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From boom to bust: The Treasurer’s population forecasts

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The Coalition may need to rethink their forecast of Australia's population growth over the coming years (Image by Dan Jensen)

The 2020 Budget will include the biggest reversal in any Australian government’s forecast of population growth — ever.

Hidden away in Appendix A of Budget Paper No. 3, the Treasurer will quietly bury his 2019 Budget forecast of Australia’s population growing from 25.18 million at end 2018 to 26.98 million by end 2022 — an increase of 1.8 million over four years or an average of 450,000 per annum (see Chart 1).

(Source: ABS Cat 3101 and BP 3, App A)

There has been no four-year period in Australia’s history that our population has come close to growing by an average of 450,000 per annum.

This historic forecast population growth underpinned the forecast return to real economic growth of 3 per cent per annum; the Prime Minister’s promise to create 250,000 jobs every year for five years and deliver budget surpluses as far as the eye could see.

Yet this extraordinary population growth was not worthy of mention in the Treasurer’s 2019 “back in black” Budget speech.

How would highlighting this have gone down in the 2019 Election just a month later and after the Prime Minister said only a month earlier that he was cutting immigration to bust congestion?

The population forecasts in the 2019 Budget were never going to be delivered. I called this out in an April 2019 article in The Sydney Morning Herald.

As it turned out, the forecast for the first year in this four-year period (2019 itself) was too high by almost 90,000.

That was before COVID-19 turned the Treasurer’s 2019 forecasts of population growth into scrap.

So what will he forecast for population growth in his 2020 Budget and, more importantly, what will that mean for Australia’s population future?

In the 2019 Budget, the Treasurer forecast Australia’s fertility rate would increase from 1.74 births per woman in 2018 to 1.9 births per woman from 2021. As a result, he also forecast a rapid rise in natural increase (excess of births over deaths) from 147,000 in 2018 to 192,000 in 2022 (see Chart 2).

(Source: ABS Cat 3101 and BP 3, App A)

But on Saturday 19 September, Immigration Minister Alan Tudge quietly released a Treasury report, at last, recognising that Australia’s fertility rate has been declining for almost ten years and will keep declining to a long-term average of 1.62 births per woman.  

On my calculations, Treasury’s 2019 Budget forecast of natural increase over the period 2019-23 will be too high by well over 200,000 — about the size of Hobart.

The 2019 Budget also forecast a sharp rise in net migration despite the Prime Minister confirming a cut to the formal migration program. Note that the migration program measures visas granted while net migration measures long-term and permanent people movements.

Actual net migration for 2019 (pre-COVID-19) was 225,600 compared to a forecast of 271,700 — a shortfall of over 46,000. 

Over the period 2019-2023, the Treasurer will miss his net migration forecast by around 800,000 — more than the population of Canberra and Wollongong combined.

We are likely looking at negative net migration in both 2020 and 2021 if international travel doesn’t resume in 2021.

The 2019 Budget forecast of overall population growth will miss by around a million — and remember, only part of that is due to COVID-19 (see Table 1).

Table 1: Population Growth Forecast in 2019 and Possible for 2020 Budget

(Source: ABS Cat 3101 and BP No.3, App A and author calculations. *Standard budget estimates practice is to assume the last year of the forward estimates continues into the following year.)

The challenge for the Treasurer will be how he deals with this slower population growth and, as a consequence, more rapid population ageing.

As Peter Costello told us years ago, population ageing will put downward pressure on economic growth, per capita economic growth and per capita tax revenue while increasing spending pressure on health, aged care and the age pension. 

The Treasurer will want a more optimistic view of how quickly we return to strong economic growth and a budget surplus.

Universities, the property and construction industry, the business lobby, the tourism industry and most state governments will be urging him to lift net migration.

But the lessons of the 1991 recession show that is more difficult than just inserting some unrealistic assumptions into the Budget Papers. After the 1991 recession, it took almost a decade for net migration to return to the levels of the late 1980s.

During the 1990s and the 2000s, Australia was in its demographic dividend phase when the ratio of working age to total population was rising. Since 2009, Australia has been in its demographic burden phase where this ratio has been declining.

This ratio will keep declining in the 2020s and 2030s. No developed nation has achieved strong economic growth once deep into its demographic burden phase.

The lower fertility rate and lower level of net overseas migration will bring forward the day deaths in Australia exceed births, as is already the case in many developed nations.

Some will celebrate that this means a lesser impact on the environment, carbon emissions and congestion.

All other things equal, that is true.

But the Government will likely use the excuse of weak economic growth and growing government debt to cut back on its already limited environmental ambitions, including cutting back on “green tape”.

The environmental benefits of slower population growth could well be more than offset by poor environmental policies.

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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