Productivity Commission

"Strong population growth is boosting aggregate demand and therefore the growth rate of the economy. But measures of per capita outcomes are more sobering and suggest that not enough emphasis is being placed on them in the policy debate. A brief look at income per capita, dwelling prices to income, infrastructure spend per capita and traffic congestion points to the need for a comprehensive and open discussion around the policy direction Australia is taking. ... The pressures of very high immigration are contributing to social, environmental and economic stress in Australia. There appears to be a tri-party (coalition, Labor and Greens) agreement to keep this off the agenda, despite high levels of public concern."

[The following is based on a letter sent to Bill Shorten, Chris Bowen and Senator Penny Wong]

Why is Labor still pushing the ‘Big Australia’ barrow – as evidenced by recent speeches by Chris Bowen at the Crescent Institute in September 2016 and Senator Penny Wong at the National Press Club on 8 November?

For most of this century, Australia has had the second highest population growth rate in the OECD and 2.5 times the OECD average. Since 2003, our population has grown by a massive 22 percent. Official forecasts show Sydney with a population of 6.4 million in 2036 (growth of 87,000 per year), and Melbourne with 8 million in 2036 (growth of 97,000 per year). (for data source, see Leith van Onselen, Who will rise up to become Australia’s Trump? (paywall))

This overheated population growth is putting massive pressures on infrastructure and housing affordability. The continuing urban sprawl is trashing wildlife habitat and scarce agricultural land.

Permanent immigration, as well as an unprecedented amount of 457 and student visas, is having a detrimental effect on wage rates, particularly for lower skilled and lower income workers. Why is Labor endorsing this?

The real national disposable income per capita of Australians is in decline, thanks in large part to this population growth. May I draw your attention to the conclusion in the recent research note by Gareth Aird of the Commonwealth Bank:

Strong population growth is boosting aggregate demand and therefore the growth rate of the economy. But measures of per capita outcomes are more sobering and suggest that not enough emphasis is being placed on them in the policy debate. A brief look at income per capita, dwelling prices to income, infrastructure spend per capita and traffic congestion points to the need for a comprehensive and open discussion around the policy direction Australia is taking.

May I also draw your attention to the conclusion of the recent research note by Leith van Onselen of Macrobusiness:

In short, the broad macroeconomic data – both domestic and international – does not support the assertion that Australia needs to run a high immigration program in order to drive the economy and increase living standards. In fact, given the significant qualitative costs – for example, the degradation of the environment, the depreciation of natural resources and decline in individuals’ quality of life – there is significant cause to dial Australia’s immigration program right back.

Recently Senator Wong cited the recent Productivity Commission report on Migrant Intake Into Australia, and its modelling which showed a $7000 increment to per capita GDP in 2060, when comparing a business-as-usual immigration scenario to a zero net overseas migration (NOM) scenario. In actuality, the Commission bends over backwards to explain in its report that the $7000 figure is not a net benefit. One must also look at the costs of immigration and assess the overall net benefits for the community as a whole. For example the Commission says:

GDP per person is a weak measure of the overall wellbeing of the Australian community and does not capture how gains would be distributed among the community. Whether a particular rate of immigration will deliver an overall benefit to the existing Australian community will crucially depend on the distribution of the gains and the interrelated social and environmental impacts.

I am not sure whether Senator Wong simply misunderstands the Commission’s findings, or whether this is wilful misuse of data for a particular agenda. May I suggest that Senator Wong carefully read pages 15 to 17 of the Overview, to appreciate the nuance of the Commission’s findings.

