No Minister, high immigration will cost us $320 billion

May 29, 2024
Immigration board line

Treasurer Jim Chalmers has chastised Opposition Leader Peter Dutton for proposing temporary cuts to permanent immigration numbers, claiming the 25% cut would cost ‘the budget’ tens of billions of dollars. But the far bigger costs of providing durable assets for immigrants are routinely overlooked, or mis-counted as a plus because they add to the GDP.

Evidently Chalmers, along with most of the political mainstream, thinks we Aussies can’t build our own houses, can’t train our young people, don’t pay enough taxes and can’t even earn our own livings. He says a 25% cut in permanent immigration would cost ‘the economy’ billions and do a lot of damage to the nation’s skills base. Government revenues would also lose billions.

Immigration rates have varied from near zero during the pandemic to over 500,000 last year, and somehow we survived. So Chalmers is playing cheap politics in making a big deal out of Dutton’s proposed 25% cut.

Dutton, for his part, is playing to the widespread perception that housing prices are pushed up by high immigration rates, so he is also politicking. Immigration rates are far from the only cause of high house prices, but it is also disingenuous of many commentators to claim they are irrelevant.

Chalmers’ claim of lost billions in revenue evidently comes from a study by the Grattan Institute, which indicates the proposed cuts would reduce government revenues by $34 billion over the lifetimes of those migrants in Australia (presumably meaning if those migrants had been in Australia). Well that is on the order of $1-2 billion per year, not really worth the fuss Chalmers is making.

Presumably also Chalmers was referring to revenue lost to the federal government, not to all governments in Australia. Overlooked or confused in these slanging matches is the cost to our whole society.

Trent Wiltshire of the Grattan Institute is quoted as saying the long-term benefit to the economy is ‘huge’, including filling skills shortages and improving productivity. When people say ‘the economy’, they usually mean ‘the GDP’. It is true immigration induces a lot of economic activity, and that will be counted as a plus in the GDP. But the GDP is not a measure of wellbeing, even material wellbeing.

GDP counts exchanges that involve money (adjusted to avoid double counting). Somebody is paid, and somebody pays. GDP doesn’t tell you who paid, just that somebody did.

Who pays for much of the economic activity generated by immigration? We do. Each extra person costs us around $500,000 for new houses, shops and public infrastructure (schools, transport etc.) according to Dr. Jane O’Sullivan. Note that this includes both public and private expenditures. They are all costs that our society must cover, one way or another.

The logic of this calculation is straightforward. If the population were steady we would have to replace ‘durable assets’ at a steady rate, let’s say 2% per year. If the population increases by 1% per year then new durable assets have to be built at a rate of 3% per year. Figures are available for annual costs of durable assets and, in this example, around one third of the cost would be to provide for extra people. O’Sullivan’s calculations are a decade old, so likely to be considerable under-estimates by now.

So, we who are here have to pay for the new ‘durable assets’, or put up with under-funded facilities. Hence transport is overcrowded, there is a shortage of housing and back yards are disappearing. There is downward pressure on wages and upward pressure on housing costs.

If we use the old numbers and a moderate permanent immigration rate of 160,000 per year we get $80 billion per year or $320 billion over the four years of forward estimates. Temporary residents also need a roof, food, transport and so on, so this is also likely to be an under-estimate. You could take care of a lot of the needs in our society for that amount.

Studies have shown that immigration does little to change the age profile of the population, so that is a furphy. Anyway if there are more oldies then there are fewer kids to support. Our low birthrate is not the economic disaster it is often portrayed as, it is a secondary issue easily dealt with. In fact countries in eastern Europe and east Asia that already have shrinking populations are doing better than Australia by most economic and wellbeing measures.

High immigration rates are a heavy burden on our society. It is the developer and builder lobbies and the big end of town that try to persuade us otherwise. The cry of ‘skills shortages’ is merely cover for poor education policies. Gutless or captured politicians are the ones who force this unpopular policy upon us.

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