Big Australia to give way to Huge Australia: Pete Wargent

I recently looked here at how Australia's population increased from just 15 million in 1981 to more than 23.75 million today.

If you look closely you will see that the rate of population growth began to accelerate through the mining boom.

Last week saw the Treasury release of the fourth Intergenerational Report ("IGR") which showed Australia's population as being projected to increase to just shy of 40 million over the next four decades.

However, as I wrote in this blog post last week, the report seemed to be based upon a number of dubious assumptions and the projections in my opinion seemed far too low.

Why these projections are too low

In the absence of immigration, as life expectancies increases Australia would be set to be characterised by a problematic ageing population.

By 2055, life expectancy at birth is projected to be more than 95 years for men and more than 96 years for women, while there are projected to be approximately 40,000 people aged over 100, which is a huge increase.

A greater proportion of the population will also be aged 65 and over and the number of Aussies in this age group is projected to more than double by 2055 compared with today.

Given this it seems most unusual that the projections used in the IGR were based upon net overseas migration gently sliding all the way back down to just 0.5% per annum as a%age of the population over time.

Trend is up 

Successive IGRs have seen assumptions around net overseas migration increase.

In the 2002 report, the long-term net overseas migration assumption was just 90,000 persons per, by the 2007 report the assumption was 110,000, and by the 2010 report, the assumption was up to 180,000.

For the central scenario presented in the 2015 Intergenerational Report net overseas migration has been assumed to be 215,000 per annum from FY2019.

This takes the population projections for 2050 to be some 1.9 million higher than the 35 million figure which prompted the original "Big Australia" debate.

And this figure for net overseas migration is expected to stay at a constant 215,000 for the full 40 years considered by the IGR, which is unrealistically low.

There is also a case to be made for the forecast fertility rates being stunted too with birth rates declining as parenthood was potentially postponed by some during the financial crisis, but let's assume here that these projections prove to be accurate.

Well below forecasts

It is my contention that the Treasury and government know full well that its net overseas migration estimates are far too low.

After all the Department of Immigration's own forecasts as at Q3 2014 showed net overseas migration accelerating to 256,900 by as soon as 2018!

So much for a constant figure of 215,000 then!

On that basis it appears extremely unlikely that net overseas migration will be capped at 215,000 in perpetuity from FY2019 onwards.

This is particularly so in light of the remainder of the IGR, which effectively tells us that:

• lower immigration would lead to slower economic growth
• lower immigration would lead to an ageing population
• lower immigration would lead to lower participation rates and adverse consequences on the tax take

With these viewpoints so deeply entrenched in the IGR, it seems highly illogical for net overseas migration to be capped or steadily reduced over time in%age terms as assumed in the report.

Softly softly...

Why then wouldn't the Treasury document include more realistic forecasts in the IGR?

Presumably because no government would be keen to release a report showing an explosion in the Australian population lest this be unpopular.

It is rather a classic case of politicians saying one thing while doing another.

Towards 143 million

You'll note that I didn't make any projections or estimates of my own. For one thing, forecasting population is a fool's errand given the number of parameters involved and unknown variables.

However, models and simulations can be built be demographers - for example, see this article here at The Conversation which discusses many of these same points in a more intelligent fashion.

Of course, Australia can't continue to import immigrants forever and continue to reap the same benefits, for the younger immigrants won't stay young forever.

The demographic research suggests that after 43 years the benefits of immigration would begin to diminish and the employment-to-population ratio would fall into decline.

But 43 years is a long time in the future.

Forecasts could be wildly low

The research also shows that if net immigration and fertility were to continue indefinitely at the IGR's assumed annual levels of 215,000 and 1.9 births per woman respectively - and the current life expectancy were to prevail - then over the very long run Australia’s population would grow over the very long run to an enormous 143 million.

While looking so far into the future is pure conjecture, it seems overwhelmingly likely that the forecast population of just under 40 million by 2055 is much too low.

Immigration will continue rising simply because the economic benefits will prove irresistible to successive governments of the future, just as has been the case over the past 15 years.

It is of course incredibly difficult to model given the variables in fertility rates, life expectancies, age of immigrants and so on, if the rate over net overseas migration in Australia remains close to 1% per annum (instead of declining back to 0.5% per annum as per the IGR). then the 40 year population projections will miss wildly on the low side.

PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.

His book 'Four Green Houses and a Red Hotel' is out now.