The pressures of very high immigration are contributing to social, environmental and economic stress in Australia. There appears to be a tri-party (coalition, Labor and Greens) agreement to keep this off the agenda, despite high levels of public concern. According the Productivity Commission report:

Despite majority support for immigration, almost two thirds of survey respondents expressed strong preferences for keeping the population below 30 million over the next 40 years, which with current rates of immigration could be reached by around 2030. While the reasons given by survey respondents for preferring a lower population size differ between sub-groups, congestion and environmental impacts featured for all sub-groups. (p. 362)

Actually, the Commission may be correct that there is majority support for immigration in principle, but there is definitely not majority public support for the very high levels of immigration we have seen this century. A recent survey for SBS found that 59% of Australians surveyed believed that “the level of immigration into Australia over the last ten years has been too high”. This is backed up by a recent (5 October 2016) Essential poll that found that 50% think that the level of immigration into Australia over the last ten years has been too high, 28% think it has been about right and 12% think it has been too low. And for Labor voters, it was 43% think that the level of immigration into Australia over the last ten years has been too high, 30% think it has been about right and 16% think it has been too low.

As the Productivity Commission has acknowledged, Australia’s immigration policy is our de facto population policy. Recent events elsewhere (eg Brexit, Trump) suggest there is rising public concern about the pressures caused by growing population and high levels of immigration. If the major parties in Australia maintain their consensus for a Big Australia, contrary to the clear wishes of the majority, where will voters go? One Nation?

I ask again, why is Labor pushing for a Big Australia?

This article was first published on Peter Cook's personal blog at http://www.peakdecisions.org/2016/11/labor-pushing-big-australia

The policy and position of Australian government with respect to population issues is the most influential factor likely to impact on Australia’s future sustainability and hence the prosperity of current and future citizens. Because of the bipartisan government position on population/immigration numbers it is all but impossible to engender an effective public debate on these issues. I therefore welcome this opportunity created by the Productivity Commission to have this debate in a manner that is untarnished by vested interests and scaremongering about perceived xenophobia.

The current fertility rate for Australian women is hovering at around replacement levels.[1] This level decreased significantly in the decades leading up to 2000 and has substantially stabilised since then. I believe this choice by Australian families at once represents a level of confidence in future prosperity of the nation as well as a desire to ensure quality parenting that can be better delivered through smaller family sizes. Given a continuance of this statistic our population would stabilise at around 28 million. This is more than 20% higher than the level recommended by the Australian Academy of Science as a sustainable level while maintaining the current standard of living that all Australians expect to pass on to our descendants. The corollary to this statement is that our population growth levels are already such that they are compromising the prosperity of future Australians. Nevertheless, at this level the nation would be able to respond effectively to both positive and negative externalities that may impact on our future prosperity.

The major impediment in the way of us achieving this flexible and optimum outcome is our level of immigration. Immigration has been by far the most significant driver for Australia’s rapid population increase over the last two decades.

Population increase as a result of immigration impacts the country in a number of ways:
- Upfront impacts to infrastructure congestion and costs
- Increased impact on the environment
- Dilution of wealth creating resources over an increased distribution
- Increased disparity of wealth
- Erosion of amenity and culture.

Having a local market is now irrelevant

Whilst there is some truth to the idea of innovation being enhanced by diversity the concept that increasing population of itself somehow makes us all more wealthy is simply unsubstantiated spin, put out by vested interests. In the past, Australia has benefited from growth to our critical mass of population. This has facilitated domestic industries to develop where a smaller population could not have sustained these industries. Those days are gone. With global capital, communications and distribution networks industries will develop and flourish where they incur the lowest costs. Through the internet, individual consumers now, and increasingly so in the future, will purchase directly from the lowest cost supplier and the lowest cost distributer in the world. Whether we agree with it or not, governments are actively ensuring that no legal or commercial barriers can be used protect local industries. Having a local market is now irrelevant. As such, any petition that argues that increases to our population will enhance local market strength should be dismissed.

Infrastructure Costs

Wealth and wealth generation and our standard of living in Australia is supported by an array of public infrastructure, much of which is owned and controlled by government. A review of the value of the government portion of public assets across the three levels of government indicates a total current value of approximately $1.9 – $2.0 trillion.

It is reasonable to argue that any increase in population resulting from immigration will need to be supported by a commensurate increase in this public infrastructure. This equates to a value in excess of $83,000 per immigrant.

