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Economic recovery post-COVID-19 looks dire without a healthy migrant population

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Migrant workers are significant contributors to Australia's economic wellbeing (Image via Youtube)

Australia's economic future will suffer post-COVID-19 if predicted falling migration numbers prevail, writes Abul Rizvi.

THE CORONAVIRUS crisis brings to an end 20 years of high migration to Australia. On current policy settings, net migration in 2020 and 2021 will be close to zero, if not in negative figures.

If significant numbers of long-term temporary entrants in Australia follow the Coalition Government’s instruction to "go home", and are able to do so, net migration could be a very large negative. It is unlikely to recover quickly as border restrictions may only be gradually eased from 2021. History shows us net migration recovers only very gradually after a deep recession or depression.

Contrary to forecasts in the 2019 Budget, net migration in 2020 will not rise to 271,000 and average 268,000 for the period 2019-22. It was already falling in the second half of 2019 off a lower base.

The fertility rate will not rise to 1.9 babies per woman as forecast in the 2019 Budget — it had already fallen to 1.74 babies per woman in 2018. Early indications are that fertility fell further in 2019 and possibly below 1.7 babies per woman. The coronavirus crisis will push the fertility rate down further, as has been the case in past recessions, both in Australia and overseas.

Australia is looking at the biggest turning point in its population history — bigger than the Great Depression. But how far will net migration fall and what does that mean for Australia’s population future?

An estimate of temporary entrants by end December 2020

Including NZ citizens and visitors, there were 2.4 million temporary entrants in Australia at end-December 2019. This follows a steady growth for over 20 years.

Minister for Population, Cities and Urban Infrastructure Alan Tudge announced in early April 2020 that the number of temporary entrants had fallen to 2.17 million, with some visa categories falling while others increased.

There are a further 60,000 overstayers who are not included in the above figuring. The number of overstayers may rise as various temporary entry visa applicants – including over 100,000 onshore asylum seekers who have arrived on tourist visas in recent years – are refused but cannot depart Australia.

The key public policy question is what will happen to the 2.17 million temporary entrants in Australia at end-March 2020 by end-December 2020? 

I have prepared a detailed analysis of this with results summarised in Table 1 below:

Table 1: Temporary Entrants in Australia

*Bridging visa holders are onshore applicants for further visas yet to be processed. The estimated 279,000 bridging visa holders in March 2020 surpasses the previous record of around 230,000 (Source: data.gov.au Temporary Entrants in Australia, Visa Statistics and Media Release Home Affairs)

Key questions relating to Table 1 are:

  1. How many temporary entrants will either find a job or some other form of support?
  2. How many will become destitute because they resist leaving Australia for as long as possible, using up any savings they have and/or won’t have enough money to afford tickets to leave? 
  3. How many will be able to find flights and afford the skyrocketing ticket prices to get home?

Given the forecast weak labour market during the rest of 2020, a substantial portion of the 1.82 million temporary entrants forecast to be in Australia at end December 2020 are likely to be unemployed and reliant on charity to survive. If just over 70% are employed or have some form of support, including all remaining NZ citizens, that would still leave over 500,000 people reliant on charity.

At that level, it is likely governments will either assist people to depart or provide some form of social support to ease pressure on charities. The Morrison Government cannot continue to ignore an additional 500,000 people becoming destitute.

Net migration

Of the 612,000 forecast decline in the number of temporary entrants in Australia during 2020, only those who were in Australia long-term (that is, 12 months or more over the past 16 months) will be counted as a net migration departure. And that is only if they subsequently stay out of Australia for the following 12 out of 16 months.

The significance of this is that changes in net migration are how the ABS counts the contribution of immigration to population change in Australia.

Of the 485,000 forecast decline in the number of visitors in Australia during 2020, only a small portion will be counted as a net migration departure — perhaps as little as 5%.

In addition, there will be further arrivals of Australian citizens, existing permanent residents and new permanent residents (that is, people who secure a new permanent resident visa offshore and then travel to Australia if they can) over the rest of 2020. These people are not counted in the temporary entrant figures in Table 1 but are included in net migration arrivals.

