IGR deliberately ignores costs of immigration

As we know, the The Australian Treasury’s latest Intergenerational Report (IGR) is being used by Treasurer Josh Frydenberg as an excuse to ramp-up immigration:

Our population is growing slower and ageing faster than expected…

Over the last 12 months which has seen population growth at just 0.1 per cent, the lowest in 100 years.

Migration levels are forecast to get back to where they were in 2024-25, but do not recover the ground lost during COVID-19.

As a result, Australia’s population is expected to reach 38.8 million in 2060-61, six years later than was forecast in the last IGR.

On top of this a lower than expected migration intake contributes to the ageing of the population as the average age of migrants is below that of the existing population…

Only by growing the economy can we continue to guarantee the essential services Australians rely on.

The IGR also claims that net overseas migration (NOM) is an important ingredient to lifting productivity:

Migration directly boosts population growth and, because migrants tend to be younger and higher skilled, this population growth can also support labour force participation and productivity.

It then forecasts higher annual NOM than prior IGRs – 235,000 from 2025-26 onwards versus 215,000 per year in the 2015 IGR – centred around a 30,000 increase in Australia’s non-humanitarian permanent migrant intake to 190,000 (from 160,000 pre-COVID):

From 2025-26 onwards, NOM is assumed to remain at a fixed level of 235,000. The age and sex distribution of both arrivals and departures are assumed to reflect the 5-year historical average distribution observed from 2012-13 to 2017-18.

The NOM assumption of 235,000 people per year over the long run reflects:

• the Government’s migration planning levels (reviewed and set by the Government on a yearly basis) of:
– the permanent Migration Program (190,000 people per year from 2023-24)
– the Humanitarian Program (13,750 people per year)

• the flows of temporary migrants who reside in Australia for several years but do not transition to permanent residency (assumed to be a net inflow of 66,250 people per year, based on a historical average of the net inward flow of such migrants prior to the onset of the COVID-19 pandemic);

• the flows of Australian citizens (assumed to be a net outflow of around 15,000 people per year, based on a historical average), as well as the number of permanent residents who subsequently emigrate (assumed to be a net outflow of around 20,000 people per year, based on a historical average).

As usual, the IGR gives minimal acknowledgement of the many negatives of strong NOM, other than it needing to be “well managed”:

Migrants are expected to continue to be the largest source of population growth. Migration contributes to economic growth and can help offset population ageing. However, migration needs to be managed well to ensure it supports higher living standards…

Migration should be kept at or below the capacity of the destination city or region to absorb new migrants, taking into account impacts on incumbent populations…

Governments at all levels need to ensure that planning and infrastructure provision keep pace with current and future migration rates and ensure that migrants have access to essential services – such as public transport, support services and housing – and can meaningfully integrate into society.

This is curious because the actual modelling used by the Australian Treasury for the IGR ignores these costs entirely, alongside the costs imposed on state budgets from providing the many goods and services required to sustain bigger populations (e.g. infrastructure, education and social services):

The OLGA [OverLapping Generations model of the Australian economy] and FIONA [Fiscal Impact of New Australians] results presented in this report do not capture the broader economic, social or environmental effects of migration such as technology spillovers or congestion. The FIONA results presented here do not capture the fiscal impacts of migration on state or local governments.

This shows that the whole immigration program is really about numbers –  the ‘Treasury numbers’ needed to sustain Australia’s headline rate of economic growth and the Commonwealth’s projected tax revenues.

Given Treasury has responsibility for federal government revenue (whereas the Department of Finance controls expenditure), it always has a strong bias towards higher immigration, since more migrants means bigger personal and company taxes.

However, the Treasury never takes proper account of the costs of big migration – either financial or non-financial – since these are borne primarily by the states and residents at large.

This explains why the IGR bangs on about the rise in healthcare and pension costs from population ageing, but completely ignores the gigantic cost of infrastructure required to house an additional projected 13.1 million people over the next 40 years – the equivalent of adding another Sydney, Melbourne and Brisbane to Australia’s existing population. These infrastructure costs are borne by the state governments and residents (via user charges), so can be dismissed altogether by Treasury.

I bet if the federal government was required to internalise the cost of immigration by paying the states $100,000 per permanent migrant that settles in their jurisdiction, so that the states can adequately fund the extra infrastructure and services required, then Treasury would no longer tout the ‘fiscal benefits’ of immigration.

Making the federal government share the benefits and costs of immigration would be a surefire way of reducing the intake back to sensible and sustainable levels.

Unconventional Economist
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Comments

  1. The Treasury IGR reads like a report I would have done in my Undergraduate days when struggling with “WTF is Economics all about?” TBH it’s a pretty ordinary document & probably produced by a low grade/paid graduate at Treasury.
    Just open the gates & let everyone in… see what happens….. They’re gonna do it anyway; might as well find a way to make money off the play.

