Australia’s Economic Slump Threatens Openness to Immigration

(Bloomberg) --

Australia's immigration program, a key factor in the economy's record stretch without recession, is under threat amid calls for the nation to turn inward while it recovers from the coronavirus pandemic.

Skills-based immigration has helped fill roles in industries experiencing high demand, slowing the aging of the country's workforce. Crucially, the swelling population has delivered about 1.5 percentage points to annual GDP growth, allowing the economy to defy the business cycle.

Harry Triguboff personifies the program. The billionaire octogenarian fled to Sydney from China in 1948 ahead of Mao Zedong's takeover, eventually becoming Australia's fifth-richest man. His wealth was generated by building apartments to house the multitudes who followed in his footsteps.

“Australia was always built on migrants. We are the most successful with it,” Triguboff said in an interview with Bloomberg News. “Migrants are important because they work and build, and migrants of course need housing.”

Yet Australia's bipartisan openness toward immigration is fraying amid a pandemic-induced recession. With the virus forcing the closing of borders, Prime Minister Scott Morrison anticipates an 85% drop in permanent arrivals this fiscal year.

Bill Evans, chief economist at Westpac Banking Corp., estimates that such a reduction could limit overall population growth to about 0.75%. The population could even contract if the number of Australians leaving the country doesn't change, he said.

This has “profound implications for the nature of the job market, from the perspective of supply, the future and structure of the dwelling construction cycle and Australia's potential growth rate,” Evans said. “Supporting Australia's population growth is paramount. Australia should not accept the prospect of a collapse in net migration.”

Australia has been hailed for running the world's best immigration program. In 2016, just under half of all Australians were either born overseas or had a parent who was. It ranks highly even among developed-world counterparts: 29% of Australians were born overseas, compared with 23% in New Zealand, 21% in Canada and around 14% in the U.S.

Immigration played a central role in helping Australia avoid recession for 28 years -- until coronavirus hit. In per capita terms, however, the expansion halted temporarily in 2013 following the mining investment boom, and again in late 2018 as residential dwelling construction slowed.

“The post-COVID-19 question we must ask now is this: when we restart our migration program, do we want migrants to return to Australia in the same numbers and in the same composition as before the crisis?” said Kristina Kenneally, the opposition Labor party spokesperson for immigration.

“Our answer should be no,” she wrote in a May opinion article. “Our economic recovery must help all Australians get back on their feet, and to do that we need a migration program that puts Australian workers first.”

What Bloomberg's Economists Say

“Migration has been a key driver of Australia's growth story over the past decade, bolstering demand - particularly for housing - and easing labor market and demographic pressures through a strong supply of younger skilled workers. A migration-led slowdown in population growth risks exposing several underlying weaknesses in the economy, dampening demand, and revealing shortcomings in the training of skilled workers.”

James McIntyre, economist

Australia's Treasury department said in a 2018 research report that migration is typically attacked because it adds to existing problems. The department noted that from 1996 to 2016 Australia's population rose by more than 6 million people, with 75% of the growth in the states' capital cities.

“Issues such as congestion and pollution are not new. These issues have concerned policy makers for decades and are the result of a range of legacy issues, such as environmental practices or town planning decisions, in addition to population growth,” the Treasury report said. “However, population growth tends to heighten existing challenges.”

Veronica Sparagis, business manager and co-owner of Ultima Building Group in Sydney's western suburbs, warned that scaling back migration would hurt home building. It could erode demand for new homes and deprive the industry of specialist knowledge from offshore, she said.

Net immigration creates demand for an additional 80,000-100,000 homes per year, responsible for around two-thirds of underlying property demand, based on a calculation of net arrivals and average persons per household. Almost 10% of Australians work in construction, which accounts for about 9% of GDP.

“The industry most impacted by a cut in immigration is construction,” Sparagis said. “The building industry may be forced into a standstill.”

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