Note that the previous number represents a depreciated value of assets and not the current replacement value. It can be argued that migration necessitates the building of new infrastructure and so should be costed at the current value but I will ignore this argument for the sake of presenting a conservative position.

There are three major factors that impact on this argument:
- Higher population density will result in more efficiency in the utilisation of some assets.
- The cost of provision of supplementary infrastructure to provide additional capacity in an already built environment is significantly higher than the cost of the original assets ie. a tunnel costs far more than the above ground road it supplements.
- Provision of major infrastructure is almost always incremental. For a continually increasing demand, this results in an infrastructure complement that is always operating at either below or above optimum capacity. The more rapid the population change, the more severe the impact of this derogation in efficiency.
I believe in an Australia at the current time and with our current growth rates the last two of these negative factors will far outweigh the benefits of the first.

Environmental Costs

Australians currently are responsible for one of the highest GHG emissions of any country. On average we emit around 16T of GHG per person per year. The bulk of immigrants arriving here originate from countries with GHG emissions at a fraction of the Australian numbers. From a world perspective this flow of people therefore represents a huge negative impact on the effort to limit climate change.

Putting the world perspective aside and looking purely at the financial impact to Australia the immigration numbers will result in a significant increase in the costs this country will incur in order to meet our international obligations. Although GHG emissions are currently trading for around $20 per tonne it is expected that this value will rise to over $60 per tonne in order to meet the 2050 target of a 50% reduction. The price will continue to climb beyond this point.

Running an NPV analysis for a 30 year old on the basis of a GHG price of $40 per tonne will yield an upfront cost of approximately $16,000.

Note that this figure represents a small fraction of the total environmental cost of population increase but it is that portion that can be readily quantified and has a high degree of certainty in terms of our national cost obligation.

Dilution of Wealth Resources

A number of studies have been done in other countries to assess the net benefits of migration. Invariably these studies have determined that there was no net benefit to the existing population derived from immigration. The most definitive of the studies was conducted by the UK government that came to this same conclusion.

The most significant aspect where the Australian situation differs from the UK case is in the basis of the two economies. The UK derives most of its wealth through the leverage of labour whereas most of our core wealth is derived from exploitation of both renewable and non-renewable resources. The income that Australia earns from these sources represents around 80% of the amount we use to pay our way in the world.

The sources of this income are finite. The thinner we spread these income sources over our population the less there is for each of us to enjoy.

Assessment of the per capita value of national resources is quite a difficult exercise and subject to a range of assumptions regarding public and private returns from these resources. The diminution of per capita wealth through the dilution of resources cannot be ignored and should be the subject of a public enquiry by the Productivity Commission.

Total Financial Impact

Given the above factors each new immigrant costs the Australian public well in excess of $100,000 per person in public infrastructure, environmental and dilution of public wealth. If the government’s objective is to provide a net wealth benefit to its citizens through immigration, then this is the minimum that we should expect new migrants to return to Australian society.

Often there is an argument that new immigrants will pay back their upfront infrastructure costs through the taxes they pay during the course of their working lives. The trouble with this argument is, that the bulk of taxes simply go towards the costs of recurrent government expenditure. New infrastructure spending represents only around 4% of total government expenditure. Using this proportion and an NPV analysis on the tax payable by a 30 year old immigrant, in order to pay off the upfront infrastructure cost, they would need to pay over $95,000 (present value) per year in tax over the entire course of their working lives. This level of tax is unlikely to be recovered from even the top 1% of new immigrants.

It therefore makes sense to recover the upfront costs from new migrants upon entry thus allowing market forces to dictate those immigrants that will be in a position to make a positive financial contribution to Australia’s net wealth.

Increased Disparity of Wealth

The effect of population increase on labour prices can be analysed using the most well established economic tool, the cost demand curve. The greater the availability of labour in the economy the lower the price will be for that labour. Although we may want to pretend otherwise, the bulk of immigrants to Australia commence on the bottom end of the labour market. Even skilled migration applicants generally bring with them family members who will be taking entry level positions in the jobs market. It is undeniable that this will push down the price of the bottom end of the labour market.

