In the short term, lower migration will keep unemployment below 5% next year and the year after. This will cyclically help increase wage growth and inflation, as the Reserve Bank has long sought.
But RBA Governor Philip Lowe also noted in the same breath last July that turning off the tap on foreign labor also means “less investment, less confident companies, less production, less labor. social capital and a less dynamic economy ”.
Without migration, it will be much more difficult to get out of the $ 1.1 trillion gross debt by 2025, outlined in last week’s mid-year economic outlook. Migration typically contributes around 1 percent of GDP per year, and working-age migrants who become residents put more into government coffers than those born and educated in Australia.
Migrants will pay for the aging of the existing workforce. In addition to Australia’s higher debts, the cost of aging is rising beyond expectations. The OECD says a slowdown in population growth could leave state and federal government debt hovering around 70 percent of GDP. The number of taxpayers who support each retiree fell from 7.3 in 1975 to four.
With Australia stuck in a vise between pandemic debt, aging and declining birth rates, migration is one of the few solutions.
To its credit, the federal government has not backed down in authorizing 200,000 qualified visa holders and existing students.
But he is fighting an election on the subject of the cost of living, and the prospect of a further increase in wages. He is wary of pushing overall migratory visions on a population still numb and defensive after two years of pandemic shocks.
Business leaders are less timid, saying skills shortages are one of the pressures tempering their otherwise very optimistic vision of 2022.
Migration is not a Ponzi scheme
Migration is often misrepresented as a Ponzi scheme, sluggish growth in which migrants serve other migrants to produce an overall GDP gain that is neither sustainable nor useful. This is a fundamental misreading of the character of Australia.
Unlike most of its developed peers, Australia is still a border economy with untapped resources and its greatest days ahead.
This is the story of this year’s cover of The Australian Financial Review70 years of reporting. More people are needed to realize this potential.
Australia also exists in a disputed region. It will have more of a say at the Indo-Pacific diplomatic table if it has a strong and growing economy.
There is also a huge benefit ahead in making Australia a global clean energy powerhouse. But it will require an influx of talent and capital.
It is better to combine migration with a reformed economy, where productivity reaches its full potential. But a smaller Australia will come at a high cost: fewer jobs, fewer homes, less growth and less security too. The great demographic dropout must be short-lived.