The Government appears to have again postponed the Intergenerational Report to an unspecified later date. But it did update its population assumptions in the 2021 Budget which again highlight its eagerness to get the population rising strongly once international borders re-open.
The revised population projections in the 2021 Budget are in Table 1 below:
Table 1: Population forecasts in 2021 Budget
After the silliness of the 2019 Budget when the Government forecast fertility rising to 1.9 births per woman from 2021, the Government has regained its senses and is now forecasting fertility falling to 1.61 births per woman in 2020-21 (down from a record low of 1.65 births per woman in 2019-20).
As is now the case across most of the world, Australia’s fertility rate is projected to fall further in 2021-22 to a record low 1.58 births per woman but then recover to 1.69 births per woman by 2023-24. This assumed rise in forecast fertility results in a slight rise in natural increase from 2022-23 before it resumes its inevitable downward trend.
Whether Australia’s fertility rate does indeed rise as forecast from 2022-23 is highly uncertain. Changes to childcare subsidies may help but low wages growth and high household debt will not. Less uncertain is that deaths will continue to rise strongly during the decade of the 2020s and 2030s as an increasing number of the early baby boomers pass away. The ABS has projected deaths exceeding 200,000 per annum from the second half of the 2020s. Deaths in 2019 were around 169,000 — the highest to date.
Compared to Treasury’s December 2020 Population Statement, the Government has reduced the forecast for net overseas migration in 2020-21 and 2021-22 to become a larger negative due to international border closures. It results in population growth in 2020-21 of 0.12% and in 2021-22 of 0.16%. These will be amongst the lowest rates of population growth in Australia’s modern history.
Nevertheless, the Government has assumed household consumption expenditure in 2021-22 rising by 5.5% helping to drive down unemployment to 5%, but with a flat to falling participation rate (see Page 37 of Budget Paper 1).
With population barely growing, wages rising at only 1.5% (negative in real terms) and household debt rising strongly, it is not clear where Australians will get the finances to increase household spending at such a phenomenal rate. While extension of the low to middle-income tax offset for another year and a rise in employment will help, it may not be enough.
To kick things along, the Government has increased forecast growth in net overseas migration from 2022-23 onwards to reach Treasury’s new long-term net overseas migration target of 235,000 per annum by 2024-25 — much sooner than forecast in Treasury’s December 2020 Population Statement but still lower than the 268,000 per annum assumed in the 2019 Budget.
The rapid increase in net overseas migration enables the Government to assume population growth rising to 1.26% in 2023-24 and 1.37% in 2024-25.
This is needed to support the Government’s forecast of nominal GDP growth of 5% and real GDP growth of 2.5% in 2024-25. The rapid population growth and associated increase in household spending would be needed to support the Government’s forecast of non-mining business investment booming by 12.5% in 2022-23. Business does not invest at such an extraordinary rate unless it can see a substantial return on investment usually associated with strong aggregate demand.
A high rate of business investment would also support the Government’s long-term forecast productivity growth of 1.5% per annum, almost double the rate of 0.8% per annum in the period 2013-19.
While long-term real economic growth of 2.5% per annum is lower than the fanciful 3% per annum forecast in the 2019 Budget ten-year plan, it is still high enough for the Government to argue it has a plan to gradually reduce government debt and afford to pay for the forthcoming income tax cuts for high-income earners due to start soon after the next election.
But the whole game comes crumbling down if net overseas migration of 235,000 per annum cannot be delivered. Recognising this, Treasury has assumed in its December 2020 Population Statement that the Government will increase the annual migration program to 190,000 per annum.
The Government is unlikely to formally announce this until after the next election (it has to keep relevant parts of its constituency happy and fooled). The costing of the 2021 Budget Measure to extend the four-year wait for access to social security to a wider range of migrants and to a wider range of payments (see Page 179 of Budget Paper 2) suggests a migration program of 190,000 per annum has been used for 2023-24 and certainly for 2024-25 where budget savings of $436.2 million have been forecast.
Even an increased migration program of 190,000 per annum, however, will not be enough to get a net overseas migration outcome of 235,000 per annum. Other changes will be needed, particularly in terms of overseas students and skilled temporary entrants to offset the inevitable and permanent decline in students and migration from China (due to the dogs of war). It will also require a very strong labour market at a time Australia’s population and that of our major trading partners is ageing rapidly and heading towards ongoing decline.
Putting in place a sensible set of policies to get to net overseas migration of 235,000 per annum will not be straightforward.
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