This was published 13 years ago
'Big Australia' has its advantages if we can improve resource management
Size does matter - as an enabler, writes Paul Kerin.
By Paul Kerin
KEVIN Rudd wanted a ''Big Australia''. Julia Gillard doesn't. For once, I agree with Rudd. Big Australia is in the national interest - if we improve management of our shared resources.
What Rudd called Big Australia - a 35.9 million population by 2050 - actually isn't very big. One ''big'' absolute number that's 40 years away shouldn't scare us. That number came from Treasury's recent third Intergenerational Report. It assumes only 1.2 per cent annual population growth - below the past 40 years' 1.4 per cent - but higher than the 0.8 per cent that the second report assumed only three years ago. Due to the magic of compounding, the latest report's extra 0.4 percentage-point annual growth generates what seems like a much bigger 2050 number.
As small changes in annual assumptions change 40-year absolute numbers enormously, we shouldn't overreact. Forecasters' assumptions change frequently, because population key drivers do too - the third report's assumed higher fertility rate (1.9 kids per woman versus the second report's 1.7) alone accounts for about half the extra annual population growth. Even 1.7 per cent is above the 1.6 per cent average for developed countries. Yet overreact we did. Many called for immigration slashes - but other numbers in the third report suggest that would be scarier still.
''Small Australia'' advocates express two concerns: economic self-interest (narrowly defined) and shared resources. The first concern is misguided - if anything, immigration promotes our economic self-interest. The second holds some water if we continue to manage our shared resources poorly. But we can - and should - improve resource management anyway. While staying small may make better resource management easier, it reduces the pressure to do so - and forgoes considerable economic benefits.
The scope to improve resource management is so enormous that a Big Australia is very manageable. Indeed, a Big Australia that manages its resources well would deliver the best of both worlds.
Economic self-interest concerns are longstanding. The ACTU has long made it clear that it would not tolerate immigration at the expense of jobs or wages. But many studies show that immigration doesn't reduce employment among existing workers; it creates demand. And it raises gross domestic product (GDP) per head.
Treasurer Wayne Swan was right when he said in February that immigration would help cope with an ageing population.The third report notes that countries with low population growth face the biggest threats to fiscal sustainability.
Here are the really scary numbers. The third Intergenerational Report found that the aged dependency ratio - working-age people per aged (65+) person - has already fallen from 7.5 to 5.0 over the past 40 years and (even with 1.2 per cent annual population growth) would fall to 2.7 over the next 40. If population growth was only 0.8 per cent (which would occur if the fertility rate fell back to 1.7 and net immigration was slashed by 45 per cent), the dependency ratio would be only 2.3 in 2050, with GDP and GDP per head 17 and 2 per cent lower, respectively. And the 2050 population that this lower population growth would generate (30.2 million) would scare Small Australia advocates anyway.
Immigration delivers economic benefits because immigrants are younger and (given the high focus on skilled immigration), on average, earn more than existing citizens. About 95 per cent of migrants are 45 or younger; 41 per cent are of prime working age (25-44) - compared with only 62 and 28 per cent, respectively, of existing citizens. They expand our labour supply and earnings and reduce the per-head tax burden needed to support ageing citizens.
Indeed, as shadow population and immigration minister in 2003, Gillard welcomed an Organisation for Economic Co-operation and Development report because it demonstrated the ''economic contribution from migrants''.
So size does matter - not as an end in itself, but as an enabler.
Concerns about shared resources cover natural (water, land, climate) and man-made (roads and other infrastructure). But we can improve our use of existing resources and supply of further resources. Releasing the third Intergenerational Report, Treasurer Swan argued that ''the answer isn't to stop growing, but to grow differently''.
The best way to manage shared resources is to ensure we all take account of the costs we impose on each other by using them. This requires governments to create new markets - and free up existing ones - to generate usage prices that reflect these costs.
Government can improve water use enormously by removing political barriers to water trading and pricing water better. As agriculture and industry use 90 per cent of our water, much of it for export products, population growth won't raise water demand substantially. Reducing household water use per head to average developed world benchmarks and/or diverting a small proportion of water from irrigation (through voluntary water trading), would more than meet the water demands of 35.9 million people.
Congestion-based charging would improve road use efficiency substantially. Drivers would eliminate low-value travel and switch to less congested times, alternative modes and working from home, which technology is increasingly enabling.
Sure, even with more efficient shared resource use, Big Australia may need to build more infrastructure - but far less (particularly per person) than if we remain a small, resource-wasting nation.
Some concerns are overblown. The report's projection that Sydney's population could reach 7 million (up 54 per cent) by 2050 alarmed some. But while Sydney is the world's 48th largest city, it ranks only 113th in population density (people per square kilometre). Even if 7 million people were jammed into Sydney's existing land area, its density would still be 10 per cent below that of the lovely liveable city of Paris today.
Gillard emphasises ''sustainability'' over ''big'' Australia, as if they were mutually exclusive and not complementary. In asking ''where will these people go?'', she has apparently decided that more migrants shouldn't be able to choose to live in Sydney, but she might let them live in Bunbury. In 2003, Gillard proposed that people ''only be able to migrate if they go to a region where growth is desired or required''. The Howard government tried this. But governments shouldn't make these decisions for people. If Gillard acted to ensure proper pricing, use and supply of shared resources, voluntary choices - of both existing citizens and migrants - would be aligned with the national interest.
Having backed off on attempts to improve shared resource efficiency, the government is using supposed resource constraints - which successive governments' inaction have created - to justify backing off on population growth and forgoing the considerable benefits that it would provide. Rather than striving for the best of both worlds, we're consigning ourselves to our small, wasteful rut.
Paul Kerin is professorial fellow at the Melbourne Business School.