Australia's stronger immigration - the other inflation dampener

November 13, 2012, 3:32 pm Michael Pascoe Yahoo!7

With a rapidly aging population to support, a smart immigration policy will ensure Australia’s tax rate doesn’t skyrocket.

Tucked away in Friday’s Reserve Bank statement on monetary policy is the assumption that Canberra is too afraid to make: Australia’s working age population will grow by 1.7 per cent over the next 2 years “in line with the recent pick-up in the rate of immigration”.

Ever since Kevin Rudd made the mistake of calling a population of 40-odd million “Big Australia”, politicians on both sides have run a mile from population growth figures. Government and opposition alike prefer to ignore population questions and, when cornered, tend to resort to various weasel words to give the impression that nothing much is happening and we should all just move along. It’s even Liberal Party policy to out-source migration levels to the Productivity Commission so that politicians won’t be held responsible.

But what both sides of politics know and quietly go along with is that 40 million is not actually a “Big Australia” – it’s simply what we have to have to handle the strain of Baby Boomers retiring from the workforce and becoming very expensive to keep in their old age. Without an on-going strong skilled migration program, Gen X and Y would have to pay vastly more tax to support Boomers for whom compulsory super came along too late. And even with migration growth, our demographics say the total tax take will still have to rise.

(At this stage, the anti-population growth mob generally jump up and down, shouting that we can’t just keep growing to support retirees, that it’s a giant population Ponzi scheme. But we don’t have to keep growing – once the Boomers eventually shuffle off, Gen X and Y should have enough superannuation to fund their own retirement.)

Part of the immediate impact of stronger working-age population growth is to dampen inflation. With the labour market already soft and employment growth low, adding more people to the mix – especially in areas of shortages – tends to keep wages growth subdued. The 1.7 per cent forecast of working age population is quite strong, particularly when employment growth itself is flat. Thus it’s not a surprise that the RBA forecasts wages index growth will slow a little to 3.5 per cent in 2013 and 2014.

That in turn is one of the reasons why I think the RBA isn’t quite as worried about the inflation rate increasing a little next year as most of the commentariat assumes. The central bankers also note that our productivity growth rate has picked up recently – another way of keeping inflation under control.

And really the neat thing about well-targeted immigration is that while it can dampen inflation, it can also lift economic growth. For example, it’s one of the factors that has the RBA and the Treasury believing the housing industry will pick up next year after being flat this year and going backwards in 2011.

Most discussion about managing the economy tends to concentrate on just monetary (interest rates) and fiscal (government spending) policy, ignoring the third arm of population policy. Fortunately, the RBA doesn’t.

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14 Comments

  1. Jeff06:55pm Wednesday 12th December 2012 ESTReport Abuse

    Don't be fooled its obvious Gillard wants to let in 40,000 foreigners a year and pay them, and house them, with our tax money, purely because it's 40,000 extra voters in her pocket, once they go through the process and a long list of potential slave workers "working for the dole" who won't know any different and won't complain. This is before she does something or even mentions the people living without homes here. How about a focus on getting the people living here a job and house so they can afford to have more kids? let alone finding places for the young people growing up to get affordable housing. Why would we want to do that to the youth of the country? promise them everything then give their house to a line skipper. We get water restrictions as it is. how are we going to magically give water to a bunch of new people ever year? or are we just going to have to take the restrictions even further. We have our own problems with out own people who need help from our own tax dollars. Not making sure everybody in the world is looked after before the people your meant to be representing.

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  2. Australian football fan09:23pm Sunday 09th December 2012 ESTReport Abuse

    Australia might be a big country but most of Australia is desert, we don't have the room to have a huge population. And it's not something that is good thing, big population's mean highly polluted cities, more traffic, higher crime. Australia should stop taking in vasts amount's of immigrants when we get to a 30 million population. That is sustainable for our quality land and big enough to support a strong economy.