At the same time there are substantial corporate benefits associated with increasing the population. Land development, banking, retail of consumer and whitegoods all derive the bulk of their profit growth from the growth in population. While in itself this is not bad. On a balanced playing field these profits would circulate into the economy therefore growing Australia’s overall net wealth. The trouble is, there is not a balanced playing field. There is a disproportionate ownership of most Australian corporations by foreign owners. The extra profits generated are not recycled back into the Australian economy but instead are siphoned off to overseas investors. There are some Australian owners of corporations that have derived substantial wealth from population growth, but as a general rule, the greater the rate we stimulate the economy through population growth, the greater the rate that profits generated are siphoned off overseas.

The use of 457 visas only exacerbates the above effect. I know for a fact that the 457 visa scheme is being rorted in the computer programming industry. Indian programmers are being brought in on 457 visas at a salary of around $25,000 per year. They have been used to replace Australian programmers who previously held these positions and earned around $60,000 per year.

The major companies involved in this rort are following the government procedural process to the letter. They are advertising the positions in the Australian market making the low salary offered for the position very clear. Naturally they receive no applications at these low rates. They then use this information to justify that they cannot acquire employees in the local market and hence the need to import labour through the 457 scheme. Virtually all of the salaries earned by these 457 workers is being repatriated back to India. Meanwhile, there are hundreds of experienced Australian programmers either working as unskilled labour or collecting unemployment benefits.

So an industry that was entirely self-contained, training and employing local people to generate wealth has been replaced by one that has a net effect of draining wealth out of the economy.

If this is the known case in this one field then it is very reasonable to expect that this same practice is being utilised across all industries. How is this scheme beneficial to the Australian economy?

Both the importation of low skilled labour and the 457 visa scheme is eroding the earning capacity of the less well off in Australia. At the same time these arrangements are benefiting corporate owners. This practice has already diminished the egalitarian nature of Australian society and will cause further deterioration if allowed to continue.

Erosion of Amenity and Culture

It is very difficult to put measures on amenity, and even more difficult to quantify loss of culture.

The argument for the correlation of higher population and the erosion of amenity is obvious. Congestion on roads and public transport, the need to live further from places of work, lack of provision of government services once taken for granted, the overcrowding of beaches, parks and recreation areas are all the direct result of population growth. The counter argument is that much of this loss of amenity is due to low infrastructure spending. Higher relative spending will certainly fix some of the problems, but not all. And, as indicated above in the economic analysis, this higher spending is simply not financially feasible without governments going into higher debt or a higher tax regime.

While I am sure the advantages of a diverse culture will be put forward by proponents of high immigration numbers, it is worth considering one negative aspect that is rarely discussed.

In the first half of the 20th century, Australia had by most standards a very homogeneous culture. Because of this homogeneity the various governments of the day were able to make bold plans for the future that were generally supported by a voting public that spoke with a single consistent voice. Over the last twenty years this capacity to make strong long term plans has completely disappeared from all tiers of Australian government. Politics is completely consumed by the need to satisfy small special interest groups rather than the focus on the general common wealth. Diversity of culture is not solely driven by immigration but immigration is the major contributing factor to it. Thus the capacity of governments to make consistent long term plans for the future has been significantly hampered by our growth in cultural diversity. The detrimental economic effects of this while indeterminate should not be ignored.

It is difficult to justify in a submission to the Productivity Commission the true value to the community of the freedoms we used to enjoy in this country. Freedoms that have been curtailed either directly due to the density of population or have come about as a result of necessary government rules and regulations to control society that has become both larger and more complex. It is these past freedoms that formed the core of what used to be Australian culture. Unfortunately, most such justification will be viewed simply as nostalgia.

I retaining an abiding wish to ensure that my grandchildren (as yet unborn) will enjoy the feeling of being Australian and proudly different from the rest of the world. These differences however, are being profoundly diluted as a direct result of the combined effects of immigration levels and the adoption of multi-culturalism. Through these policies we are consigning future children of our nation to be simply amorphous world citizens rather than uniquely Australian. That fact is deeply concerning.

