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Where the Australian truth about immigration lies

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Less than a month after announcing a reduction in congestion in the migration program, the Morrison government’s 2019 budget predicted Australia’s population to grow to an unprecedented average of 450,000 per year over forecast estimates of four years. This forecast was based on two key assumptions: first, that net migration would increase significantly, and second, that the fertility rate would do the same. At best, these assumptions can be called heroic. It was, in fact, a fraud perpetrated against the Australian public to support Frydenberg’s boast that the budget was forever “back in the dark”. The idea that we would increase the net number of people arriving to live here long-term, while also continuing the recently reduced “cap” on the number of permanent visas issued, was an extraordinary leap of faith. The idea that Australian women would magically start having more babies at a time when child care was inaccessible and prohibitively expensive was wrong. There has never been a single time when Australia’s population has grown by more than 450,000 in a single calendar year, and that was in 1971. How the government is going to “clean up the congestion” with a population that is increasing at this rate over four years remains a mystery.

Scott Morrison organized his regular Australian dad routine very carefully. To quote another ordinary Australian father, The castleIt’s Darryl Kerrigan, they must have been dreaming. While clearly a farce, this dream of population growth underpinned the 2019 budget. The only reason the budget was able to forecast real economic growth of 3% per year for 10 years was the expected population growth and the fantasy of productivity growth of 1.5% per year. The only reason he could predict the creation of 250,000 jobs per year for five years was the projected increase in net migration. The only reason he was able to predict his run of surpluses that hit the headlines for the next 10 years was, again, because of projected population growth. The 2019 budget was a misleading election document that the Treasury should never have approved. It will forever be a stain on the reputation of the department.

Prime Minister Scott Morrison and Treasurer Josh Frydenberg in post-budget talks following the release of the 2019 budget. Credit:Dominique lorrimer

We will never know how the Australian electorate might have voted in the elections, held a few weeks later, had they been aware of the record population growth the government was predicting. Morrison has spoken publicly, loudly and repeatedly about his decision to cut immigration and reduce congestion during the election campaign. But he never mentioned the record levels of net migration and the projected baby boom that his budget was based on.

In retrospect, the government may be able to explain its valiant assumptions as a victim of the COVID-19 recession. But that would be another lie. Population growth forecasts were a fantasy long before the pandemic. They were never going to be successful. In 2019 itself, the projected growth was less than more than 80,000 people. [Australia’s population as of March 2021 is 25.7 million, according to the Australian Bureau of Statistics.]

COVID-19 has, of course, completely changed what Australia’s future might have been otherwise, including in terms of population levels and our economic and fiscal positions. By 2023, Australia’s population will likely be at least 1.24 million lower than projected in the 2019 budget.

In Budget 2021, the Australian government forecast a sharp one-time increase in real economic growth for 2021-2022 of 4.25%, then growth of 2.6% for the remainder of the next 40 years. This is based on the assumption that the movement of people in Australia will return to normal in 2021-2022 – i.e. very few closures – and that international borders will reopen from mid-2022. The 2021-2022 forecasts are based on a very strong increase of 5.5% in household consumption as well as on record levels of fiscal and monetary stimulus.

Accelerating economic growth and private consumption may be plausible given the magnitude of the decline in economic growth during the previous year’s COVID-19 recession, coupled with the large amounts of liquidity put in reserve by affluent Australians (including withdrawing large amounts of pensions) over a year of saving in the face of economic uncertainty. But what about the years beyond?

Demographic shock by Abul Rizvi.

Demographic shock by Abul Rizvi.Credit:

Due to the cumulative effects over many decades, even very small differences in long-term annual real economic growth forecasts have very large impacts in terms of Australia’s standard of living and the sustainability of public budgets. In the last four versions of the Intergenerational Report, treasurers predicted average real economic growth for the 2020s and beyond at widely varying levels, and therefore very different results for budget balances and public debt. Very small adjustments to forecast annual real economic growth can dramatically change the long-term outlook. The 10-year plan that Josh Frydenberg presented in his 2019 “Back in Black” budget was optimistic for the 2020s. It forecasted real economic growth of 3% on average per year and population growth at breakneck speed, including migration net average of 268,000 per year. We don’t need Earl von Count to tell us that these numbers are much larger than those that previously applied for exactly the same decade – although his chuckle is indeed appropriate in these circumstances.

The experience of all major developed economies, as well as that of Australia, shows that once a country’s WAP (Working Age Population) ratio peaks, real economic growth, including per capita growth is weakening. Here in Australia, our WAP ratio reached this peak in 2009, and as expected, growth was slower than in the decades leading up to the peak.

Given the global experience of an aging population, Treasury Secretary Steven Kennedy appears to have succeeded in restricting Josh Frydenberg to a forecast of long-term real economic growth of 2.6% per year. But even this more modest forecast is based on heroic assumptions about population growth, participation and productivity. This is probably a compromise between the reality that the Treasury can see and the political demands of the Treasurer.

A lower level of economic growth, as is likely the actual Treasury assessment, would of course mean even larger budget deficits and debt going forward, and the need for more urgent action.

This is an edited excerpt from Demographic shock by Abul Rizvi, published October 1 as part of the In the National Interest series by Monash University Publishing. Rizvi was a senior official in the Immigration Department from the early 1990s and deputy secretary from 2005 to 2007.


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