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Joint Treasury-Home Affairs analysis highlights economic benefits of Australia’s immigration intake

April 23, 2018
Australian Migration Centre

A briefing paper delivered to the Turnbull government amid a politically fraught debate on immigration warns cutting the current intake risks costing the federal budget billions of dollars, lowering economic growth and damaging the living standards of Australians.

The migrant intake from 2014-15 alone will provide a $10 billion boost to the budget over the next five decades, the newly released Treasury and Home Affairs analysis found. It warned of “far reaching effects” of significantly lower economic growth if the current rate of migration is not maintained.

The document adds a new dimension to disagreement inside the Coalition over whether Australia’s 190,000 annual migration cap is to high. Former prime minister Tony Abbott has called for a cut of 80,000, while Home Affairs Minister Peter Dutton privately canvassed a reduction of 20,000 before the idea was eventually ruled out. Other senior ministers, including Treasurer Scott Morrison, have publicly pushed an unashamedly pro-immigration policy.

The briefing, ordered by Treasury secretary John Fraser and Home Affairs secretary Mike Pezzullo in 2017 but delivered this year, found migrants boost the Australia economy by up to 1 per cent per year and those who have arrived since 1996 performed better in the workforce than the average Australian-born employee.

It warned Australia’s workforce will begin shrinking unless the immigration rate is retained, as Sydney and Melbourne become dependent on migrants to counter slowing birth-rates and an ageing population. “Migrants deliver an economic dividend for Australia due to current policy settings which favour migrants of working age who have skills to contribute to the economy. This leads to higher rates of workforce participation and likely productivity benefits,” the report found.

“This, in turn, increases Australia’s GDP and GDP per person, with positive flow-on effects for living standards.” Mr Morrison said the new analysis provided “a clear evidence base for the government’s migration policy settings supporting our national interest.”

Real gross domestic product per person

Indexed at 1959-60 levels

Mr Morrison hinted the government would focus on delivering infrastructure in the May budget, as voters in outer marginal seats become frustrated by increasing congestion. “In addition to confirming the economic value of our migration programme, the report also reinforces the government’s decision to continue to focus on planning and managing the impacts of growth, especially through our record investment in public infrastructure,” he said.

The report conceded a large Australian population brings challenges including “congestion, pressure on the environment, and additional demand in key markets like housing”. “These pressures exist regardless of migration, but a growing population exacerbates existing pressures, particularly if policy and planning efforts do not keep pace,” the report warned. The Treasury and Home Affairs paper said skilled migrants deliver a boost to government coffers because they are predominantly of working age.

“As well as delivering an economic growth dividend, migration improves the Commonwealth’s fiscal position, since migrants are likely to contribute more to tax revenue than they claim in social services or other government support,” the report found. The 60-page briefing paper found in “the absence of migrants, all else being equal, the participation rate, instead of increasing 1.4 percentage points over the period to 2016, would have fallen 2.1 percentage points relative to 2000.”

It said skilled migrants, the focus of Australia’s modern migration program, earn significantly higher incomes and that “migration mirrors trade in the benefits it can bring to an economy.” “This is not to say that migrants earn more than non-migrants in the same job, but rather that they tend to work in more skilled jobs on average.” A 2016 Productivity Commission report concluded that an at an aggregate level, recent immigrants had a negligible impact on wages, employment and participation of the existing labour force.

But an influx of less qualified migrants could harm domestic equity by depressing the wages of lower skilled local workers,” the commission stated.

Fairfax Media revealed last week that a little-known budget rules imposed by Treasury require ministers to come up with extra revenue to offset lost economic growth caused by lowering the annual migrant intake.

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