- A smaller Australian population due to COVID-19 will hurt the economy for decades to come, the government’s new Intergenerational Report has warned.
- Unveiling national projections until 2060, Treasurer Josh Frydenberg revealed Australia faces an economic slowdown as it becomes an older and smaller nation, compared to previous outlooks.
- Careful management of future migration will be “key” to combatting that fate, Frydenberg said on Monday, as the government considers flying in skilled migrants on top of existing quarantine caps.
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Australia is becoming a nation of slower economic growth, falling population growth, and staggered migration, Treasury has admitted.
On Monday, Treasurer Josh Frydenberg unveiled Australia’s fifth Intergenerational Report which projects the trajectory of the country over the next 40 years – and the outlook is “sobering”.
The Treasurer said there were “three key insights” to be gleaned from the report, speaking from Melbourne as part of a Centre for Economic Development of Australia (CEDA) event.
“First, our population is growing slower and ageing faster than expected. This will impact economic growth and workforce participation,” Frydenberg said. “Second, the Australian economy will continue to grow but slower than previously thought.”
“Third, while Australia’s debt is sustainable and low by international standards, the ageing of our population will put significant pressure on both revenue and expenditure.”
Naturally, 40-year projections are highly speculative, but the larger trends suggest Australia faces a great many challenges in how it continues to grow following COVID, which was “the most significant economic shock since the Great Depression”.
So far, the recovery has seen early success. Unemployment has fallen to 5.1%, or the same level as in February 2020, before the global pandemic was declared.
“The speed of our recovery to date has exceeded all expectations,” Frydenberg said. [Australia] outperformed all major economies last year.”
While Frydenberg acknowledged the report is “sobering”, he added that the forecasts provide “warning signs and it is up to governments to respond.”
Flying in skilled migrants
The Treasurer used the opportunity to highlight the need for economic reform.
As major skill shortages begin to bite, he hinted that the government could fly in workers to satisfy the country’s most urgent skills shortages.
“We’re already working with the states and the university sector to bring in cohorts of international students …above their existing quarantine cap,” Frydenberg said
“There may be opportunities for skilled migrants to come in as well. That is something that we are thinking through.”
Referencing work done with the ABS, which found that one in four businesses cannot even suitable applicants, the need for workers is clear and growing.
Tech workers are already so scare that companies report exhausting budget and offering a range of fringe benefits to secure talent. Meanwhile Frydenberg suggested the West Australian mining sector has told him it will require an additional 40,000 workers in the coming years.
Those shortages will only worsen as borders remain shut, limiting the growth opportunities of Australian businesses and the broader recovery, forcing up wages as competition ensues for human capital.
Aside from the challenge of bringing those foreign nationals into Australia, the long-term work lies with continuing to attract “the best and the brightest” to Australia. Frydenberg said Australia would need to lure businesses to Australian shores as well, with work already being done to encourage Hong Kong business people to relocate.
The Intergenerational Report makes clear that the way migration, constrained by closed international borders until at least mid-2022, is managed from here on out could be the single largest factor behind Australia’s long term success.
“Migration is going to play a larger part in the overall population growth going from [being responsible for] 60% [of it] to 74%,” Frydenberg said. “Boosting the population in the right way is going to be key for our economic prosperity.”
Crucially, while projections have net migration returning to 235,000 by 2024-25, Frydenberg noted that Australia can never make up those lost three years of net negative growth, with more than half a million people missing as a result.
As a result, Monday’s report is the first of its kind to record a downward revision of a population forecast. Australia is now set to grow to a nation of almost 39 million people by 2060, down from almost 40 million, due to a “lower level of migration resulting from the COVID-19 pandemic and a lower fertility rate.”
“Migration contributes to economic growth and can help offset population ageing. However, migration needs to be managed well to ensure it supports higher living standards,” it concludes.
Significantly, Australia has relied on a steady stream of young workers to offset Australia’s ageing population. Whereas there are now four working age Australians for every one over 65 year old, this ratio will fall to just 2.7 over the next four decades.
As a result, there will be a lower tax base to fund services like healthcare, at the same time there is a greater reliance on it. The government projects it will have to spend $38,360 per person in 2060, compared to just $22,420 today.
Meanwhile, a smaller rate of population growth translates to lower demand for goods and services and the ability to fulfil them.
“Slower population growth and demographic ageing, which reduces participation [in the workforce] mean the economy is projected to grow at a slightly slower pace over the next 40 years than we are accustomed to,” Frydenberg said.
“Real GDP is projected to grow at 2.6% per year over the next 40 years. This compares to 3% over the past 40 years.”
Frydenberg repeated that borders would need to remain closed until the medical advice suggests otherwise. Certainly a botched vaccine rollout hasn’t helped expedite that.
But as the cost of closed borders continues to mount, the the onus is now on the government to stop it from ballooning further and endangering Australia’s future.