The Big Australia illusion

Canberra's push for a 'Big Australia' has become a substitute for more sophisticated economic planning. But strong population growth is not in itself a recipe for prosperity.

Australia has the highest population growth in the developed world. But what are our immigration policies trying to achieve? Unfortunately they are creating an illusion of growth, with little consideration of the long-term implications for Australian infrastructure.

A few weeks ago Alan Kohler laid out the future for economic growth in Australia. It was all about people or more specifically, “the infrastructure required to house, feed and transport them” (Australia’s new boom: human beings, April 2).

There is little doubt that migration will sit at the forefront of economic growth in Australia over the next generation. Australian politicians have embraced and run with the concept of a ‘Big Australia’, with high migration leading to elevated population and economic growth.

But high migration levels are not achieved without a cost. High population growth puts pressure on existing infrastructure and commonly leads to greater congestion on our roads and public transport. Not to mention the impact on our natural resources and environment.

There is also considerable debate as to whether high migration policies benefit the existing population. The Productivity Commission has found that high migration has, at best, boosted per capita GDP modestly. Its study in 2006 found that doubling the annual rate of migration would boost real GDP per capita by around $383 over two decades.

The real beneficiaries of migration are the immigrants themselves who benefit from higher domestic wages and relatively better infrastructure.

But if high migration is not improving Australian living standards, what is it trying to achieve? Unfortunately, it is doing little more than creating the illusion of growth.

Despite high migration, Australia’s growth in per capita GDP has been lacklustre, with growth over the past five years slowing to its slowest pace in around three decades. Effectively our standard of living is now improving at a much slower pace than we had grown accustomed to.

Graph for The Big Australia illusion

Readers shouldn’t underestimate how important minor changes to growth are to our standard of living. If per capita growth rises annually by 2 per cent, living standards will double in 35 years; by comparison, at 1 per cent growth it will take 70 years for per capita income to double.

The reasons behind the slowdown are many and varied but include the usual suspects: declining labour market participation, slower productivity growth, insufficient infrastructure investment and disruption caused by the global financial crisis.

What should be recognised though is that high immigration policies are not by themselves a recipe for growth. Immigration is not a substitute for productivity and so far Australian residents are seeing little benefit from Canberra's immigration policies.

If politicians want to pursue a ‘Big Australia’ then they should be prepared to approach it in the right way – they cannot ignore the mounting pressure on existing infrastructure and our natural resources.

Unfortunately, there is little evidence that our politicians – at all levels and of both political persuasions – are capable of finding, selecting and funding the infrastructure that can make the most of our population boom.

Australia has suffered from a public infrastructure shortfall for decades now, as successive governments at all levels have wasted a once-in-a-lifetime opportunity to fund infrastructure, boost productivity and set Australian up for the future. Instead we find ourselves on the back end of a resources boom, with long-term budget issues and a huge backlog of necessary investment projects.

The Productivity Commission released a damning assessment of public infrastructure earlier this year, citing “numerous examples of poor value-for-money” projects and inadequate project selection. Without reform it suggested that “more spending will simply increase the cost to users, taxpayers, [and] the community” (The great infrastructure drain must be plugged, March 17). Politicians are great at playing politics but not so successful at making sound investment decisions.

The end result is an economy that is being driven by population growth, with little consideration of the long-term implications. How will we deal with the additional traffic congestion? What about increasing the housing supply? Does anyone care about the environment or natural resource depletion?

Without reforming infrastructure investment, our failures of the past will become our failures of the future. The only way forward for the Australian economy is productivity growth and the only economic plans worth following are those that promote productivity.

Strong population growth is not an economic plan. It will not improve the living standards of you or I; nor will it reduce poverty and inequality or foster innovation and creativity.

The only beneficiaries of high immigration are the immigrants themselves and while that is great, we can safely say that the government is not pursuing immigration for humanitarian reasons. Instead it is creating an illusion of growth while hoping you don’t realise the reality.

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