RBA schools Treasury on immigration’s growth impact

One of the most striking omissions from Tuesday night’s federal budget was that it made zero mention of Australia’s per capita GDP outlook.

As we know, per capita GDP is a far superior measure of welfare (albeit still highly flawed) than headline real GDP, since it adjusts for the impact of population growth. After all, what is the point of growing the economic pie (real GDP) if everyone’s slice of the pie (real GDP per capita) does not grow or even shrinks?

The 2021 federal budget projects negative net overseas migration in 2020-21 and 2021-22.

The federal budget explicitly noted that the sharp decline in Australia’s population growth would weigh on the nation’s real GDP growth and budget tax receipts:

Net overseas migration is significantly affected by international travel restrictions and weaker labour markets globally. It is forecast to fall from around 194,000 persons in 2019-20 to be around -97,000 persons by the end of 2020-21, and then to -77,000 in 2021-22 before increasing to 235,000 persons in 2024-25. More broadly, the weak outlook for population growth in the near term as a result of border closures will also weigh on the outlook for real GDP growth.

However, the Treasury inexcusably fails to mention that with minimal population growth, the outlook for real GDP per capita is the strongest for years.

Treasury’s warning about slower real GDP growth because of low population growth has been used by the business lobby, media and even Labor to demand a quick return to big migration in order to stimulate meaningless headline GDP ‘growth’. These comments by Labor Shadow treasurer Jim Chalmers highlights the twisted logic at play:

“Much of the growth before COVID-19 relied heavily on population growth”.

“So clearly, it’s not sustainable for us to have closed borders for longer than is necessary.”

Again, no mention of per capita outcomes, which have clearly improved due to Australia’s closed border, as illustrated by the ratio of unemployed people to vacancies falling to its lowest level in over a decade:

Without 180,000 to 200,000 migrant workers arriving every year, Australia’s labour market is tightening.

And the unemployment rate projected to fall to its lowest level since before the GFC, despite record high labour force participation:

Unemployment is projected to fall to its lowest level since the GFC.

No, the key priority for these charlatans is to stoke real GDP at all costs through big migration, even if per capita outcomes worsen.

Enter the Reserve Bank of Australia (RBA) whose latest Statement on Monetary Policy (SoMP) at least had the honestly to say that per capital GDP growth is now on a higher trajectory thanks to the fall in immigration:

The level of GDP is still expected to remain a little below that forecast before the pandemic, mostly due to lower population growth; in per capita terms, GDP is expected to be on a higher trajectory, supported by higher per capita household income…

The SoMP also projected that wage growth would strengthen on the back of lower immigration – the opposite of what Treasury bizarrely projected:

The effects on labour supply have been observed mainly in some labour supply shortages in the industries that typically employ a larger share of migrants…

The longer border restrictions remain in place… the more likely that localised labour shortages could translate into some wage pressures as the economy continues to strengthen.

If you want more proof that the Australian Treasury is a captured ‘Big Australia’ propaganda outfit, the above is another smoking gun.