Productivity Commission ignores major issue

by on October 28, 2017

THIS week’s Productivity Commission Five-Year Productivity Review contains page after page of sensible, mostly obvious, recommendations for change that would improve Australians’ living standards – with one glaring omission.

The review delves into seemingly intractable problems of congestion, urban sprawl, development entanglements, renewing and adding to infrastructure, and so on, suggesting all sorts of better processes, incentives and disincentives.

Don’t get me wrong. The suggestions are all well-thought-out and attempt to weed out the worst sort of rent-seeking and political machinations. But they are all curative of problems without mentioning one of the major underlying causes of many of them – rapid population growth.

It is astonishing that one of the most respected economic institutions in the country can do a five-year review of productivity in Australia without some detailed discussion of population policy and what effect the ramping up of immigration since the Howard years, including Kevin Rudd’s “Big Australia”, has had and what it will do in the future.

In the year to March 2017, Australia’s population grew by 384,000. Of that, 217,000 (about 60 per cent) was net overseas migration.

This means that Australia has to build the equivalent of a city like Canberra every year to accommodate this growth.

So what is the point of delivering an immensely detailed five-year productivity report if all of its recommendations are compromised by a population non-policy under which every year the Government plucks a figure from the air with precious little concern about long-term economic effects.

It is completely negligent for bodies like the Productivity Commission, nearly every federal and state politician and a raft of greedy special-interest lobbyists to couch the issue as, “What do we do to accommodate this population growth?” instead of “How can we reduce the population growth?”

For example, the Productivity Commission says we should impose road-use charges, the equivalent of a congestion tax, to deal with road congestion and the huge economic costs of it. And state governments build more expensive roads in a futile attempt to catch up.

This band-aid, treat-the-symptoms approach is not just negligent, it is outright dangerous.

The danger lies in opportunist political figures like Pauline Hanson linking the ills of over-population (congestion, hospital waiting times, housing prices, stalled wages growth and the like) to Muslim immigration.

The more people who profit from high population growth and do not suffer the consequences (business, lobbyists and the politicians they fund) blithely ignore the infrastructure and other stresses caused by it, the more chances there will be for the opportunists.

We should change this trajectory.

Australian Labor, for example, could borrow from New Zealand Labour. I do not mean replacing a dull grey man with a vibrant young woman, but rather changing the big-population policy without any dog-whistling about refugees or Muslims (who incidentally comprise just 2.2 per cent of the Australian population).

Yes, electoral trends have shown more support for bright young things in Canada, France and New Zealand, but the electoral trends show a darker side in other places: Brexit, Trump and growing support for far-right nationalists in Europe.

The New Zealand approach is better.

In Australia, we should celebrate the wonderful things immigration has done for our economy and society in the past. But we should not put that in jeopardy with too much immigration now.

Australian Governments have frequently cited opinion polls, mainly done by the Scanlon Foundation, as saying there is popular support for immigration in Australia.

That is no longer the case, or the earlier polling did not accurately reflect public opinion.

Polling this week reveals just how dangerous the present approach is.

Katharine Betts and Bob Birrell, of the Australian Population Research Institute, found that “74 per cent of voters thought that Australia does not need more people, with big majorities believing that that population growth was putting ‘a lot of pressure’ on hospitals, roads, affordable housing and jobs”.

Alarmingly, they found, “Most voters were also worried about the consequences of growing ethnic diversity. Forty-eight per cent supported a partial ban on Muslim immigration to Australia, with only 25 per cent in opposition.”

This is a dangerous path. When Prime Minister, John Howard adopted a tough approach to refugees because he thought to do otherwise would cause an erosion of support for immigration.

Well, forget the refugees, who are only a few percent of total immigration. Support for immigration has been eroded because of too much immigration.

If political parties want to retain or boost their public support and want to retain modest immigration, they should drastically reduce the number of people coming in before the “ban-Muslim-immigration” sentiment takes hold and is exploited by the unscrupulous.

