How Australia can benefit from low or no immigration

For years there has been an often heated debate about the impact of high immigration on the Australian economy.

It is clear that population growth driven by some of the highest immigration levels in the world have supported bottom line GDP growth – the new Australians work, eat, live and spend.

High immigration has also fuelled strong demand for housing and was, at least in part, one of the divers of the unrelenting rise in house prices for many decades.

At the same time, population growth outpaced infrastructure capacity, most notably the transport networks in the big cities where most immigrants settled. Congestion was also seen in productivity destroying traffic chaos, overcrowded schools, hospitals and other government services.

Immigration was also a source of labour for many businesses, which has seen the government slash trade training funding, made university costs oppressive and generally undermined the skills set of many Australians.

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If workers were needed to pick fruit, work as highly skilled engineers in the mines or IT gurus for businesses, the government simply granted work visas and the problem was solved.

Resources to train and upskill the 2 million Australians unemployed and underemployed – many of who do not have the skills needed in today’s economy – were hopelessly inadequate which is why, with the borders closed, there is a widespread skills shortage.

The benefits of high immigration were being offset or at least diluted by the costs.

COVID-19 and the border closures

With the onset of the COVID-19 pandemic, the government effectively closed the international borders to immigrants.

Indeed, the latest figures from the Australian Bureau of Statistics show that more people are leaving Australia permanently than are arriving. This is the first time this has happened in 100 years.

A year after net immigration turned negative, there are some economic trends emerging that might give a few insights into the sort of immigration policy that is best for Australians after the COVID-19 pandemic is over or at least when we learn to live with the virus in an orderly way.

Perhaps the most obvious issue is a skills shortages among the current workforce which is sparking up opportunities for a long overdue acceleration in wages growth. Business are reporting it difficult to find suitable workers and for obvious reasons, this cannot be fixed by working visas and immigration.

A recent RBA survey of business shows expectations for wages growth is at its highest level in over a decade. Weak wages growth, for so long a problem for the Australian economy, is poised to turn with a substantial pick up in private sector wages unfolding.

It is well understood that rising wages growth will fuel household incomes and with that, consumer spending.

And the key thing about this wages growth is that firms are able to meet this higher wages bill given there has been solid growth in bottom line profits and margins as the economy expands.

Border closures are now linked to higher wages.

With the working from home phenomenon that has been experienced due to the COVID-19 restrictions, congestion in most CDBs and on public transport is less common. Again this is good news and if sustained, will ease the pressure on State budgets for future infrastructure spending. Fewer people are using existing public transport and roads.

While it is yet to be fully tested, there is tentative evidence that low immigration has reduced demand for residential property.

The mini-boom in house prices evident over the last 8 or 9 months has been driven by favourable affordability with first home buyers using stunningly low interest rates and a raft of financial incentives to get into the market and pay-up for their home.

New immigrants have, obviously, been absent from auctions of the queues for rental properties.

Immigration an election issue?

The next Federal election is less than a year away. It could even be in October as Prime Minister Morrison works to take advantage of the favourable economic news and as some of the measures in the budget start to impact on voters.

It is possible that immigration will be an election issue particularly if one side, or other, uses the good news from low immigration as part of a platform to improve the well being of Australians with strong per capita growth.

Of course, Australia needs to maintain its humanitarian immigration program, and when health conditions permit, this should resume.

But the bigger picture immigration program, which saw 1 million people arrive in the three years prior to COVID-19, needs to be scaled back even when the borders reopen.

If we go back to huge population growth in the years ahead, get set for weaker wages, further house price gains, pressure on infrastructure and higher unemployment.

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