Finding the sweet spot for migration: A healthy the labour force, supporting population growth

As the nation’s political parties battle it out for votes with their migration policies, one economist has said that determining the optimal migration policy is not easy – something that parties have been navigating for years on end.

“Australia really has battled with what is the optimal population, optimal rate of migration; that’s been a very long-term discussion,” Ivan Colhoun (pictured), CreditorWatch chief economist, told Accounting Times.

“Immigration is quite a hot topic at the moment. I think it reflects the housing debate, and also [the fact that] we’ve had very high inflation for many years, as lots of other countries have around the world.”

The direction of Australia’s migration policy is currently in the hands of the Labor Party, the Coalition, and One Nation, with each party calling for a varying level of cuts to migration.

One Nation plans to cut temporary visas by 750,000, for net negative migration for three years, and a strict 130,000 net migration cap.

The Labor Party aims to deliver the Budget’s net overseas migration forecast of 245,000 this financial year and reduce it to 225,000 in 2027–28.

All while the coalition will cut net overseas migration to 100,000 and cut temporary visas by 650,000 over four years.

“Very rapid population growth isn’t particularly new (or unique to Australia). It has been occurring since the peak of the Mining boom, i.e. for over 15 years, interrupted only by COVID-19, with net overseas migration the dominant driver,” Colhoun said.

“Net overseas migration is very hard to control because it’s a net figure – inward migration less outward migration – and obviously you can only control the inward migration.”

“If not many Australians leave, you might still get quite a higher net overseas migration figure; if lots leave, you might get a very low one – there’s a bit of lack of control, but you can control the inward migration part of it.”

Someone to blame

“When you have shocks such as high inflation, people look for someone or something to blame. And I think the government is someone you can blame, and immigration can be something that’s blamed as well,” Colhoun said.

“The decision to reduce immigration has been conscious. Because of concerns about housing vacancy rates, house prices, and then, more broadly, there’s this rise in One Nation, the shift to the right in politics, amongst some parts of coalition voters, some parts of national voters, and some young voters that are finding the housing market difficult to access and are looking again for someone to blame for that,” he said.

While population levels are higher than if COVID-19 never happened, the pre-COVID-19 population growth trend has been maintained.

“The difference isn’t huge – about 65,000 higher than pre-COVID-19 trend levels (0.2 per cent),” Colhoun said.

“A related and important aspect is that many households splintered into smaller households during COVID-19, reducing the vacancy rate even at a time of low immigration.”

“Interestingly, residential vacancy rates are already beginning to rise across the country, though remain below pre-COVID-19 levels in Perth, Sydney, Brisbane and Darwin. This will help moderate rent growth over time.”

Accommodating migration

“Australia has really had a lot of immigration for many, many years. It’s been part of the success story of Australia’s multiculturalism,” Colhoun said.

“There’s nothing wrong with fast migration as long as you can accommodate the very strong growth in migration. If we need lots of builders, or we need lots of care workers, then you could say we might have to have faster population growth rates?”

In economic terms, real global domestic product (GDP) is dependent on population, productivity, and participation.

“If you increase population growth, by and large, you will get stronger GDP growth. If you [decrease] population growth, you all get slower GDP growth. That’s one way the rate of migration impacts the economy,” he said.

“The economy grows faster to the extent there is stronger population growth. That would typically be a good thing for small businesses because revenue would be higher.”

The impacts of population growth on the economy would be a stronger workforce.

“The other aspect of population growth is that the people that come here can add to labour supply,” Colhoun said.

“You can tilt migration settings to find skilled workers in sectors that we want, such as nurses, more aged care workers, or more builders, or more computer technicians, or more engineers.”

“The flip side of that is, if you cut migration, then you will see slower economic growth.”