The new survey says 54 per cent want a reduction in the migrant intake. This includes 57 per cent of Coalition voters and 46 per cent of Labor voters. This result is far higher than the 34 per cent of respondents wanting a lower migrant intake reported in the last Scanlon survey in July-August 2016.

These figures show that the Coalition has more to loose if it does not respond to these concerns. It puts the Coalition in a difficult position. Its main business donors, of course, profit from high population growth, but it seems that more Coalition voters are feeling the pressures that comes with it.

The important thing now is for the major parties to forget the wishes of their donors and concentrate on the wishes of voters before One Nation, the Australian Conservatives and others exploit the discontent in an ugly way.

And key parts of the bureaucracy should not take high population growth as a given and advise on how to cope with it, but also advise on its downside and how it can be checked.
This article first appeared in The Canberra Times on 28 October 2017.

{ 9 comments… read them below or add one }

Stephen S 10.28.17 at 11:13 am

Australia doesn’t do productivity growth. Only population growth. Each Morrison budget bakes in ~ 200K planned migration, to boost GDP, to boost house prices, repeat cycle.

Andrew Leigh quotes Scanlon, when he defends Calwell’s Populate or Perish, as worshipped to this day by Howard, Rudd, Gillard, Abbott, Turnbull, and Shorten. Other 2010-17 surveys, be they ANU, Lowy, Essential, TAI, or Betts, suggest considerable voter resistance to this dogmatic policy of high immigration and high population growth.

Ardern Labour went to NZ voters with clear policy and numbers on population. Shorten Labor will go to the next election, as always, pretending the issue simply doesn’t exist.

Stephen Morris 10.28.17 at 12:05 pm

Crispin Hull misunderstands both the nature of government and the significance of recent events in Europe. A 54% majority supporting lower immigration might be important if Australia were a direct democracy, but it’s all but irrelevant under the system of elective government.

Under elective government voters get but one vote – for a politician – every 3 or 4 years, and they cast that vote for the issue (a) that matters most to them, and (b) on which the viable political parties differ. Only a tiny fraction of votes will be determined by immigration.

While most commentators noted the small majority by which Britons voted for Brexit, they overlooked the real significance of the result: that the vast majority of voters, 87%, voted against UKIP in the preceding election. While apparently agreeing with its policy, most voters were not prepared to see UKIP form government, or even part of the government. Had it not been for internal division within the Tories – concerned not with immigration but with loss of sovereignty – there would have been no referendum.

Likewise the European elections of 2017 have not shown a triumph of populist parties but the precise opposite. The establishment parties – learning from David Cameron’s strategic error – have realised that provided they don’t break ranks and offer the “bogans” and “deplorables” a direct vote on anything, it is in fact very easy to stare down a Peasants’ Revolt.

Whatever Australian voters might want, the Australian Elite is firmly committed to massive population growth. And the establishment parties will ensure that they get it.

Michael M 10.28.17 at 12:17 pm

Great piece that reveals the growth industry has infiltrated every institution in this country. It’s obvious that the only way to stop the population Ponzi is to elect a new crop of politicians that are prepared to stop this non-sense.

Peter Murray 10.28.17 at 12:29 pm

In September we went to a meeting organised by the North East Link Authority to discuss the implications of this link for people likely to be affected by it. The presenters emphasised as justification for the project the pressure of huge and relentless population growth in Melbourne expected to continue well into the future.
We are bang in the middle of an area that will be obliterated if Option A is chosen, as is widely expected. If we are “lucky” our property will be compulsorily acquired and we will receive fair compensation to start again somewhere else. If not, we will be stuck with living with years of disruption as the project is built then a huge increase in noise and cancerous air pollution from the completed new freeway and interchange at our door step, plus a greatly reduced value and saleability of our place and the decline of our neighborhood as people sell out, take less care of their homes as their value declines, many more houses become owned by absentee landlords, etc. Already my health is being adversely affected via a sudden increase to danger levels of my blood pressure, which previously was, according to my doctor, commendably low and safe for my age of 71.
I mention all this to describe just one instance of the hidden costs of relentless population increase.
In addition,there is every indication that the project won’t work anyway. A true ringroad is needed, not this Option A which will only direct even more traffic into the main freeway into the city at a point only 10 kms from the CBD. In other words, when the project is completed, we will be faced with having stalled traffic at our doorway with even greater pollution and noise levels.
Also the state government has recently said the space in the main freeway reserved for public transport will be used instead for cars and trucks in this new project, despite the fact that the main municipality affected, Manningham, is the biggest in Melbourne and has no railway and very meagre bus services.
Also there are strong indications that most of the link will be tolled, meaning already hard-pressed workers will lose even more of their money merely to keep up with living in what once was, not so long ago, an affordable and pleasant city.

