Australia’s looming population problem

According to Comsec chief economist Craig James, one of the sleeper issues at present is population growth. The latest data showed that Australia’s population grew by 1.6% in the year to September, the slowest growth rate in four years and well down from the peak growth (40-year high) of 2.2% in December 2008.

Slower immigration is the culprit here, not the number of babies being born, and largely due to Government policy James explains in his column in SmartCompany.

He says:

Those in favour of a ‘small Australia’ would conclude that the slowdown in population growth is a favourable development. But they may not hold those views next time interest rates go up, especially if the Reserve Bank singles out the tight job market as one of the prime drivers behind the decision. Because the strong global demand for our resources and demographics both indicate that demand for labour will remain strong in coming years. The challenge for Australia is to ensure that labour supply lifts to meet that higher demand. If it doesn’t, then the one thing that economics shows is that something has to give – and most likely that means higher wages, and potentially higher prices.

As noted by Professor Peter McDonald, one of the best demographers in Australia, “barring a major downturn in the world economy, labour demand is likely to remain very strong into the future.” McDonald argues that there needs to be urgent action on skills development, the need for significant growth in public infrastructure, and a “planned, well-managed immigration program.”

McDonald notes that the Government’s permanent migration program and domestic sources of workers have been insufficient to meet the strong demand for labour so the gap has been filled by temporary migrants.

The question is whether this is a desirable or sustainable situation.

But whatever is eventually decided by policymakers, the simple fact is that the Government must ensure that an efficient, streamlined system is in place so that businesses can get the staff they need. Supply of labour has to lift to meet strong demand otherwise the consequences will be higher inflation, slower economic growth or both.

The other point by McDonald is that “substantial future population growth” over the coming decade is embedded in the economy. The higher population growth must be planned for, especially in terms of infrastructure demands.

Source: Smart Company Craig James is chief economist for ComSec


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