Is Treasury driving the ‘Big Australia’ debate?

May 9, 2023
People walking on the busy Pitt Street retail area in Sydney during the boxing day sales

As the two major parties continue to debate which of them is pursing a policy of ‘big Australia’, Treasury has quietly forced both of them to accept its preferred long-term net migration target of 235,000 per annum – net migration, that is the difference between long-term arrivals and departures, is the key driver of Australia’s population.

In the 2019 ‘back in black’ Budget that included a ten year plan to show the Stage 3 tax cuts were affordable, Treasury used a long-term net migration assumption of 268,000 per annum as well as an extraordinary increase in the long-term fertility rate from 1.6 to 1.9 births per woman. Treasurer Frydenberg was using rapid population growth to underpin his assumption of rapid economic growth and associated revenue growth to show budget surpluses as far as the eye could see, even after the Stage 3 tax cuts.

Neither the net migration nor the fertility rate forecasts were realised in the next few years, particularly due to the pandemic. And while Treasury has abandoned its dream of Australia’s fertility rate rising to 1.9 births per woman, it soon decided Australia’s long-term net migration should be 235,000 per annum.

In his 2020 Population Statement, former Minister for Population, Cities and Urban Infrastructure, Alan Tudge, signed off on Treasury’s new preferred, long-term net migration assumption of 235,000 per annum. Treasury very accurately said “Australia’s historically low fertility rate is below replacement levels. If there were no future migration, and no lift in our current fertility trends, then our population would start to shrink within one generation.”

In the 2021 Population Statement signed off by Assistant Treasurer Michael Sukkar, Treasury doubles down on 235,000 per annum being its preferred long-term net migration assumption from 2024-25 through to 2031-32.

Treasury said the 235,000 assumption was “based on historical averages and adjusted to reflect government policy. The assumption reflects the contribution of 4 distinct migration groupings that cover all arrivals and departures through time:

  • the contribution of the Government’s planning levels of the permanent (190,000 people per year from 2023-24) and humanitarian migration (13,750 people per year) programs to migrant arrivals— these migration planning levels are revised by the Government on a yearly basis
  • the flows of arriving and departing temporary migrants who reside in Australia for several years but never transition to permanent residency (a net inflow of 66,000 people per year)
  • the flows of departing and returning Australia citizens (a net outflow of 15,000 people per year), and
  • the number of permanent residents who subsequently emigrate (a net outflow of 20,000 people per year)”.

The Coalition’s last Budget in March 2022, signed off by Treasurer Frydenberg and Finance Minister Simon Birmingham, again confirmed Treasury’s long-term net migration assumption of 235,000 per annum.

The Albanese Government’s first Budget in October 2022 announced that the annual migration program (the number of permanent visas issued) would be increased from 160,000 per annum to 195,000 per annum. But Treasury’s long-term net migration assumption of 235,000 per annum, which would now start from 2022-23, remained unchanged. In other words, Treasury was saying that a 35,000 place increase in the migration program, which counts permanent visas granted and not actual long-term people movements as net migration does, would have zero impact on long-term net migration. This was confirmed by Treasurer Jim Chalmers in his 2022 Population Statement.

Since then, we have seen a massive blow out in net migration in 2022. That was completely unanticipated by Treasury even though the blow out was a function of covid era migration policy settings put in place by the Coalition (and retained by Labor) and a hot labour market. As a result, Treasury has recently increased its net migration forecast for 2022-23 to 400,000 – on my calculations a significant over-correction.

But reports in the Sydney Morning Herald suggest that in the forthcoming May Budget, Treasury will again revert to its long-term net migration assumption of 235,000 per annum. That will be despite removal of covid era migration policy settings; Treasury’s own forecast of a significantly weakening labour market and implementation of the Parkinson Review, the biggest tightening of migration policy in over a decade.

It seems that net migration of 235,000 per annum is not so much a Treasury forecast but its preferred target almost irrespective of the Government’s immigration policy settings.

Long-term net migration of 235,000 per annum would ensure, all other things equal, that Australia’s population would continue to grow well beyond this century, albeit increasingly more slowly. It would slow the rate of population ageing and ensure Australia remained one of the youngest developed nations on the planet.

That is ideal from a macroeconomic perspective but there are many other factors that need to be considered.

A very large portion of that net migration would inevitably be driven by overseas students who are crucial to the economies of all our major cities, including regional cities. Many Australian businesses are heavily reliant on overseas students, both as workers and consumers, which is why that program must be better managed.

There is nothing wrong with Treasury promoting adoption of a long-term net migration target. I have also long supported the Government doing that.

That should, however, be developed based on a thorough Government initiated process that leads to a net migration target that is publicly endorsed and explained by the Government, not determined by Treasury boffins. Moreover, forecasts of net migration, which would still fluctuate through the economic cycle, should be based on an analysis of policy and not some average of the past that Treasury likes the look of.

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