Does the lucky country need migrants?

Does the lucky country need migrants?

UNLESS there is a sharp change in immigration policy, Australia’s population is likely to exceed the latest Treasury projection of 35.9 million by 2050. This is the ”big Australia” vision. The projection’s core assumption was that net migration will average about 180,000 a year. By 2008-09, however, it was estimated to be 298,000.

Continued migration is not at issue. For 2009-10, the Department of Immigration and Citizenship expects 45,000 visas to be issued to partners alone. Australia is an attractive destination and, once here, migrants and their children, especially those from Asia, tend to return home for a spouse. Few would wish to deprive residents of their choice of spouse. Likewise, the humanitarian program of about 13,000 is not an issue – only the mode of entry is controversial.

What is at issue is the policy of successive governments of actively recruiting permanent-resident skilled migrants and their families via the skill program. This is currently set at 113,850 places. The parallel policy of encouraging temporary entry programs – including the 457 visa temporary worker, working holiday and student programs – is largely responsible for the surge in net migration.

What is the point of such programs? To judge by responses to opinion polls, few Australians seem to think there is a valid rationale. One earlier this year asked people if they favoured increasing Australia’s population and 72 per cent said they did not.

This reaction probably stems from awareness of implications for cities. Most know if the population grows from 22 million to 35.9 million in 2050, Sydney and Melbourne will have an extra 2 million people and Brisbane will nearly double to about 3.7 million.

These metropolitan areas are not coping with the recent influx. Why encourage more arrivals? These cities are entering a phase of diseconomies of scale in providing infrastructure and state governments do not have the funds to keep up.

A recent report by the Water Services Association illustrates the point. Under the assumptions used for the 35.9 million projection, Sydney’s water use will increase by 121 gigalitres by 2026 and 217 gigalitres by 2056, or by 25 per cent and 44 per cent respectively. As in other capitals, this will soon require another expensive desalination plant or a recycling plant on an equivalent scale. Water bills will grow accordingly.

Metropolitan governments have expressed their conviction that, faced with huge growth, they will not accommodate the extra people in outer suburbia. Even in south-east Queensland, residents are told they will have to accept a combination of small-lot houses and apartment living.

In effect, young Australians are being told the costs of population growth are such that they cannot expect to live the traditional Australian suburban lifestyle. Why do they have to make this sacrifice?

The answer from industry and government is that severe skill shortages will increase with the next phase of the minerals industry boom. They argue Australia needs a strong migration program if these shortages are not to put a break on industrial capacity. Advocates argue these shortages will worsen as baby boomers retire. The ratio of retirees to workers will increase and migrant workers need to shoulder the tax burden.

It is true that industries dependent on growth in metropolitan markets need high migration. Almost all new migrants are settling in these metropolises. If the big-Australia scenario eventuates, about 9-10 million of the projected growth of 14 million by 2050 will be attributable to migration and the rest to natural increase. The migrants, as customers, will be the main source of the demand driving the metropolitan housing development and city building industries.

The truth is, migration has little to do with the resources industries. The operations workforce in the mining industry constitutes barely 1.5 per cent of Australia’s employed workforce. The industry’s need for construction workers could be much larger during the start-up phase of the many mineral projects on the drawing boards. But even here, the workers required will be a small fraction of the construction workforce employed in Australia’s metropolises.

Paradoxically, immigration is a problem for resources industries in this start-up phase because it is a leading contributor to growth in demand for housing, hospitals and roads in the cities. The minerals industry is trying to attract construction workers when their services are in demand in their home cities.

Proponents of immigration do not acknowledge that employment growth is dominated by service industries in the cities. Their rapid growth is largely because of an increasing population – as might be expected, given their function is people-servicing. Most of this growth is occurring in health, education, welfare and community services and business services, which includes property. Most skilled migrants work in cities in these industries. Many temporary migrants are employed in lower-skilled retail and other service industries.

The Australian economy is like a dog chasing its tail. More migrants fuel growth in the building and people-servicing industries, which then demand more migrants for labour.

Most other advanced Western societies are not experiencing, and do not want, population growth on this scale. Unlike Australia, they have avoided being lured into an industrial structure so reliant on population growth.

The most extreme example is Melbourne. It is a parasite city whose economy has remained vibrant through the global financial crisis (relative to Sydney) because of record population growth and a consequent boom in city-building and people-servicing.

Employment in its manufacturing industries has contracted and Victoria has little mining activity. The city is thriving, yet exports of goods and services from Victoria are barely half the value of imports of goods and services. It depends on Commonwealth funds to accommodate and service its growing population. Successive premiers, from Jeff Kennett to John Brumby, have lobbied for more migration. They understand how central migration is to Melbourne’s population growth and the short-term health of its economy.

Should population growth slow, there will be severe adjustment pains for some. But the big-Australia model is not sustainable in economic terms. Australia’s total foreign debt is about $650 billion, with interest payments requiring 4 per cent of gross domestic product. Most of this has been raised overseas by banks to lend to home-owning mortgagees. This is one reason why interest rates are so high in Australia. As with competition for construction labour, industries competing to sell products against international competition have to compete for capital against the city building industries.

What will Australia have to show economically for the enormous effort of accommodating an extra 9-10 million migrants by 2050? More debt and a more daunting greenhouse emissions challenge. Meanwhile, much of the fiscal benefit from selling off Australia’s non-renewable heritage, which could have helped fund industrial restructuring, will be spent on accommodating migrants.

If overseas migration declined sharply to about half that proposed, it would take much of the heat out of the city building boom. With only 90,000 a year, there would be fewer migrant workers available but far fewer would be needed. With less recourse to skilled migrants, governments and businesses would have to put more effort into preparing young and older residents with the required skills.

In this economy, Australians will be twice as rich by 2050 as today. This population will be older but so wealthy that older people will be able to look after their own welfare.

Source: Sydney Morning Herald

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