    • C'est de la folieMEMBER

      Indeed,

      WTF is population growth actually for is the question we need to ask……..which nobody seems to want to ask

      Migrants will make up 75 per cent of Australia’s population growth, says intergenerational report
      https://www.smh.com.au/national/migrants-will-make-up-75-per-cent-of-australia-s-population-growth-says-intergenerational-report-20210628-p58513.html

      The “most significant” trend causing the lower population forecast is a slump in the fertility rate. The 2015 IGR assumed a rate of 1.9 babies per woman but that has been cut to 1.6 babies per woman. Fertility in Australia has been below the “replacement rate ” of 2.1 – the level required to keep the population size steady – since the late 1970s.

      That fits in with a population submerged in debt with 2 adults required to services mortgages and pay more for education, health etc for any children they did have, and who might also increasingly question if they are providing a life they want to provide for their children.

      Because migrants are, on average, younger than the existing Australian population, the report says migration reduces the average age of the population and slows the rate of population ageing.

      Because they are younger than average they can be ripped off by employers and exploited for their visa circumstances, while at the same time helping to crush wages and reduce employment opportunities for any Australian born children. If there is no demand for whatever skills they do have or there attention paid to ensuring they have skills they simply end up in meaningless dead end jobs – the incomes data for migrants – even skilled migrants – suggests this is what happens to them.

      Modelling for the report found the average skilled migrant contributes more to the federal budget in taxes – and costs the federal budget less in welfare and other payments – over their lifetime than the general population. It found skilled migrants also make a significant economic contribution during their lifetime.

      Does that modelling include infrastructure costs solely reflecting the additional loading on pre existing infrastructure that the new migrants represent? How do these people make a ‘significant contribution’?

      The IGR forecasts net overseas migration (the gain or loss from permanently arrivals versus permanent departures) to recover to 235,000 people per year by 2024-25 and remain at that level in coming decades (which includes a return to permanent migration of 190,000 a year, a continuation of the current humanitarian migration program and net temporary migration similar to pre-pandemic levels).

      What is the point of having the immigration number so high when locals dont want to have children? Does the immigration number reflect demand for immigrants in terms of their skills or demand for them in terms of the profits expected by large inward facing Australian corporates such as the retailers, mobile phone companies and banks?

      What is the advantage for ordinary Australians of Australia’s immigration programme? Does it add to their quality of life?

      • ErmingtonPlumbingMEMBER

        “Migrants will make up 75 per cent of Australia’s population growth, says intergenerational report”

        They “Will” make up 75% of population growth.
        Says fken who?
        Arn’t we supposed to be a democracy!?
        Where is our democratic choice on the matter?
        We got a say on fken [email protected] marriage!

        • C'est de la folieMEMBER

          My take is that when it comes to Immigration volumes and the impact of the population ponzi the answer is no……

          We are not a democracy.

          It is something which cannot be acknowledged or explored or questioned.

          • Can’t imagine they’d have too many signing up for world war one or two if they had have known how much the government would sell the country out in a single generation or two afterwards.

          • Arthur Schopenhauer

            What a culture can’t talk about, says the most about it. Whether a Country, Company, Army Unit, Family or Sports team.

            Look for the secrets to reveal the culture, and who holds power.

        • We are not allowed a say because everyone knows what that would be. It’s all about business pushing through the feedback mechanisms. When kids can’t afford decent houses, when their nice places are over-crowded and polluted, education is overpriced rubbish, wages are down, and lives are dull and grinding those feed-back mechanisms start to have an impact. But not when you can just bypass them with an endless pool of labour and consumers.

          Essentially monetising our environment and infrastructure to destruction.

  2. MathiasMEMBER

    So how is Australia going to deal with all the suiciding aussies who cant afford a house in the future?

    Replace them with migrants? Sounds like blackmail.

  3. Deliberately ignores this:

    South Korea recorded a natural population decline of 32,700 in 2020, while Taiwan posted a drop of 7,900 and Hong Kong a fall of 6,700.

    • The No. 5 global economy, California, went population-negative last year. While it’s true this is a political issue, you won’t find the CalState Treasurer’s Office frantically rushing a “Big California” program. That’s because, unlike “I’m With Stupid” Australia, California gains much-higher income earners and loses much-lower income earners.

      Here, LibLab, state governments, industry and developers, press, academia, and think tanks, all endorse the Australian Treasury’s total war on the people. Dissent is scattered, and has no real power to change anything.

