Migrants key to replacing baby boomers

THERE is much angst about the projection of the Australian population to 35 million in the recently updated intergenerational report.

But as regular readers of this column will know, the projection figures are not new.

In September last year, the Australian Bureau of Statistics updated its projections for the states and capital cities based on the results of the 2006 census.

These projections showed the national population at 35 million in 2056. The intergenerational report has the population at 35 million by 2049.

The notion of Australia growing to 35 million by mid-century has been around for 12 months. Within weeks of this outlook first being released last year I explained that the implications were profound.

I said that all metropolitan plans developed in the previous five years had to be rethought. In the interim, Melbourne 2030 has been recast as Melbourne @ 5 Million. Adelaide has a new 30-year plan. And southeast Queensland has a new regional plan. All of these new city visions are based on the revised outlook for a faster-growing nation.

The building blocks for all metropolitan and coastal strategic plans are population projections that can be, and are, updated regularly. Another new outlook for the nation will be released in 2013, when the results of the 2011 census are known. However, I do not expect the same paradigm shift in these projections as there has been between the current projections and those based on the 2001 census.

The reason is that Australia, and I suspect the rest of the developed world, has entered or will soon enter a phase of heightened population growth. Although current population projections for Australia outstrip projections for other nations, such as the US and Canada, those two will surely revise their outlooks in due course.

The developed world is moving out of a 50-year phase in which the worker base expanded because more workers have been entering than leaving the workforce. This baby-boom equation delivered prosperity on so many levels. More workers meant more consumption, more people competing for property, and - importantly - more tax.

In addition to the issue of the baby bust eroding the taxpayer base, navigating the global financial crisis has resulted in additional debt. Someone has to repay the double lot of $10 billion that spread so much cheer during the depths of the economic crisis.

The challenge to repay this debt in the coming decade will be tough enough. But because the tax base will be eroded at the same time while baby boomers leave the workforce, the options will be especially limited.

Either Generation X and Generation Y workers must pay more tax (not a popular option) or baby boomers could restrain their demands for government services such as healthcare and pensions in retirement (also unlikely).

The third and politically preferred option is to expand the tax base by increasing migration. This option is preferred because the fallout from strong growth will be judged to be less than the fallout from a diminished tax base. This fundamental tax-based demographic logic will apply to other Western nations just as it applies to Australia.

Make no mistake: we will be competing with other Western nations for the net addition of 180,000 migrants per year that is at the heart of Australia's revised projections (up from 110,000 per year).

Indeed, I would say that recruiting workers (and students who turn into workers) from overseas must remain one of this nation's growth industries over the next 20 years.

There is, of course, a sizeable and growing body of opinion that argues that the projected growth is environmentally unsustainable. This may well be the case. However, if Australia is to adopt a slower-growth (let alone a no-growth) trajectory, its people and its politicians will need to think differently.

Perhaps those who advocate slow growth or no growth could begin by outlining precisely where they would cut spending to compensate for a slower-growing or even contracting tax base.

Fewer workers (because of exiting baby boomers) and higher debt (because of stimulus spending to offset the impact of the global financial crisis) is not a good start to the new decade.

And this is especially the case if there is a rising anti-growth segment that does not make the connection between this nation's addiction to public (and private) spending and a projected diminished capacity to generate tax.

The other option is to convince middle Australia to make do with less. I have a lot of sympathy for the view that at some point there needs to be a break in the upward spiral of consumption. But I suspect retiring baby boomers will be demanding more, not less, in retirement.

Politicians and bureaucrats most likely already understand the need for a rising tax base next decade. So there will be much public head-nodding in sympathy with those espousing the anti-growth sentiment, but in reality the fast-growth strategy will be pursued for decades to come.

Bernard Salt is a KPMG partner   [e-mail]  

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