This was published 13 years ago
Population growth should not need to be reduced - the issue is planning
By Craig James
Skills are at a premium.
THE adage is that truth is the first casualty of election campaigns. It appears to ring true when it comes to discussion of population growth. While some are basing their views about population growth on hard data, many others seem to be relying on their gut feel or populist opinion.
Whether you believe that population growth should be maintained at current levels or reduced, all appear to be in agreement that growth should be sustainable. The hard part is to work out what this means in practice.
I take sustainable population growth to mean that population grows at a rate that is consistent with non-inflationary growth of the economy, and doesn't impose special hardships or demands on government to increase housing supply and infrastructure. At the same time the standard of living for Australians should be maintained.
So how does recent population growth stack up?
Over the past six years Australia's population growth has almost doubled, lifting from around 1.1 per cent to just over 2 per cent. Over that period Australia's record economic expansion continued - a period that included a global recession - while unemployment has trended lower. The unemployment rate has averaged 5 per cent over the past five years - the lowest average rate since the 1970s.
Rising population growth hasn't resulted in higher unemployment, rather the opposite - it's been instrumental in driving economic growth and contributing to firmer job markets.
All this hasn't happened by accident. It has been a key part of the medium-term strategy by successive governments to deal with Australia's ageing population - a strategy that Treasury has called the PPP policy: maintaining firm population growth; lifting productivity; and employing measures to increase labour force participation.
Treasury has largely been successful on all three grounds, ensuring that firm non-inflationary economic growth has been maintained.
The measures to boost population growth have focused on both the natural increase (births less deaths) as well as migration. Federal governments have offered incentives such as the baby bonus to boost natural increase while also lifting the migrant intake to ensure that labour supply has adjusted to meet higher demand.
Skills are at a premium in the economy with the share of young people in the working-age population close to the lowest levels on record.
At the same time the resources boom has increased the demand for skilled labour. The lift in skilled migration levels has been successful in achieving a targeted increase in labour supply, restraining wage pressures and, in turn, keeping inflation low.
While the faster pace of population growth in recent years has been extraordinarily successful from a macroeconomic standpoint, the problem is that lack of planning by all forms of government has meant there have been stresses at a microeconomic level. This has been manifest in the slow/inadequate response in boosting housing supply, pressures on energy and natural resources and increased congestion.
There is no reason why population growth can't be maintained at levels around 2 per cent a year providing there is good planning by government.
Clearly businesses must also be more attuned to the issues of fast population growth when the annual rate is hovering near 2 per cent rather than 1 per cent.
The question is not whether population growth needs to be reduced. It shouldn't. Rather all layers of government need to ask what needs to be done to ensure population planning and infrastructure creation is up to the task.
The appropriate sustainable rate of population will vary from region to region. Recently western Sydney has been raised in the debate on sustainable population growth but numerous regions in other states are recording far stronger rates of population growth.
The issue is one of planning to account for the significant transport, housing, social infrastructure and even geographic differences in each region.
It would be easy for a federal government merely to cut migrant numbers and thus population growth as it would mean less needed to be spent on infrastructure and less time would be allocated to future planning. But with Australia's population ageing and China placing increased demands on our country's natural resources, all it would mean is that the problem is swept under the carpet.
If migration levels aren't increased to meet the demands for skilled labour, effectively activity will be choked off and the economy will be forced to grow at a slower rate.
If the workforce isn't expanded to offset the outflow of retired workers then tax revenue will fall and the community will be forced to come up with other ways to fund the health and social security demands of the population.
Craig James is chief economist at CommSec.
Ross Gittins is on leave.