    • It’s a good point. Where are those migrants going to come from if population growth is declining in all countries? And will China immigrants be acceptable? Meanwhile, the virus is still virusing – has it peaked yet? And then there’s the next virus, and the next…

  4. Lord DudleyMEMBER

    It’s a great document. It’s a plan for continued phat profits and epic house price growth. Anyone who is a lifter who has a go will benefit greatly from this.

    The only people who don’t like it are loosers who expect to sit back doing nothing of note, when they should be buying houses or starting great Australian businesses. Nobody cares about these self entitled leaners. They’re economic terrorists!

    • reusachtigeMEMBER

      Totally agree! The problem with most people on here is that they can’t even see a profit when it slaps them in the face. They just cry rather than hardening up and embracing the slap.

  5. Well put LVO.

    Classic shortermism. So what happens after we add another Sydney, Brisbane and Melbourne in the next 40 years? Add another, and another?

    It won’t happen. By 2060 we’ll be out of FFs and fighting each other over the last scraps of soil and water in a desertified, treeless inferno – the result of the growth-without-end policies of the last 350 years.

    It has never crossed the minds of these clueless pygmies sitting behind desks in their air conditioned offices that this is the driest, least fertile inhabited continent and without oil we’re doomed….

  6. Quick question -can the states enact legislation which does exactly as MB describes : charge the Feds 100k – say – for every migrant (say half for temporary – or charge that to the employers who bring temps in) ? Or is there a constitutional impediment to this? We have seen that the states ultimately control their borders for health reasons – could the same be done for amenity infrastructure (including health systems)?

    • That makes the presumption that the state(s) are against this… turns out that they really do like their revenue stream from the real-estate side of the biz… so yeah, don’t think you’re going to get much opposition from the states on that front.

      • This presumes that all immigration drives RE revenue (assume you mean stamp?).

        Low wage students, not so much?

        Would the stamp from one off purchases be greater than a one off immigration tax or even better an annual tax that funds infrastructure, Medicare etc as long as they’re here, and before (if ) they get PR/citizenship?

    • They can’t charge the Feds for it but they potentially could impose a tax or duty directly on the immigrant. It might need some careful wording as to how to impose it and I think in the end if the Feds introduced legislation that overrides it, the Feds would win.

      And as a disclaimer, I am saying this mostly off the back of the Federal Constitutional Law subject I did 30 years ago!

  7. Mr SquiggleMEMBER

    The claim that migrants ‘tend to be younger’ is a false claim. It can be disproved by looking at the census. The median age of migrants is 42. Non migrants median age is 33.

    Migrants have a headstart in the aging process

    The IGR is a bogus document. Always has been as long as this lie remains a cornerstone of its thinking

  8. MountainGuinMEMBER

    And don’t forget what the qld told us yesterday, that half of the intnational travellers in qld quarantine are foreigners granted travel rights by the federal govt. Either these travelers are displacing aussies or are increasing density and contributing to covid breakouts.
    No responsibility.

  9. Arthur Schopenhauer

    Also ignores Industry Policy. New Industries = new jobs.

    Also a symptom of short-termism.

  10. darkasthunder

    of course if we lowered the cost of housing then people could form families earlier, possibly manage on a single income, and have a 3rd or 4th child. still, cant go back to the 70’s

  11. Hill Billy 55

    Interestingly, the IGR specifically confirms that without the immigration overload, we the people would be better off via higher per capita growth. It is only the leaners that are advantaged by higher immigration. Why there is no political party with the wherewithal to sing that from the rafters is what is baffling!

      • I am making some assumptions in drawing the conclusion, but the turbo charged population ponzi of the last decade is adversely implied in regard to productivity growth in this paragraph, and productivity is responsible for 80% of our growth, so it is a reasonable conclusion to reach for mine.

        “Productivity has been the most important source of income growth in Australia, contributing over 80 per cent of growth in real gross national income (GNI) per person over the past 30 years. The economic projections assume that the labour productivity growth rate converges to 1.5 per cent per year – consistent with the 30-year historical average to 2018-19. Achieving this assumption will require an improvement over recent performance. Productivity growth averaged 1.2 per cent annually over the last complete productivity cycle in the 2010s. Government policies can assist in lifting productivity, including by helping individuals and businesses take advantage of new innovations and technologies.”

        The government policies of the last 10 years, including the population ponzi adversely affected productivity, and who’s in government now, so not much to hope for.

  12. My Mum was a qualified nurse when my parents got married. Mum gave up nursing and was a housewife for about 15 years while we kids grew up. We had a good life on Dad’s single, relatively low income…house, car, TV, stereo etc. No way a single income could manage that today and sustain the mortgage.

    • And then John Howard came along and boomers everywhere creamed themselves over how they were gonna all become fat filthy pigs wallowing in the riches of their house prices.