure off infrastructure, housing, wages and the environment.

Interestingly, Ken Henry in 2011 claimed that Australia’s “sustainable population” was just 15 million – some 10 million below current levels:

KEN HENRY: A sustainable population for Australia, well I don’t know, maybe 15 million, something like that, that’s one-five not five-zero.
It’s evident in the environmental degradation that one sees, the loss of biodiversity, species extinction and so on, it’s very clear that the population growth that we’ve experienced to date, to give us a population of 21, 22 million has not been sustainable population growth in that sense.

Says it all, really.

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Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.