A ‘Big Australia’ means more expensive everything

One of the most profound changes affecting the Australian economy and society this century has been the massive lift in Australia’s net overseas migration (NOM) and population growth under the multi-partisan Big Australia policy.

This rapid population growth is projected to continue for decades to come, if current policy settings favouring high immigration continue.

The ABS medium (Panel B) population projections, released in 2018, have NOM continuing at current strong levels (225,000 people a year) for the next half century, in turn driving all of Australia’s projected 17.5 million population increase to 42.6 million people by 2066 (see Chart 2).

By 2066, Sydney’s (9.7 million) and Melbourne’s (10.2 million) populations are projected by the ABS to each be significantly larger than Australia’s entire population in 1950 (8.3 million) and only slightly below Australia’s population in 1960 (10.4 million) (see Chart 7).

In 2018, then Treasurer Scott Morrison made headlines when he claimed former Prime Minister Tony Abbott’s proposal to cut Australia’s permanent migrant intake by 80,000 to 110,000 would cost the Federal Budget $4 billion to $5 billion over the next four years, arguing the economy (would not be) growing at the same level and people who come as skilled migrants pay taxes, make a net contribution to the economy.

National governments collect more than 80 per cent of Australia’s tax revenue and therefore collect the lion’s share of the financial benefits that come with immigration, such as increased personal and company taxes. While this may assist the federal budget coffers, the indirect costs of this population growth are able to be ignored given they are transferred to state and local governments and households.

As Grattan Institute executive director, John Daley, has noted, state governments were struggling to deal with rapid population growth in their major cities and the quality of life of residents – represented by the rapid growth in house prices in recent decades – was suffering.

A holistic analysis of financial impacts of rapid, immigration-fuelled population growth needs to take into consideration the significant negative impacts on:

  • state and local government budgets, which carry the cost of infrastructure and services to support population growth, such as roads, utilities, public transport, schools and hospitals (see the preceding sections)
  • balance of trade, as our fixed revenue from exports of mineral and agricultural products face escalating imports of construction materials and consumer goods
  • business productivity, facing the drag of congestion
  • Gross National Income, diminished by an increasing outflow of interest payments on both government and household mortgage debts
  • wages share of GDP, which has been falling as competition for jobs has intensified because of higher immigration
  • households, who have to pay more as new, expensive infrastructure projects are built in response to population growth (e.g. desalination plants, toll road tunnels, etc.), and as states sell off public assets to private monopolies to raise funds for new infrastructure.

To date, the states have ‘managed’ these costs by shoving massive infrastructure spending off balance sheet, including through privatising assets via accounting tricks like Public Private Partnerships (PPPs). This has created increasing costs for residents, such as tolls and user-pays charges and other costs which may be hidden.

Prime examples of these ‘private taxes’ are the WestConnex toll road in Sydney and the West Gate Tunnel in Melbourne.

WestConnex is a $17 billion, 33 kilometre motorway under construction that is more expensive per kilometre than the UK’s Channel Tunnel.

WestConnex has seen existing free public roads, which had already been paid for by the taxpayer, such as the state-owned M4, being tolled to help fund the project. Tolls are scheduled to rise by 4 per cent a year until 2038 – far above inflation and wages – and then at the rate of inflation for another 20 years. Moreover, the M5 toll to Sydney’s south-west was due to be abolished, but has now been extended to 2060.

In its desperate attempt to keep pace with its ballooning population, Sydney’s toll road network is now the most expensive and extensive in the world, with 15 toll points currently and at least 20 expected by 2023.

In a similar vein, the Victorian Government’s controversial $6.7 billion deal with Transurban to build the West Gate Tunnel Project will see Transurban contribute only $4.4 billion towards the cost in exchange for extending tolls on CityLink for an additional 10 years at a projected cost to motorists of $15 billion. Tolls are permitted to rise by a whopping 4.25 per cent a year – well above inflation and wage growth – with the current CityLink toll trip cap to increase from just over $9 currently to more than $20 by 2045.

In short, with Australia’s two biggest states desperately trying to build infrastructure to keep pace with rapid population growth, private companies have been delivered massive revenue and profit growth, paid for by what are effectively privately-levied taxes imposed on ordinary residents without consultation or representation.

