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Australia’s choice between growth and decline

Published in Business Spectator (Melbourne), 15 July 2010
http://www.businessspectator.com.au/bs.nsf/Article/Julia-Gillard-Tony-Abbott-population-immigration-m-pd20100714-7C5GT?OpenDocument

One of the first policy shifts announced by Prime Minister Julia Gillard was a move away from her predecessor’s commitment to “a big Australia”. Kevin Rudd, if you remember, made “no apologies” for projections that had Australia’s population reach levels beyond the 35 million mark by the middle of the century. In contrast, Julia Gillard insists that “Australia should not hurtle down the track towards a big population”, although she is yet to spell out what this would mean in practice.

Perhaps this is more a change of rhetoric than a change of substance at the top of the government. After all, we are approaching an election that will be lost or won in places like Sydney’s west. In any case, it is a clear indication that there is increasing unease about Australia’s growing population.

Given the lack of affordable housing, congested transport and stretched public services, it is hardly surprising that Australians worry about further population increases. However, the alternative of a stagnant or even shrinking population would be even less appealing. A look at Europe’s changing demographics should be a warning to the proponents of a ‘small Australia’.

There are three factors that determine long-term population developments – longevity, fertility, and migration. The first factor is remarkably similar for industrialised countries. In all these nations we have already witnessed marked improvements in life expectancy and further increases can be expected over the coming decades. Whether this will lead to a modest or a dramatic change in the age composition of society depends on the other two factors, fertility and migration. It is here where we can see the biggest differences between Australia and Europe.

In Australia, the fertility rate at 1.96 is not far from what demographers call the replacement level of 2.1 children per woman which would keep the native population stable. At the same time, Australia has enjoyed a long-term migration surplus, mainly consisting of young and well-qualified migrants. Both factors together have kept Australia’s population not only growing but also relatively young. The median age of the Australian population stands at 37.3 years, which makes it one of the youngest countries in the industrialised world.

The demographic situation in many European countries is far more challenging in comparison. After decades of subdued fertility, migration can no longer fill the gap. Some countries are even recording net migration losses. For the past two years, Germany has lost population through migration. Incidentally, it is also running a small net migration deficit with Australia. Even if fertility rates suddenly increased from their current levels of 1.3 in Spain and Italy or 1.4 in Germany and Austria, it would take decades until this had an effect on the age structure of European society.

In the meantime, Europe will get older and its population will start to shrink in some places. Europe’s population is already much older than the population of Australia. The median age stands at above 43 years in Germany and Italy, and even in France and Portugal it is almost 40 years. However, with life expectancy improving, no positive contribution from migration and stubbornly low fertility rates, the ageing of Europe has only just begun. And ageing may not even be its worst problem. According to UN research, the continent will lose 68 million people (about ten percent of its population) by 2050.

Although Europe’s demographic crisis had been predicted since at least the late 1970s, it is only now that the continent’s politicians realise what a social and fiscal time bomb they have created. Unfortunately, it is too late to defuse it. The only option left is reduce the severity of the effects by increasing the retirement age, reducing pensions, or pushing up workforce participation rates. However, it all seems too little, too late.

In comparison, Australia’s situation is very comfortable. Far from having to deal with the sorts of demographic shocks that Europe is already experiencing, the main challenge for Australia is to manage its population growth. If this is handled correctly, Australia can avert a rerun of the European experience.

While it is true that managing growth brings challenges with it, these problems can be addressed. In fact, many of these challenges actually present huge investment and employment opportunities. Roads and rail tracks have to be built; new schools and hospitals will provide jobs for teachers, nurses and doctors; the additional economic activity will strengthen Australia’s economic and fiscal base for decades to come.

The economic development resulting from Australia’s population boom will make it possible to deal with the challenge of population ageing. Strong inward migration will also act as an insurance policy against deteriorations in Australia’s fertility rate.

Given the choice between managing Australia’s growing population and administering the demographic decline of wide parts of Europe, there should be no doubt which of the two is the more pleasant scenario. The task of responsible politicians is not to scare the population about migrants. It should be to explain the benefits that our growing population entails. And to address the necessary adjustments in infrastructure and public services much better than they previously had.

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