Treasury stops pretending Australia’s fertility rate will rise

The Morrison Government's latest Economic Statement indicates that it has now accepted Australia's fertility is in decline, writes Abul Rizvi.

The headlines are focusing on the forecast for population growth rate forecast for 2020-21 being the lowest since 1916-17 and net overseas migration being the lowest since 1975-76. But the really significant long-term development from the Government’s Economic Statement is that the Treasurer and his Department have stopped pretending Australia’s fertility rate will rise and now accept it is falling and will fall further (see Chart 1 below).

The Government may also now abandon its studious avoidance of the population ageing issue reflected in its 2019 Budget and ten-year plan.

As I have said before, it was always highly unlikely Australia’s fertility rate would rise to 1.9 babies per woman as forecast in the 2019 Budget. Treasury is now using the cover of COVID-19 to avoid accountability for this.

Treasury knows that Australia’s fertility rate is likely to fall below 1.7 babies per woman. In the next few years, this may fall below 1.6 babies per woman if high rates of unemployment, low wages growth and poor policy support for families wanting to have children continue.

Indeed, it is possible Australia may fall into the "low fertility trap" along with many other developed nations already in that trap.

The low fertility trap has three dimensions:

Population ageing associated with low fertility itself reduces the number of potential mothers and keeps fertility low;
The ideal family size is linked to the smaller family size of previous cohorts – the children of the baby boomers have increasingly adopted smaller families – this is likely to continue; and
Fertility is the result of aspirations and expected income – as aspirations rise while the expected income of younger cohorts falls, low fertility is further reinforced. Government policy supporting families is also relevant to this.

All three factors result in a downwards spiral in fertility.

Population ageing could be affecting Australia’s economic performance

The ageing of Australia's population is having negative impacts on our economic growth and productivity.

The result of persistently low fertility is best highlighted in Japan, where massive efforts to increase fertility have largely failed — Japan’s fertility rate in 2018 was 1.42 babies per woman and is reported to have fallen further in 2019.

As a result of this and Japan’s low rate of immigration, its median age is now an extraordinary 47 compared to Australia’s 37. The economic and budgetary consequences of ageing in Japan have been severe.

That South Korea’s fertility rate reached an unbelievable 0.92 babies per woman in 2019, after being 0.98 babies per woman in 2018, shows what can happen if governments fail to act effectively on this crucial issue. This level of fertility, combined with its median age now being over 43, means South Korea faces an extraordinary rate of population ageing before its total population goes into rapid decline — a rate of population decline that may eventually be even steeper than that of Japan.

The Morrison Government's recent decision to withdraw support for childcare is an example of a government that is not paying attention to the long-term impact of low fertility and population ageing.

The other factor driving population ageing is the level and composition of net overseas migration.

The Government is now forecasting net overseas migration in 2020-21 will be around 31,000. But even that may be optimistic as it relies on international borders opening in January and a significant surge in overseas student arrivals. That is assumed to support universities suffering from a loss of revenue from student fees and the Government denying them access to JobKeeper.

Praise and regret for the casual worker

With the changing face of our economy during the COVID-19 pandemic comes a new respect for the casual workforce.

If international borders do not re-open from January 2021, net overseas migration may reflect the level of people movement in the three months to June 2020. Over the three months to June 2020, aggregate net movements were negative 72,310. That includes a net increase in returning Australian citizens.

While not all of these movements would have impacted net overseas migration because they did not meet the 12 months out of 16 months rule, the movements in later months will have increasingly impacted net overseas migration as students complete their studies and leave Australia if they are unable to secure a post-study job and have limited means of survival.

This negative net movement trend will likely continue at least until international borders are re-opened as more and more unemployed temporary entrants find they are unable to survive on charity.

In the longer-term, net overseas migration will recover but will not reach the extraordinary levels forecast in the 2019 Budget. On my calculations, net overseas migration is unlikely to reach much above 175,000 per annum. That is around 100,000 per annum less than forecast in the 2019 Budget.

Combined with declining fertility, that means Australia’s population will age much more rapidly than the assumptions in the 2019 Budget would have delivered.

As the experience of Japan shows, that has long-term economic and budget costs which suggest talk of "repaying government debt" is just a fantasy, as is the Prime Minister’s aspiration of average annual real economic growth of 3.75 per cent.

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.