John Roles

Queensland.

NOTES

Candobetter.net Editor's note: Sub-replacement fertility is a total fertility rate (TFR) that (if sustained) leads to each new generation being less populous than the previous one in a given area. In developed countries sub-replacement fertility is any rate below approximately 2.1 children born per woman, but the threshold can be as high as 3.4 in some developing countries because of higher mortality rates.[1] Taken globally, the total fertility rate at replacement was 2.33 children per woman in 2003.[1] This can be "translated" as 2 children per woman to replace the parents, plus a "third of a child" to make up for the higher probability of boys being born, and early mortality prior to the end of their fertile life.[2]

Replacement level fertility in terms of the net reproduction rate (NRR) is exactly one, because the NRR takes both mortality rates and sex ratios at birth into account. (Source: https://en.wikipedia.org/wiki/Sub-replacement_fertility#cite_ref-2

Little Dorrit: Pensioner Entertainment

How can we justifiably expect older people to keep working until 70, especially bearing the stresses of physical/manual work? Those without the obligatory hundreds of thousands of dollars in superannuation stored away, likely will be those who are forced to work to 70, and then claim unemployment benefits.

Henry Ergas (The Australian) believes there is a strong case for reforming the age pension. But those changes must be part of a broader restructuring of our retirement incomes system. Unless that?system can provide reasonable income security in old age, the changes will prove neither economically desirable nor politically sustainable.

More Australians are surviving into old age than ever before. But to endorse pension reform is not to echo the doom and gloom about population ageing. It seems to be capitalising on a natural fear of ageing, and of dependency. He says that claims about increases in dependency ratios are wildly exaggerated: while the share of older people in the population is rising, the share of children has fallen, so the ratio of dependence to the working age population is no higher now than at federation.

With longer lives to look forward to, people increase their savings and invest more in education and training, raising productivity. Older people contribute unpaid time to caring for the elderly, the ill and for children. They also provide an army of volunteers for community groups and charities. Longer lives means that retirees and able to spend more money on entertainment, buying consumer goods, and holidays.

Placing income uncertainty is inherently inefficient, and undermines the ­income predictability that individuals value highly. Raising the eligibility age as longevity increases should provide clear monetary incentives for individuals to continue working by varying the entry level of the pension and its growth rate

It would be politically risky, and unfair, to leave Australians without assurance of incomes is unsustainable, and the public need a retirement system that's fair, efficient and affordable.

What is a dependency ratio?

The total dependency ratio tells us the proportion of the population not in the work-force who are ‘dependent’ on those of working-age, it’s a calculation which groups those aged under 15 with those over 65 years as the ‘dependants’ and classifying those aged 15-64 years as the working-age population.

A study produced by Dr Katherine Betts and published on the Monash University Centre for Population and Urban Research website, says that “if policy makers genuinely want to minimise demographic ageing at the least cost, the most effective way of doing this is to support the two child family and minimise net migration which, in the year ending 30 September 2013, was 241,000.”

Katharine Betts shows that Australia’s labour force participation rate and ratio of  dependants to workforce are at record highs, despite an increase in Australia’s median age.

Australia’s average (median) age increased from 28.9 in 1978 to 37.3 in 2013 but, despite this, the proportion of the population aged 15 plus in the labour force has grown. So, high rates of population growth haven't diluted our population's average (median) age.

Data on 31 OECD countries in 2012 show no association between the proportion of the population aged 65 plus and the proportion aged 15 plus in the labour force. These data also show that a number of countries with older populations than Australia’s (such as Switzerland and the Netherlands) have higher labour -force participation rates than ours.

Labour force participation rates among older people are rising and the greater part of government revenue (61 per cent) does not come from taxes on paid labour. So, most of government revenue does not come from paid labour, what's lacking is incoming revenue! The loss of industries, and the slowing of the mining boom, means we've inherited all the “growth” but the economic benefits haven't kept up. Betts says that while the cost of the age pension has grown faster than GDP over the last decade, demographic ageing is not the cause; rising costs have been due to discretionary policy changes.

