Australia’s GDP growth has been in the spotlight recently, with the federal government proposing a budget heavily reliant on rosy growth predictions.
But are our assumptions about economic growth reliable?
Australia’s GDP grew by 2.4 % last year. Not a bad number. But it’s less impressive when you understand that much of it came not from organic growth, but from imported productivity.
As Foreign Minister Julie Bishop said on 11 April:
‘…we can take as many migrants as we believe is appropriate in Australia’s national interest to drive economic growth…’
Sure, an increase in GDP is great. Immigration is also great, when it’s making Australia wealthier. But artificially inflating GDP growth just by adding more people to the economy doesn’t make us richer. Not in real terms.
Allowing age-specific population growth from immigration caters to labour demand and even result in fewer people being unemployed. But remember that saying, progress for progress’ sake? Well it can also be a dangerous thing.
And that’s what you should think of when it comes to the Productivity Commission’s modelling around immigration.
Especially when we note that at best, it is limited and cannot reflect real life.
In reality, we should be thinking of the Aussie workers who will be made worse off by falling wages. And the wider knock on effects like more congestion, higher infrastructure costs, and less affordable housing.
Per capita GDP versus national GDP
Dubbed the Unconventional Economist, Leith Onselen raises some very important questions about per capita GDP versus national GDP.
Firstly, an ageing population will eventually result in fewer people working, and deduct from per capita GDP. Making the benefit to GDP per capita from immigration only transitory.
The Productivity Commission’s Migrant Intake Australia report, realised September 2016, compared the impact on real GDP per capita from two hypothetical situations. First from maintaining historical rates of immigration, hitting 40 million by 2060. Second from zero net overseas migration, resulting in population stabilising at 27 million by 2060.
This found a 7% ($7,000) increase by 2060 under mass immigration settings.
But we should consider where this shift comes from. Often it will stem from temporary gains and a temporary lift in the employment-to-population ratio.
Of course, people age. Migrants we take will also, and eventually add to the amount of the population aged over 65. Importing working-age people boosts the economy. But as those people in turn age, unless we have another solution, we can only continue the system by adding ever more migrants.
In addition, this lift in GDP fails to take into account many of the costs of a higher population. Costs in terms of housing, infrastructure, the environment and strains on our natural resources, even water. GDP doesn’t measure any of these reflections of our quality of life.
Even if you do accept GDP growth as the be-all and end-all of measuring economic health, it seems clear that propping it up with immigration is a short term solution. Like any Ponzi scheme, it will inevitable collapse under its own weight.
Without action and innovative solutions, these high rates of growth could intensify already existent problems, in infrastructure, housing and the environment.
Simply adding more immigration is not a sustainable solution.
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