The current Labor Government’s endorsement of the Big Australia outlook is partially justified by concerns about the impending increase in the proportion of Australia’s population aged 65 plus.

 

Under the assumptions of annual net overseas migration of 180,000 and fertility at current levels, Australia will grow from 22 million in 2010 to 36 million by 2050. About 10 million of this increase will be attributable to migrants and their children born in Australia. The other 4 million will be a consequence of natural increase and will occur even if net overseas migration is zero.

 

Under the Big Australia outlook, the share of Australia’s population aged 65 plus will grow from about 13% now to 22% by 2050. This share will be a little higher with lower migration. Nevertheless population ageing is unavoidable.

 

Another inevitable consequence is a slow-down in the growth of the working-aged population, relative to that of the past decade or so. As a consequence, unless the participation rate of those in the working ages increases, the rate of aggregate economic growth will also slow (assuming there is no change in productivity levels) relative to the recent past.

 

These developments are of great concern to business interests because they will affect the bottom line. The economy and thus individual businesses face potential speed limits, in the sense that the rate of aggregate economic growth may be constrained by the pace of labour force growth (if there is no improvement in productivity).

 

Awareness of this outlook has prompted business lobbying for even higher levels of immigration than those assumed in the Big Australia outlook. It is true that additional migration would lower these speed limits. However, the costs of accommodating the extra population will be very high. There are already serious infrastructure backlogs in all our major cities. In these circumstances the policy response to the ageing phenomena should be directed to alternative solutions.

 

It is important to recognise in this context that Treasury modelling has shown that while higher migration will lead to increases in aggregate economic growth, an increase in migration will have a negligible effect on the level of per capita economic growth. It is the latter which is crucial to the economic wellbeing of the Australian population and thus should be the focus of policy.  

 

Some commentators suggest that it is a frightening prospect that 22% of Australia’s population will be aged 65 plus by 2050. Yet currently, 20% of the German population and 18% of the Swedish population are already aged 65 plus. Both economies are doing well relative to the rest of the developed world, with low levels of government debt to GDP and impressive surpluses in their respective balance of payments, in both cases based on strong export performances. By contrast, the USA with a relatively young population (13% of its population is aged 65 plus) is doing poorly on all of these metrics.

 

The Germans and Swedes have achieved these outcomes through high labour force participation rates, especially in the older age groups (55 plus) and through their attention to workforce training. There is enormous scope for improvement in Australia on both of these policy dimensions. There has already been a sharp increase in labour force participation rates in Australia. For example, for men aged 55-59 the labour force participation was 71.6 % in 2000 and 79.2% in 2009. For women in the same age group the increase over the same period was from 48% to 63%.

 

Our labour force projections indicate that if Australia was to achieve the same level of labour force participation by age group and sex as is currently the case in Sweden, there would be robust labour force growth over the next two decades, even with net overseas migration at half the current level.

As to training, the Australian record is very poor relative to Germany and Sweden. The participation rate of 20-24 year old Australian residents in higher education has hovered around the low level of 25% over the period 2004 to 2010. A substantial increase in this participation rate would provide for most of the expected increase in demand for professional workers over the next couple of decades. 

 

Reliance on high levels of overseas migration is not a clever solution to the impending ageing of Australia’s population. As our economy adjusts towards low labour intensive resource based industries it makes little sense to promote further population expansion in our metropolitan centres. The focus should be on making more productive use of our workforce and capital in industries that are internationally competitive, rather than squandering these resources in city building.