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  3. paulie05:57pm Sunday 09th December 2012 ESTReport Abuse

    This is rubbish. Developments in Japan mean robots will be doing a lot of chores and care tasks in the next decade. Japan does not have an immigration program but does have an ageing population. Robots is their solution and it will be ours too. We dont more immigrants to look after the aged and in any case there is 5 per cent out of work and more when technology sacks more people. All these business types like Pascoe who work for the millionaires really want more people so there are more customers and more profits. Meanwhile ordinary Australians have a declining quality of life. Crowded cities, hospitals, schools, roads, public transport and a depleted environment. Never ever believe a business writer when they call for more people.

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  4. paulie05:54pm Sunday 09th December 2012 ESTReport Abuse

    We always get this rubbish about how we need more immigration to support an ageing population. The developments in robot technology will revolutionise aged care. It's already happening in Japan. So the argument is as I said nonsense. In any case there is 5 per cent of the work force unemployed, there are plenty of people here to do the work. And technology will put more out of work in the next 10 years. The real reason business types like Pascoe want more people - more customers and more profits for the millionaires. Meanwhile Australians standard of living plummets with congested roads, crowded schools and hospitals and crumbling public transport. Dont believe these population pushers.

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  5. Jonc101 (aka Father Jon)05:18pm Saturday 08th December 2012 ESTReport Abuse

    Australians are less worried about the size of our population than about the quality od the immigrants allowed to enter our country. We have no wish to end up with the kind of ethnic conflicts that have dogged European countries. There's a tradition here of our Australian Labor Party, when in power, encouraging migrants from countries that can't handle their own social and ethnic problems. They end up in the poorer urban areas, easily manipulated to vote for the Labor Party. FJ

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  6. Harish11:22am Monday 26th November 2012 ESTReport Abuse

    I dont know how pascoe made economist. with population growth we paying high rents and mortgages.spending more money on tolls and crawling to work. I dont mind allowing more migrants but instead squeezing into metro areas,govt should build more cities and send them.Instead of focussing on house price growth its wise to focus building new cities ,immigrating more entrepreneurs and providing more jobs. now more immigration making less demand for workers and reduced salaries as more labour available .It makes our reduced ability to buy more expensive houses and expensive living costs and chances of causing internal unrest .

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  7. Margit04:23pm Thursday 15th November 2012 ESTReport Abuse

    Michael Pascoe either does not want to see or cannot see that higher population will not solve the aging population problem, which is not a problem in the first place. If we import GenXers and GenYers en masse to support the retiring baby boomers, how many more will we then have to import to support the aging GenXers and GenYers? It is an ever widening circle. People may live longer but they also remain active longer. Furthermore, our superannuation system needs to change such that the retired generation becomes self-sufficient. It's not hard to do. It just requires political courage. A smaller population where quality rather than quantity matters, will benefit everyone. The reverse will not.

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  8. Grant02:48pm Wednesday 14th November 2012 ESTReport Abuse

    The cost of population growth is often overlooked. Current infrastructure in Australia is getting worse not better, and a continually higher population will not improve this situation or the general well being of individuals. The growth in population mainly benefits those owning/running the large corporations.

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  9. Jenny02:04pm Wednesday 14th November 2012 ESTReport Abuse

    Of course population growth increases economic growth but it doesn't necessarily mean increased GDP per capita which is a better measure of well-being. Housing? That's just capital widening and not capital deepening which is what we need if we really want a stronger economy. And those of us wanting to end population growth for environmental, social AND economic reasons are perfectly justified in saying let's end growth now before those with compulsory superannuation get through to retirement age. We just have to work until we're 70 that's all. And that's not necessarily a bad thing.

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  10. Michael08:30am Wednesday 14th November 2012 ESTReport Abuse

    I see more homeless people on the streets because they are not being hired. It is cheaper to get new immigrants to replace them who don't realise just how much is needed to live here, Sydney especially. In the meantime its costing billions to police northern seas. Seems the government of this country is doing what they are told to do by another unelected source, the U.N. I have no gripe with people who are trying to better themselves and who want to come here but both governing parties are destroying the Aussie way of life with very short term ideas.

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