Peter blackshaw 10.28.17 at 12:34 pm

Hi Crispin,
Good article.
Agree with a reduction in immigration. I have no problem with most immigrants.
I do have a problem with Muslim immigration. It’s the reason we’re seeing extremists political groups raising their ugly heads in some European countries. As you know I spend a lot of time in Europe and see the problems there. Islam is an uncompromising, imperialistic cult.
A high percentage of Muslims are hardliners who’s philosophy is not dissimilar to that of Nazism. Given an opportunity the hard liners would see the eradication of all Jews.
You would no doubt be aware of the increased Islamic conservatism in Indonesia and the growing intolerance toward Christians and homosexuals. I’d hate to see a greater Muslim population in Australia and with that political influence.
By the way Google ‘Muslim and Jewish winners of Nobel Prizes’ and you’ll see Muslims have won 12 of 880 total prizes, yet they represent 23% of the world’s population. In contrast the Jews (.2% of world’s population) have won nearly 200. What does that say??

Peter Lynch 10.28.17 at 3:50 pm

I applaud Crispin Hull for his very relevant comments on the Productivity Commission’s Shifting the Dial report. However, our ever-growing population is not the only present and future challenge the report fails to directly or fully address. At the risk of being self-indulgent I would like to draw attention to some of these other issues and to suggest a possible solution. Issues I have in mind include:

• The need to provide income for those, including many middle income workers, who have or will have their jobs replaced by robots and smart machines or have had their work contracted out to other lower wage countries.
• The fact that a time is coming when our combined productive capacity may exceed the needs and desires of our citizens, making full employment no longer a necessary or desirable aim.
• The need to provide income to that body of people with various intractable skill deficiencies which mean they will never prosper in the workforce.
• The need to compensate the many Australians who provide valuable, unpaid services to the community as homemakers, carers, volunteers etc.
• The rise of under-employment due to the growing trend towards casualisation.
• The widespread problem of inadequate income and underpayment of staff due to the growing imbalance in bargaining power between workers and management.
• The seemingly endless increase in inequality.
• The increase in corruption at all levels of society associated with a widespread belief that playing by the rules doesn’t work.

One mechanism to address these issues that is being widely discussed elsewhere is the introduction of a universal basic income (UBI) for all people of working age. This idea has gained considerable traction around the world but its proponents have always faced several objections. One is the argument that if everyone has an income even if they don’t work, the few hard workers will have to foot the bill for a large number of undeserving bludgers who will take the UBI as an opportunity to drop out of work. There is of course no reason to believe that this would happen and, in fact, various trials of the UBI concept suggest that it would not. In fact, a UBI might encourage more entrepreneurial spirit leading to more participation in the work force with desirable economic outcomes.

Another objection is that it would be too expensive, an argument which raises the related question on how it would be funded. There are many suggested answers. One is to use a UBI to replace all or part of the transfer payments system. An objection to this suggestion is that a UBI lacks the efficient targeting that a good transfer payments system possesses. A simple, across the board increase in income tax rates is also an unattractive approach as it would involve an unfair burden on workers. Increased taxes on the very rich may be more appropriate as an adjunct to the aim of reducing inequality. Other taxes may be preferable. These may include taxes on windfalls such as capital gains, inheritances and on other unearned income such as interest and dividends. Progressive taxes on land and on utilities such as water and gas use have also been suggested. This is based on the argument that it is fair to tax land and its resources because the land rightfully belongs to the community rather than individuals, and some of the return to private individuals from their use of land should come back to that community as a social dividend.