On the other hand, it is highly likely the Government will cut back on formal migration and humanitarian programs from 2020, as governments have done so during each recession for the past 50 years. Moreover, there will be few, if any, additional temporary entrants for the rest of 2020 and perhaps also much of 2021.

The overall impact is likely to be a net migration outcome in 2020 – and possibly also 2021 – that is close to zero and more likely negative. This would particularly be the case if the Government decides to assist long-term temporary entrants who become destitute to leave Australia.

What does that mean for long-term population directions?

If the Great Depression and the recession of the early 1990s are any indications, both net migration and the fertility rate will remain low for the rest of the current decade.

While net migration will gradually recover after 2020-21, the combination of a weak economy and immigration policy settings that had already been driving down net migration in the second half of 2019, will ensure net migration in the decade of the 2020s will be well below that of the past 20 years.

    Source: ABS Cat 3222

The ABS’ Series B in Chart 1 reflects a fertility rate of 1.8 babies per woman and net migration of 225,000 per annum. It would result in the population growth rate steadily falling from 1.6% per annum (or over 400,000) to 0.8% per annum (or less than 350,000) by 2066. 

While the net migration and fertility assumptions in Series B are both significantly above those used in the 2019 Budget and in Treasurer Josh Frydenberg’s ten-year budget plan, even Series B is now totally implausible.

Series C in Chart 1 assumes a fertility rate of 1.65 babies per woman — most likely still on the high side. It also assumes net migration of 175,000 per annum — also on the high side if economic growth remains weak.

Net migration was around 180,000 per annum during the Abbott Government, even though immigration policy settings were highly facilitative; the low net migration outcome in those years was the impact of a weak economy and a weak labour market.

Series C would result in the population growth rate falling to 0.5% per annum (less than 200,000) by 2066 and natural increase becoming negative later in the century (that is, positive net migration would be needed to prevent the population going into absolute decline).

The zero net migration option would lead to Australia’s population peaking in the mid-2030s and then declining to 23.8 million by 2066, and continuing to decline after that at an accelerating rate.

In terms of population ageing (see Chart 2), Series B would see the portion of the population 65+ rising from 15.6% in 2018 to 20.9% in 2066.

Series C, with its more plausible fertility and net migration assumptions, would result in the portion of population 65+ rising to 23.0%. The zero net migration option – including fertility at 1.65 babies per woman – would lead to the population 65-plus peaking at around 30% by 2060. That would be around five percentage points higher than the current situation in Japan.

  Source: ABS Cat 3222

Drawing on the consensus research findings, a higher rate of ageing would, all other things equal, lead to lower employment to population ratio, slow productivity growth, weak private consumption and insipid levels of business investment.

That would be similar to the last decade when the working-age to population ratio of all developed economies had simultaneously been in decline. It would make it impossible for the Government to maintain its already quite unrealistic – and largely election-driven – forecast of real GDP growing at 3% per annum for the decade of the 2020s.

Forecast economic growth rates for the decade of the 2020s are likely to be closer to those used in earlier intergenerational reports — that is, 2% in the 2002 Report (Costello); 2.3% in the 2007 Report (Costello) and 2.5% in the 2010 Report (Swan). The 2.7% assumed in the 2015 Report (Hockey) also appears highly optimistic.

A faster rate of population ageing would also reduce per capita income tax, GST and company tax collections. At the same time, the ageing population would be putting upwards pressure on government expenditure, particularly health and aged care. The ongoing surpluses forecast in the 2019 Budget ten-year plan were silly to begin with and are now simply ridiculous.

The idea of repaying government debt, if not already a fantasy, would become a pipe dream.

It should be noted the decade of the 2020s will be the second successive decade in which the working-age to population ratio of all developed nations – plus China and Russia – will simultaneously be in decline.

In modern history, the developed world has never before experienced two successive decades of simultaneous population ageing.

For an open trading economy such as Australia, that represents a further obstacle to any return to positive per capita economic growth.

Abul Rizvi is an Independent Australia columnist and a former Deputy Secretary of the Department of Immigration, currently undertaking a PhD on Australia’s immigration policies. You can follow Abul on Twitter @RizviAbul.

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