Adding up the economics of immigration

June 28, 2017

Adding up the economics of immigration

In today’s Australia, more than one in four residents were born overseas and close to half of the population has at least one parent born elsewhere. Indeed, along with Switzerland, Australia has the highest proportion of immigrants in the Western world.

Yet immigration has always been a political football. Politicians have long used it to prey on people’s fears to improve their poll ratings – a tactic that has recently worked for Pauline Hanson in Australia, Donald Trump in the United States and, to a lesser degree of success, by Marine Le Pen in France.

The refugee crisis in Europe and rising concerns about terror attacks are only helping politicians to skew their messages and blur the debate. Recently, ASIO director-general Duncan Lewis was forced to defend his comments that refugees were not to blame for terrorist activities.

While it’s a complex mix of issues, the reality is that immigration is mostly proving to be good for Australia. Glenn Withers, a professor of economics at the Australian National University’s Crawford School of Public Policy, believes sustained immigration is one of the key reasons for Australia’s uninterrupted economic growth over the past 26 years and why the nation escaped some of the harsher impacts of the global financial crisis. “With immigration, both ‘jobs and growth’ are eminently feasible,” argues Withers in the CEDA Migration report. “The lesson should not be lost on politicians if and when populist issues arise on immigration.”

Crunching the numbers
As the song goes, “We are one, but we are many, and from all the lands on earth we come”. We also come in different categories of migrants, including those with in-demand skills, families, working holidaymakers, overseas students and humanitarian/refugee migration.

Much of the political rhetoric is focused on refugees, but they make up only a small portion of Australia’s migrant uptake. In 2015-16, for example, the federal government provided 190,000 places for permanent migration. Of these, 128,550 were for skilled migrants and 57,400 for family migrants. Only 13,750 places (or 7.2 per cent) were allocated under the Refugee and Humanitarian Programme.

Skills and students
Chris F Wright, a senior lecturer at the University of Sydney Business School, says skilled immigrants have a bigger impact on the economy than other immigrants. “They help address skills shortages and contribute much more than they take,” he says.

“On average, they have very low rates of unemployment and are above-average income earners, paying above-average rates of income tax. Some have restricted access to public services – for example, they don’t get subsidised childcare and have to pay additional fees in some states if they send their kids to public schools. On balance, it’s hard to say anything other than this is a positive policy arrangement.”

In addition to skilled migrants, international students are also helping to prop up the finances of the nation. Without them, Wright says the higher education sector would probably face major funding challenges. He was one of the authors of a 2016 report that revealed the value to the Australian economy from educating international fee-paying students has risen from $1.2 billion in 1991-92 to $18.8 billion in 2014-15, making it Australia’s largest non-resources export industry.

Offsetting ageing, creating jobs

In the same report, compiled for the Lowy Institute for International Policy, immigration was found to help offset Australia’s ageing population, contribute to higher levels of gross domestic product (GDP) growth per capita and boost labour productivity.

A Productivity Commission (PC) inquiry into immigration came to similar conclusions. Its report, released last year, notes that if it continued at its long-term historical average rate and assuming the same young age profile, immigration could boost GDP per person by about 7 per cent by 2060.

Other studies also paint a positive picture. For example, a 2015 report from ANU’s Crawford School of Public Policy finds that on average, as measured by earnings, migrants have been more productive than non-migrants. They have also increased their productivity more rapidly than non-migrants.

Robert Breunig, a professor at the Crawford School, disagrees with politicians who claim immigrants drive low-skilled wages down or “steal jobs” from Australians. Withers, his colleague from Crawford, also says that all the studies here and abroad show migrants create as many jobs as they take by bringing capital in from their home countries and spending their above-average earnings.

Looking ahead, a report by the Migration Council Australia forecasts that by 2050, migration will have added 21.9 per cent to after-tax real wages for low-skilled workers and 5.9 per cent in GDP per capita growth. Each migrant will, on average, contribute about 10 per cent more to Australia’s economy than existing residents.

Room for improvement

That said, there are of course potential negative impacts from immigration.

Entrepreneur Dick Smith, for example, backs Pauline Hanson’s views on immigration and overpopulation, claiming it’s to blame for the surge in house prices and traffic congestion. But the experts say the reality isn’t so simple.

Immigration accounts for a large slice of Australia’s population growth. According to the Australian Bureau of Statistics, net overseas migration contributed 55.4 per cent to Australia’s total population growth for the year ended 30 September 2016. The natural increase was 44.6 per cent.

“Immigration is only one component of population growth,” Wright says. “You have people moving from others states [to already crowded centres] and a steady rate of natural population growth. It’s also fair to say state governments haven’t been very good over the past 20 years at keeping infrastructure, including housing, transport and roads, up-to-date for population growth.”

For his part, Withers believes better government policies and improved coordination between the Commonwealth and state governments could go a long way towards overcoming any potential negatives of immigration, including issues of environmental sustainability.

“Migrants, through their taxes, pay more than enough for the infrastructure they need,” Withers says. “But the problem is that immigration policy is sometimes set in isolation rather than through a whole-of-government approach. What we need is a proper national population policy that doesn’t address things in isolation.”

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