Peter Costello warns of the dangers of high immigration

Outgoing Future Fund chair Peter Costello says the level of immigration needs to be managed carefully, as the current migrant intake is supporting economic growth but also putting pressure on inflation through the rental market.

Amid ongoing political debate about a surge in Australia’s population, Costello, the treasurer in the Howard government, on Monday said businesses were generally strong supporters of immigration because it helped create a larger market and increased the potential pool of workers.

Outgoing Future Fund chairman Peter Costello at the UBS Australasia conference on Monday in Sydney.Credit: Dominic Lorrimer

However, Costello told a UBS conference in Sydney the high immigration numbers were also putting pressure on infrastructure and inflation.

“Australia has always been a migrant country and I’ve always supported immigration. But the levels of immigration now are extremely high,” said Costello, who is also the chairman of this masthead’s owner, Nine Entertainment.

Costello said the exact numbers on immigration were not yet known (the latest official data on population growth covers the year to March), but it was possible that 500,000 or 600,000 people came into Australia last year.

“In my day we were, 120 [thousand]. Now that is an enormous adjustment for an economy, to bring in 500,000 to 600,000 people.”

Immigration Minister Andrew Giles.Credit: Alex Ellinghausen

He said immigration at that level could mean building roughly another 200,000 homes. “I’m pro-immigration, but I think it’s very, very important that we do it in a gradualised way, rather than have these huge licks which are putting pressure on the housing market.”

Net overseas migration has surged in the past year as international students returned to Australia following COVID-19 border restrictions, sparking political debate. The Coalition has taken aim at Labor over the increase, linking it to housing shortages and rising rents.

Immigration Minister Andrew Giles last week backed a “considered” debate on the topic, and said the country needed migrants to build homes.

Market economists from banks including HSBC and the Commonwealth Bank have also said the strong increase in population is adding to inflationary pressure in the short term. The Reserve Bank on Friday said population growth, expansion in national income, and a decrease in the average household size were all feeding into high rent inflation, which would remain “elevated for some time.”

‘Remember this: once [Future Fund money] is spent, it is gone.’

Future Fund chairman Peter Costello

Costello has chaired the Future Fund since 2014 and has said he will not seek reappointment when his current term ends next year. The taxpayer-owned fund, which started in 2006, was set up to help pay for future government liabilities such as public sector pensions, and it now manages more than $200 billion.

In his speech on Monday, Costello predicted there would be growing calls to spend the Future Fund as the government faced pressures on its budget and the population aged over the coming decades. But he argued that Future Fund directors, who are officially called “guardians”, had a duty to guard the fund’s legacy against “foolhardy” schemes to spend the fund’s money.

“As the government’s financial position declines, I expect we will see more plans to spend it. It would be a way of favouring current voters over future voters, the ones who are not voting yet,” Costello said. “But remember this: once it is spent it is gone.”

He said the fund was the biggest asset on the Commonwealth budget, arguing that once the money was spent, there would be nothing to offset the growing liabilities of debt and unfunded pensions, and Australia’s financial position would become “more precarious.”

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