Population growth fuels GDP rise, but lowers living standards: CBA economist

While Australia celebrates 25 years of economic growth, or an expansion in GDP, one economist says the story is different for the average household as an increase in population takes a toll on living standards.

Commonwealth Bank senior economist Gareth Aird says in a report produced by the bank’s economics team that the focus on the headline GDP number is misleading, and a better measure would be the per capita growth.

Aird said while the focus on immigration has boosted consumption because “more people means more spending”, and hence GDP growth, population growth creates problems like overcrowding, traffic congestion and high housing costs.

The latest gross domestic product (GDP) figures for the June quarter, released in September, showed the economy growing at an annual pace of 3.3 percent.

"Despite the fact that the economy's growing at what looks like a healthy clip on the surface, the way that transfers to how households feel at the moment suggests that things aren't too crash," Aird was quoted by ABC.

Aird said the headline GDP figure ignores population growth, which automatically grows the economy but not the standard of living.

“If you've got more people, you've got more spending," he said in an interview for RN Breakfast.

“But what really matters for households is not the overall growth rate of the economy but how their incomes are growing."

He said a better measure for this purpose is real net national disposable income (RNNDI) per capita, which more closely reflects the income going to households and their capacity to buy goods and services.

Unlike GDP, which has been boosted by the rising volume of mining exports even though prices for those exports have slumped, RNNDI has been hit hard, and has been going backwards for most of the past five years when looked at per person.

He said governments focus more on GDP growth because it “benefits businesses that can take advantage of an ever growing population, or customer base if you like”. 

One of the economic arguments that has been used to support current immigration rates has been that it helps offset an ageing population.

However, the CBA report said this is only "kicking the can down the road", with the current working age migrants themselves ageing and leaving the workforce 20, 30 or 40 years from now.

Although Aird did point out the benefits to the Australian economy from immigration.

"If you look at the historical experience of Australia, there has absolutely been benefits to having pretty strong population growth," he said.

"But I think more recently we've seen some of the indicators suggest that those benefits are probably starting to wane and unless there's a commensurate lift in public investment, a look at housing affordability more broadly ... then I think the benefits to running a strong immigration program are questionable."

He said to make migration work, governments should also focus on building infrastructure such as more affordable transport and housing.