How an ageing population will stunt our growth

The Australian economy continues to be underpinned by strong population growth, but the data also highlights the increasing divergence between the Australian states.

Population growth remains weak in both South Australia and Tasmania, with both states struggling to attract immigration and capital investment.

The Australian population rose by 1.7 per cent over the year to the March quarter – reflecting strong growth on the east coast – and will continue to underpin real GDP growth for the foreseeable future. Nevertheless, population growth has begun to slow over the past few quarters.

New South Wales and Victoria continue to lead the way, with their populations rising by 1.6 per cent and 1.9 per cent, respectively, over the past year. The population in NSW sits at 7.5 million, and in Victoria at 5.8 million.

But the strongest growth remains in Western Australia. The mining boom might be over, and former mining towns have now become ghost towns, but their populations continues to rise at a rapid pace.

The population in WA rose by 2.5 per cent over the year to the March quarter. This is well down on its peak during the mining boom – 3.7 per cent growth over the year to September 2012 – but it remains rapid in every sense of the word.
Graph for How an ageing population will stunt our growth

Population growth reflects a number of factors. Economic opportunity can explain a great deal of WA’s growth; the mining boom made the state a particularly attractive destination for not only immigrants but those living interstate.

For NSW and Victoria it is a combination of the nation’s pursuit of high immigration combined with the appeal of big city living. Queensland, to a lesser extent, benefits from this but also from the mining boom and intangibles such as their tropical climate.

At the other end of the spectrum we have states where opportunities have been poor. Population growth in South Australia and Tasmania have been remarkably soft given Australia’s high immigration intake.

I’ve been critical of our federal government’s preference for a ‘Big Australia’ because it has been pursued with little regard for our existing infrastructure and natural resources (The Big Australia illusion; April 22). But low population growth poses its own set of problems.

Why would businesses invest in SA or Tasmania when their market would grow more quickly elsewhere? They might be beautiful states but there’s little room for sentimentality in business.

Attracting capital investment has been difficult in these states – so difficult that it encouraged the Tasmanian government to sponsor an AFL team to increase tourism and offer the most generous first-home builder grants in the country. Tasmania has to be creative to keep its economy chugging along.

The other trend worth keeping an eye on is Australia’s ageing population. This has been well documented on a national level, but each state will be affected differently.

Over the past few decades Australia and each of the states has experienced favourable demographics that have helped boost real GDP growth. From 1980, the share of the population aged between 25 and 54 years of age increased sharply in each state and territory. Workers are traditionally most productive within this age group.
Graph for How an ageing population will stunt our growth

That created the sweet spot for economic growth and, combined with rising labour force participation among women, created the perfect environment for strong growth. But those favourable demographics are at an end, with the share of the population between 25 and 54 years old now on the decline.

The effect has been felt most in Tasmania and SA, where the populations are oldest. But each of our six states is generally quite old, and growth will continue to be hamstrung by an ageing population.

The Australian economy continues to be underpinned by strong population growth but it has been concentrated on the east coast and in WA. Despite a strong immigration intake, our demographics continue to turn unfavourably and that will weigh on growth over the foreseeable future.

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