The rising cost of living caused by population growth is also reflected in the escalating cost of water. Because Australia has already overrun its natural endowment, Australia’s major cities have been required to resort to costly technological solutions like desalination, which have raised average household water bills.

Already facing lower rainfall and increased evaporation as a consequence of climate change, water supplies will need to be augmented still further if Australia’s population continues to increase.

Modelling by Infrastructure Australia in 2017 projected that household water bills would more than quadruple in real terms because of population growth and climate change, rising from $1,226 per year in 2017 to $6,000 in 2067. The report also warned that:

“the impact of these changes on household affordability could be substantial… and could cause significant hardship.”

Chart 14 clearly illustrates these dis-economies of scale in water supply. The cost of Victoria’s Wonthaggi Desalination plant is almost four times the cost of traditional dam water, whereas recycling is around three times more expensive. As Melbourne’s population balloons, additional unconventional water sources will be required, in turn raising average water bills.

In summary, growing infrastructure costs have created substantial hidden costs for residents – effectively ‘private taxes’ – via tolls, access charges for power and water supplies, and other user-pays charges. These increasing costs, combined with other imposts such as congestion, loss of amenity and more constrained housing options, mean that most residents will likely face continuing decline in standard of living and quality of life, if immigration-fuelled population growth continues at its present rate.

Governments, political parties and those with a vested interest in high population growth repeatedly claim that high immigration is good for economic growth and hence for the betterment of Australians. Apart from its neglect of our ‘per capita recessions,’ such claims ignore the staggering infrastructure costs that are occasioned by this growth. There is great irony in the fact that these costs are counted as additions to economic growth (additions to GDP), yet are unlikely to translate into benefits of improved per capita income or well-being for the existing population. Rather, they get passed down the line to residents in the form of extra charges and the lived experience of congestion and reduced amenity.

The Productivity Commission has reported several times on the costs and benefits of immigration and has found little if any net benefit for the existing population. It has also added an important caveat, namely that it has not taken the infrastructure or environmental costs into its analyses because of the complexity of doing so.

Aside from the actual dollar amounts and the unmeasured environmental costs, the provision of additional infrastructure raises the interesting issue of timing: when should this new infrastructure be built? When a 2018 ABC Q&A program posed this question, panelists and many members of the audience expressed strong support for providing the infrastructure before the population arrives. If that is to be done then it is clear that the present population bears the cost in advance, with the new arrivals gaining the benefit without having to outlay any costs. If it is not done then the present population bears the cost of impoverished services and amenities until contributions from the additional people materialise.

This is further illustration of the Productivity Commission’s finding that the small economic benefit from immigration-fuelled population growth flows principally to big employers, developers and construction firms, while most of the incumbent population is worse off.

The above article is an edited extract of the new discussion paper, entitled “Population growth and Infrastructure in Australia: the catch-up illusion”, of which I was the lead author. This paper was commissioned by Sustainable Population Australia (SPA), which “is an Australian, non-partisan, special advocacy group that seeks to establish an ecologically sustainable human population”.

Leith van Onselen

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.

Comments

  1. Forrest GumpMEMBER

    I think I will leave Sydney and migrate to Hong Hong for a better standard of living, more space and less people

  2. Productivity Commission has reported several times on the costs and benefits of immigration and has found little if any net benefit for the existing population. It has also added an important caveat, namely that it has not taken the infrastructure or environmental costs into its analyses because of the complexity of doing so.

    Hilarious… infrastructure and environmental costs to complex to incorporate into the analysis… or too inconvenient to the political line? How much are these guys paid again for their supposed expertise?

  3. Big Australia means a great big Neo-Liberal Globalist foot-long dildo up our collective Australian asses with barely any lube.

    • Locus of ControlMEMBER

      Assuming I’ve done my calculations correctly, if an Olympic swimming pool contains 2 500 000 litres, that’s 2,500 kL, 2,500 kL x $40/ kL = $100000. So is Armidale paying $40kL for this water?? Or does someone want to point out I’m wrong? Maths is not my strong suite.

  4. But more expensive is good. Makes GDP rise and prevent recessions.
    Look at all the cheerjng about 25% annualised house price growth in Sydney. Gladys is thrilled

    • Ah, you’re getting into this Keynesianism, finally! Quack economics at its finest.

      You wouldn’t want prices to go down now, would you – that would simply be awful for consumers 🙁

      (I’d refuse to buy at lower prices, personally)