The slump in migration caused by pandemic border closures will leave the economy smaller and the population older than would otherwise have been the case, the federal government’s top economic adviser says.
Treasury secretary Steven Kennedy said Australia had experienced “one of largest changes” compared to other advanced economies due to lower net overseas migration caused by COVID-19 disruptions.
“It will leave us smaller and demographically slightly older,” he said during a briefing on last week’s federal budget in Sydney on Tuesday. Although he added slower population growth will not necessarily reduce economic output when measured on a per capita basis.
Dr Kennedy’s remarks add to debate about the economic and social damage caused by Australia’s international isolation after the budget assumed borders will remain closed until the middle of next year.
Under current forecasts net international migration will return to pre-COVID levels by mid-decade and Australia will then “catch up” the population growth lost since the onset of the pandemic.
Dr Kennedy said a return to open international borders and a well-balanced migration program was in Australia’s interests.
“Migrants — particularly skilled, working-age migrants — deliver an economic dividend for Australia, raising workforce participation in the longer term and likely productivity growth,” he said.
“Open international borders also provide economic opportunities for specific sectors, such as tourism and education services, and provide broader benefits that flow from being able to travel and connect with others in person rather than electronically.”
Dr Kennedy said despite the sharp increase in public borrowing during the pandemic, debt as a share of the economy was still low by international standards.
“There remains fiscal space to respond again with fiscal policy if the need arose,” he said.
But Labor treasury spokesman Jim Chalmers will say in a speech to the National Press Club on Wednesday that the $100 billion worth of spending is a “missed opportunity” delivering a generational debt without a dividend.
Dr Chalmers will also point out the significant cost of the stage three tax cuts, which are a reduction in income tax for high earners set to kick in from 2024.
“What concerns me and my colleagues is that this year’s budget is spending … without any lasting social benefit or any long-term economic dividend,” Dr Chalmers will say, according to excerpts of his speech. “Of course, this is in addition to baking-in the stage three tax cuts for high‑income earners, at a cost to the bottom line of over $130 billion.”
While he acknowledges borrowing to invest and absorb economic shocks is warranted in a crisis, he is critical of the lack of detail from the federal government about the return on this investment and when the debt will be tackled.
“The level of debt matters but the quality of the spending matters more,” he will say.
Despite a better than expected recovery from the coronavirus pandemic, Reserve Bank meeting minutes released on Tuesday show the board expects GDP to remain below the levels forecast ahead of the pandemic “mostly owing to lower population growth”.
But closed borders could have other effects on the economy such as helping to lift inflation.
The May minutes, which reflect pre-budget discussions, said a combination of higher commodity prices, supply chain bottlenecks and firms’ limited ability to fill labour shortages with workers from abroad could result in an earlier and faster than expected rise in wages growth and inflation.
However, the most likely outcome forecast by the RBA is for underlying inflation to rise 1.5 per cent over 2021 to about 2 per cent by mid-2023. This is outside the target band of 2 to 3 per cent.
Source: Thanks smh.com