One novel approach would be to integrate a UBI into the wages system. Under such a system, employers would only top up their employees’ UBI to meet the previous wage level, providing an incentive to businesses to employ more permanent staff. In return, employers would pay an increased tax in the form of higher company tax or a tax on turnover. Shareholders, as the beneficiaries of business profits, could pay an increased tax on their dividends. In addition, to compensate employers for the substantial on-costs involved in employing staff, it may be desirable for businesses to receive tax incentives for employing more workers. It may also be appropriate to relax the dismissal rules for small-scale businesses which can be a disincentive to putting on more permanent staff.

The critical requirement for a UBI to work is that it must be set at a level high enough to grant people the freedom to quit a job they don’t find satisfying and maybe try their luck at setting up their own business or undertaking further study. It must also be low enough to make it worth while for people to seek jobs. Considerable research and market testing would be necessary to find a rate that benefits productivity the most. If incentives exist for people to work and for employers to have them on their books as permanent staff, there may also to a beneficial effect in reducing the black economy and controlling corruption.

It is time for the concept of a UBI to be given the consideration it deserves. Debate in this area is getting traction overseas. Where is the debate and the economic modelling in Australia?

Ronald 10.28.17 at 6:25 pm

It’s critical to keep this issue before the voting public, as we have suffered under a conspiracy of silence crafted by those who label everyone wanting a population policy discussion as racist. Business also suppresses such discussion because population growth is a lazy path to revenue growth. We all know it would be better to develop business based on intellectual property rather than fizzy drinks or salty snacks, but with the derivative economy we have, business will show no leadership on that issue. Only government can change this, and both sides show wilful ignorance or worse.

Ian Hawkins 10.31.17 at 9:21 am

Thank you for this well thought out article.
It seems to me that democracy in Australia has lost it`s way, doesn’t matter what the majority want, the ruling elite have their way. This problem starts from the beginning of the political process, the grass roots party structure. With the Labor Party one has to be a member of a union to join the party, when probably only 13% of working people are union members. With the liberals their community membership is pathetic. When it comes to preselection , the narrowness of the committee means that favorites or bullies get the endorsement. No democracy here.
As with excessive immigration, so with Adani`s coal extraction ideas, to hell with the 75% of voters opposed, onward Christian Soldiers, we are born to rule.

Chris 11.01.17 at 10:30 am

In the first few paragraphs this article says that rapid population growth is the fundamental cause of all of the problems that are listed here. This is incorrect; high population growth in Australia is, itself, a direct result of another deeper cause, which is economic growth. Population growth is merely a major component of the mechanism by which economic growth causes those problems.

Our global economy must continually grow to exist; if it falters and stops growing (stabilising is not sufficient) it collapses into unserviceable debt: a recession. This is so because we create money out of debt, with interest, but that’s another whole story. If the economy stops growing governments are frantic to stimulate it into growing, to avoid recession. They will desperately do anything to achieve this stimulation, and, as the costs of a major recession are so great, they will not be concerned by the consequences of their actions on the environment, the broader society, or the future.

The economy is the process of converting resources into products that must be consumed by the people in the economy. For the global economy to grow either individual people must consume more, or there must be more people consuming. Of these two options it is easiest for the government to arrange for an increase in the population. But the government (and the business world) doesn’t really care directly about the increasing in the number of people, they only care about the increase in consumption (economic growth) – increasing the population is merely the means of achieving this increase.

If the economy didn’t have to grow the government wouldn’t be determined to increase the population to facilitate that economic growth.

If we had an economy whose functional processes enabled it to be a steady-state economy, or better still an economy that can harmlessly contract when required, we would not have this desperate urgency to keep it, and therefore the population, growing. That economic growth and the resultant increase in economic activity have disastrous consequences, not just the ones listed in this article, but many others.

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