It is an exquisite irony perhaps, but one of the Howard government’s greatest legacies is a population boom.
It’s ironic, of course, because John Howard won the 2001 election by appearing to be xenophobic via the children overboard affair and mandatory detention of asylum seekers. But the numbers tell a totally different story: John Howard was the most immigration-friendly national leader since European settlement in 1788. It might have been because he wanted to break the power of unions rather than a multicultural heart beating in his breast, but the effect is the same.
According to yesterday’s data from the ABS, Australia’s population grew by 452,000 in the year to September, or 2.1 per cent, putting it near the top of the international league table (just behind Singapore and Saudi Arabia).
This is the great unspoken cause of our current prosperity and the fact that we escaped the GFC virtually unscathed. More people mean more GDP – more consumer spending, more demand for housing, and therefore higher house prices and greater wealth, more construction and more jobs.
There is almost no downside to a high level of immigration: it reduces skill shortages at the same time as creating employment and helps offset the ageing of the population because new arrivals tend to be young.
The immigration boom, if not the baby boom, is now coming to an end because the Labor government is clamping down on overseas students getting permanent residency, a policy probably driven by the unions.
It’s a dangerous practice. And a big part of the reason other developed countries are in such trouble is that their populations are stagnating. In the latest 12 months Germany’s population growth was zero, the US was 0.9 per cent, the UK 0.3 per cent and Japan’s population actually shrank by 0.1 per cent.
Australia’s population growth also means that house prices are not in a bubble. This was confirmed in yesterday’s Financial Stability Review from the Reserve Bank, as discussed in Business Spectator by Christopher Joye.
The Australian economy is in a sweet spot, no doubt about that, and now we understand that this is largely due to a population boom to rival the one in the late 1940s and early 1950s that underpinned national prosperity and full employment until the late 1960s.
Whether the Howard population boom provides 20 years of similar prosperity depends on two things: financial markets and China.
In the 50s and 60s, Australia’s currency was pegged to the British pound, including after the introduction of the dollar in 1966, allowing the development of massive resource export industries. After it was floated in 1983 it rose and we suffered a terms of trade crisis in 1986, dragging the currency down and producing average value since 1983 of about US70c.
It’s now above US90c, about 30 per cent more than the post-float average. The new resources boom based around iron ore and LNG, is likely to keep it at these sorts of levels for a long time, which will cause a lot of problems for the manufacturing industry.
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In essence, the fact that we are such an important supplier of raw materials and energy to China means that we remain vulnerable to the impact of its processed exports on employment. The currencies of US and Europe, meanwhile, are adjusting downwards and improving the competitiveness of their industries.
At the very least, Australia’s economy will continue to rebalance away from manufacturing and towards mining and construction. This is often painful, but with unemployment at 5.3 per cent it can’t be said that it’s causing macroeconomic problems yet.
This article first appeared on Business Spectator.