How high immigration is stopping Australians from reaching their full potential

Record high immigration is fueling inflation by making Australians less productive at work and deterring them from owning a home, an economist says.

The Treasury expects a record 400,000 new migrants to arrive in Australia in the year to June, when permanent and long-term arrivals were subtracted from departures.

In net terms, nearly 1.5 million migrants are expected to arrive in the five years to June 2027, with the likes of the Business Council of Australia, the lobbying group for millionaire CEOs, pushing for high levels of immigration.

Australia’s population grew by 1.9 percent last year, one of the highest in the developed world.

AMP chief economist Shane Oliver said immigration-driven population growth was actually making Australians less productive at work, as they often had to travel long distances to get to the office.

“Very strong population growth with inadequate infrastructure and response to housing supply has led to urban congestion and poor housing affordability, contributing to poor productivity growth,” he said.

The weak productivity meant that companies were most likely to pass the cost on to consumers to pay higher wages, keeping inflation well above the Reserve Bank’s target of 2 to 3 percent.

“If wages rise 4 percent and productivity growth is zero, operating costs increase 4 percent and they will pass this on to their customers, likely resulting in inflation above the RBA’s target.”

Dr. Oliver also argued that the high rate of population growth meant investor speculators bought homes for capital gains rather than investing their money in new business ventures or stocks.

“Increased speculative activity around housing diverts resources from more productive use,” he said.

Sydney’s median home price of $1,334 million is beyond the reach of an average full-time worker who earns $94,000.

That’s because a million-dollar loan with a 20 percent mortgage deposit would give someone a debt-to-income ratio of 11 — a level well above the banking regulator’s “six” threshold for mortgage stress.

Australia’s wage price index grew 3.6 percent in June, up from an annual rate of 3.7 percent in March, marking its first annual decline since 2020.

It fell below inflation of 6 percent and increase in workers’ cost of living of 9.6 percent, as calculated by the Australian Bureau of Statistics.

The Treasury expects a record 400,000 new migrants to arrive in Australia in the year to June, when permanent and long-term arrivals were subtracted from departures. High immigration has been linked to unaffordable housing (Sydney auction pictured)

This meant that workers effectively suffered a six percent cut in real wages.

Productivity growth has remained below one percent for the past decade, well below the two percent rate of the 1990s.

Australia’s annual net overseas migration level has been consistently in the six-digit range since 1999, excluding the Covid pandemic in 2020 and 2021, when skilled migrants and international students were included.

Dr. Oliver said unless productivity growth returns to 1990s levels, inflation will stay high for longer, but he fears both major political parties are reluctant to liberalize labor laws.

“After nearly two decades of policy divergence, declining productivity growth weighs on growth in living standards and sustained growth in real wages,” he said.

The political will for the kind of economic reforms needed (particularly in taxation and labor markets) for another 1990s-style rebound in productivity growth seems unlikely.

“This makes the RBA’s job of bringing inflation down a bit more difficult and will limit investment returns over the medium term.”

The Ministry of the Interior has announced how many applications were completed in the first nine months of the 2022-2023 fiscal year, compared to the same period up to the end of March in 2021-22.

The skilled migration category saw an increase of 111.7 percent, with the permanent influx rising from 68,055 to 144,040.

AMP chief economist Shane Oliver said immigration-driven population growth was actually making Australians less productive at work, as they often had to travel long distances to get to the office

Student visa approvals, classified as temporary but long-term arrivals, rose 154.4 percent to 511,149, compared to 200,941.

Another set of data from the Australia Bureau of Statistics showed a net overseas migration rate of 387,000 last year, following the reopening of the border to migrants in December 2021.

When there were 109,800 births minus deaths, Australia’s population grew by 496,800 to 26,268,359.

The population growth rate of 1.9 percent in 2022 was significantly higher than the US level of 0.4 percent.