Questions for the Treasurer on his early Intergenerational Report

With a new Intergenerational Report being released three years early, questions are being raised as to the Treasurer's motives. Dr Abul Rizvi analyses possible reasons for the report's premature release.

*Also listen to the audio version of this article on Spotify HERE.

TREASURER Jim Chalmers will release an Intergenerational Report (IGR) this Thursday 24 August. This is only two years after former Treasurer Josh Frydenberg released his IGR in June 2021.

But why has Chalmers brought forward an IGR so soon when the Charter of Budget Honesty only requires an IGR to be produced every five years?

One possible reason is that he wants to give Australians a more realistic picture of our future than Frydenberg was prepared to do. Media reports indicate Chalmers will reduce the crucial productivity growth assumption from the totally unrealistic 1.5% per annum Frydenberg used to a slightly more realistic, but still very optimistic, 1.2% per annum.

Once deep into the demographic burden phase (when the aged population is growing much faster than the working-age population), no developed nation has been able to sustain an average productivity growth rate of 1.2% per annum.

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As every economist will tell you, the rate of productivity growth is central to business profitability; growing real wages and thus living standards; as well as being able to afford the massive budget costs associated with an ageing population. Very old populations produce not only lower productivity growth but also lower per capita tax revenue and require higher spending on health, aged care and pensions.

By using the still optimistic productivity growth assumption of 1.2% per annum, the Treasurer will be able to highlight the massive pressures on the Commonwealth (and state) budgets from an ageing population. Will he then use that to argue the Stage 3 tax cuts must be either abandoned or modified because his IGR will prove they are patently unaffordable?

The other reason the Treasurer may have brought forward the IGR is to counter a scare campaign being put forward by the Coalition (and parts of the Murdoch press) that the Albanese Government is pursuing a “Big Australia” policy by stealth.

The Treasurer will try to blunt that argument by using the same fertility and net migration assumptions that Frydenberg used in his IGR (a fertility rate of around 1.6 births per woman and a net migration assumption of 235,000 per annum).

The “Big Australia” furore has been caused largely because of the massive blowout in net migration in 2022-23 compared to Treasury’s original forecasts. But that blowout was far more due to poor forecasting by Treasury than any immigration policy changes introduced by the Albanese Government.

The surge in net migration in 2022 and 2022-23 would have occurred whichever party was in power, based on policy settings put in place during the pandemic.

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We will never know if the Coalition Government had plans to tighten immigration policy to get net migration down to an average of 235,000 per annum. If anything, the Coalition would have responded more quickly to employer complaints about labour shortages in 2022 by further loosening immigration policy settings.

Indeed, there were policies the Coalition was already pursuing that would have led to an even bigger blowout in net migration such as Nationals Leader David Littleproud’s naïve Agricultural Visa — Australia dodged a bullet with the Albanese Government’s decision to abolish that visa.

But what will the Albanese Government do to get net migration down to a long-term average of 235,000 per annum?

On current policy settings, net migration would be well above 235,000 per annum outside a major recession. Surely, Chalmers will not be relying on a major recession to reduce net migration.

The Parkinson Review made a number of recommendations to tighten immigration policy that could get net migration down to 235,000 per annum. There are rumours we may know more about the details of the possible changes, particularly in relation to student and temporary graduate visa policy as well as the special COVID visa, in September. There is then the question of when the changes will be introduced and how effective they will be.

The really interesting issue will be whether the Treasurer considers the 235,000 net migration assumption a long-term target that the Government aims to deliver (with fluctuations above and below that level from year to year) and whether government agencies will use it to do their planning; or is it just an assumption made up by Treasury bureaucrats which can safely be ignored?

If it is the former, shouldn’t the Government have commissioned research that demonstrates the 235,000 net migration level has a strong evidentiary basis in terms of long-term benefit to Australia? If it is just the latter, it will leave most Australians justifiably disappointed.

*This article is also available on audio here:

Dr Abul Rizvi is an Independent Australia columnist and a former Deputy Secretary of the Department of Immigration. You can follow Abul on Twitter @RizviAbul.