Australia is a migration nation, but for how long?

Australia is undoubtedly a migration nation, but as more countries seek to attract a smaller pool of potential migrants, we need to ensure we still attract the skilled workers needed to drive the economy.

A Citizenship Ceremony at the Pennant Hills Community Centre. Picture: Tim Hunter

Australia is well and truly a migration nation.

As a rule of thumb, two thirds of our national population growth come from overseas migration, whereas only a third comes from natural increase (more births than deaths). In the coming decade, Australia is projected to grow by 3.7 million people – 2.5 million of whom will be migrants.

A common argument in Australia is that we take in too many migrants. To explore this idea further, let’s recap why we take in migrants.

More than 40 per cent of our migrant intake are international students. They bring in a lot of cash in enrolment fees – about $30,000 per student, per year. In addition, they create about the same amount of economic impact by acting as consumers and stimulating the broader economy. They overwhelmingly do this in the inner suburbs of our largest cities, as this is where the biggest universities are located.

A Citizenship Ceremony at the Pennant Hills Community Centre. Picture: Tim Hunter

International students underwrite the whole university system.

We could cut student visa numbers, but must be honest about the costs associated with such a move – because, taxpayers (that’s you and me) will be asked to make up the difference. Take away 100,000 international students from our current enrolment base of 780,000, and we must bankroll about $3bn each year. That’s about $200 for each of the 15 million Australian taxpayers. We could do this, but I am not sure if the political will is there to talk openly about the costs. Plus, retail and hospitality in the inner cities, suffering from the continued working-from-home trend, would struggle even more. I have serious doubts that we would massively cut down our fourth-largest export industry. The Australian economy continues to be keen on international students.

The Reserve Bank and many economists are still confused about our low unemployment rate in times of rising interest rates. Traditionally, a rise in interest rates resulted in a big uptick in unemployment, which in turn is deflationary. However, unemployment has only inched upwards, and the reason is a simple one. We keep running out of workers. Australia experiences a prolonged skills shortage because of basic demographics. For the coming decade, the big baby boomer generation will be exiting the workforce, while a smallish Generation Z cohort enters the workforce.

All the while, the millennials continue to make babies. That means the biggest generation goes on parental leave, and at least temporarily, doesn’t add to the workforce. Staff will be hard to come by, which will mean artificial intelligence, robotics, and automation are welcome and give us a fighting chance to counteract the skills shortage. But technology will only get us so far, so we will have to continue to attract workers from overseas to make up the shortfall.

Australia can’t follow the path of Japan, who despite a shrinking population base managed to continue economic growth. Japan runs a hi-tech manufacturing economy and can simply put their factories in foreign nations, use foreign labour outside of Japan and then reimport the profits.

The Australian business model dictates the need for labour in the country. Mining, agriculture, international education, and tourism are the four key ways we make money on the international stage. All four industries require local labour as they must take place in the country.

DAILY TELEGRAPH - Pictured is a Citizenship Ceremony at the Pennant Hills Community Centre today. Picture: Tim Hunter.

OK, international students make us a lot of money, and we need foreign workers to continue to run our economy. Let’s just import them and figure out a way to build enough housing to integrate everyone into the social fabric of Australia, and all is well?

In the short term, that plan can be continued just fine. In the long-run, however, we face a planet that will heavily compete for a shrinking pool of migrants.

We almost exclusively take in migrants aged 18–39. International students are mostly aged in their late teens and early 20s, and we grab skilled workers as young as possible. We want workers on cheap starter wages; want them to pay into their super accounts for as long as possible so that they don’t rely on the pension system; and want them to be productive worker bees driving up the economy for as long as possible.

The global pool of people in that age bracket will start its permanent decline in the mid-2040s. Just when the global elderly population starts to increase rapidly. Around the world, rich nations and rich individuals in poorer countries will compete for migrants.

The aged care and medical systems will demand staff, but even basic consumption-related jobs (cafe workers, hairdressers, retail assistants) will be highly sought after in ageing societies. Migration alongside automation, AI, and robotics will be used to soften the economic pain of a shrinking workforce (in relation to the non-working population).

The competition for migrants will increase. This becomes clear when we dive deeper into the latest global UN population data. The median scenario regarding the working age population is dire enough. All other major global population institutes are convinced that the total population aged 18–39 will be closer to the UN’s low fertility scenario rather than the median scenario. By the 2060s, the difference between the median and low scenarios is as big as 25 per cent, or half a billion people.

That matters to Australia, as it shows that relying on migrants to continue to grow our economy will eventually get harder. Granted, we only need to attract a net of 250,000 new migrants to Australia to continue our current model. It’s conceivable that even while the global migrant-aged population shrinks, we can attract enough migrants. This assumes that Australia remains a desirable destination for migrants (rule of law, freedoms, affordable housing, attractive jobs, nice lifestyle, a socially cohesive society).

As global competition for migrants intensifies, the times of charging migrants exorbitant visa fees will come to an end. By the 2060s, we will likely be handing out generous tax cuts to attract migrant workers. 

For the next two or three decades, Australia will almost certainly continue its current migration strategy of taking in about 250,000 migrants or so. In the long run, we must restructure our economy to ensure fewer human workers can create a higher economic output. Many countries around the world have the same problem, but Australia can buy itself more time than the ageing nations of Europe and Asia have. We should then be able to copy-paste the most successful economic strategies.

Simon Kuestenmacher is co-founder and director of research at The Demographics Group.

Originally published as Australia is a migration nation, but for how long?