Data on 31 OECD countries also show that there is no statistically significant association between the proportion of the population aged 65 plus and health-care expenditure as a percentage of GDP.

Demographic Ageing

Demographic ageing is caused by lower fertility (for example a TFR of 2.0, instead of an average family size of 6.5) and longer life expectancy. High net overseas migration (NOM) makes little difference to the median age but a considerable difference to the size of the population, including the size of the population aged 65 and over. An ageing population is an inevitable stage in a community's life cycle. It's a sign that we are heading towards maturity as a nation, and can expect higher living standards, and a sustainable population size.

Productivity Commission

The Productivity Commission report on ageing says that in response to the significant increase in the size of Australian cities, significant investment in transport and other infrastructure is likely to be required. There's no stated aim for this growth!

Betts points out that the infrastructure spending needed to manage population growth over the next 50 years will be five times the total that was needed over the last 50 years. (page 5) Not only this, but illogically, we're doomed to have an even bigger ageing population in the future. Ponzi schemes are self-perpetuating unless there's a deliberate U-turn.

According to the report, Australia’s population is projected to rise to around 38 million by 2060, or around 15million more than the population in 2012

Sydney and Melbourne can be expected to grow by around 3 million each over this period. Australia’s population is projected to increase to more than 38 million by 20 60, more than 15 million above the population in 2012.
.
There's no overall aims or reasons given for this population target, or demographic ambition. The population aged 75 or more years is expected to rise by 4 million from 2012 to 2060, increasing from about 6.4 to 14.4 per cent of the population. So, despite all the immigration that's justified as an effort to keep our population “young”, the proportion of those aged 75 or more will keep rising!

Collectively, it is projected that Australian governments will face additional pressures on their budgets equivalent to a round 6 per cent of national GDP by 2060, principally reflecting the growth of expenditure on health, aged care and the Age Pension.

Australia’s labour and multifactor productivity (MFP) growth has languished in recent years. Without broader policy reforms, it appears that it will be difficult to return to the higher growth rates experienced in the 1990s.

Youth unemployment

At a time when neo-liberals use rising dependency ratios to justify their attacks on budget deficits but then fail to realise that our unemployed youth are a major casualty of the fiscal austerity – that is, our future workforce. (Bill Mitchell)

ABS released a report showing that the number of young people facing long-term unemployment has tripled since the 2008 global depression. The youth ratio dependency ratio is at 28.6% of the population.  As such, they are more than half the dependency population because the elderly dependency ratio is 21.5%, with a further 4.2% on support making up the difference.

Australia’s total dependency ratio – defined as the ratio of the non-working population, both children (<20 years old) and the elderly (over 65 years old), to the working age population – is worst under the ABS’ “high growth” scenario, which assumes Australia’s future total fertility rates will reach 2.0 babies per woman by 2026 and then remain constant, life expectancy at birth will continue to increase until 2061 (reaching 92.1 years for males and 93.6 years for females), and NOM will reach 280,000 by 2021 and then remain constant, thereby placing a question mark over claim that high immigration is required to mitigate the impacts of population ageing.

Macrobusiness: Bloxo calls for a bigger Population Ponzi

High rates of welfare unsustainable

Australian families, not specifically the aged, are believed to be receiving more in handouts than they pay in net income tax, new figures reveal.
Modelling for The Daily Telegraph by the National Centre for Social and Economic Modelling at the University of Canberra shows 48 per cent of Australia's 12.2 million "income units" pay no net tax.
The results show as many as 85 per cent of single-parent families pay no tax, once welfare benefits are deducted, while 55 per cent of single-person households pay no tax.

Our ridiculously high rates of population growth, due to “skilled” immigration and family reunion, has outpaced any jobs growth. The “welfare crisis” is a result of lack of government revenues, exacerbated by unemployment, on a landscape of declining industries and productivity.