On Wednesday, Bill McDonald from Brisbane Radio 4BC interviewed me, and I explained how the federal government’s mass migration is pumping inflation and causing shortages of housing and infrastructure across the economy.
Key highlights
We have seen a massive increase in public works by state governments and Queensland in particular.
Queensland has lifted its capital expenditures by 102% between 2021–22 and 2024–25, according to CBA estimates.
What these massive ‘big build’ projects are doing is putting upward pressure on inflation because we have a supply constrained construction sector.
We have limited materials, limited labour, Albo’s 1.2 million housing target, which we are never going to meet, etc.
We are trying to build houses at the same time as we are trying to build infrastructure. And that is putting upward cost pressure on construction inflation.
This state government capital investment is pumping demand in the economy at the same time as it is worsening the capacity constraints we have in the construction sector.
It is inflationary because they will bid up materials costs, labour prices, and all these sorts of things. And that all feeds into inflation.
That being said, I do have some sympathy for the states because they are caught between a rock and a hard place.
The federal government is pumping unbelievable amounts of people into their jurisdictions. Their populations are growing very quickly and the state governments have to build infrastructure in order to keep up with that population growth.
So, they are caught between a rock and a hard place, and if they don’t build it, they are going to suffer worse congestion in the long-run and ultimately worse productivity.
But if the states do build this stuff, they will put upward pressure on inflation in the short-term.
The solution here is the federal government needs to slash immigration dramatically to a level that is consistent with the nation’s capacity to build housing and infrastructure.
At the moment, we are running immigration way higher than it should be and that is leading to all of these shortages in infrastructure and housing. It is one of the reasons why we have an inflation crisis.
We have rents going through the roof because we cannot build enough houses.
That is really the fundamental problem here. The federal government is trying to get around all of these problems by giving out cost of living relief and sugar hits.
They do not address the underlying problems of why we have this strong rental inflation. Why we have soaring energy prices because of the whole East Coast gas debacle.
We really need the federal government to fix those things rather than just trying to Band-Aid over all these problems by using our money to give out temporary subsidies.
All the state governments outside of Western Australia face growing debt burdens because the federal government is pumping in all of these extra people that need services, housing, infrastructure, all of these things.
The states are required to provide all these things. But they don’t receive the tax benefit from all that immigration.
82% of the nation’s tax revenue goes to the feds, primarily via income taxes and company taxes. The states and local governments only collect 18%.
Yet, the states are the ones who are shouldering the bill for the big migration program and that is putting them in a structurally disastrous budget position.
That is really the nub of the issue. The federal government is pumping in all of these extra people and these people need services, infrastructure, etc., which increases borrowing costs for state governments.
The federal government just seems intent on continuing to pump more population demand into a supply constrained economy.
Construction costs have gone up 40% since the start of the pandemic and that is impacting the cost of infrastructure, the cost of housing, all these sorts of things.
The worst thing the federal government could do in a supply constrained market is just continually ramp up demand to absurd levels. But they are doing it anyway.
We don’t have the capacity to provide all these things to cope with such a massive population influx. And that is going to drive up inflation and budget deficits, ultimately resulting in worsening living standards.
