The Commonwealth Treasury has spoken out in favour of higher immigration saying it will be needed to ease the pain that will flow from a mining boom and a high dollar set to destroy firms in other industries.
Treasury chief economist David Gruen told a conference in Melbourne the resources boom was set to last decades, boosting some industries and leaving others on life support.
"We are looking at the reentry of a third of the global population into the global economy," he said. "There will be volatility along the way but in a trend sense China and India are likely to grow strongly for an extended period."
"Currently it is generating great demand for our resources, but is also delivering literally millions of people into middle classes. Their disposable incomes will be used to buy other Australian products such as high protein food and funds management services."
"But we are unlikely to return to our pre-boom industrial structure."
"In declining sectors, we should support the workers not the firms... To the extent that we want to help people, we should do so directly rather than by trying to keep alive firms that perhaps have a limited future."
Dr Gruen said higher immigration could ease the pain for firms threatened by the high dollar.
"A larger labour pool reduces the extent to which declining sectors have to actually shrink. They are still going to shrink relatively, but if the pool of labour is bigger then they don't necessarily have to shrink in absolute terms," he told the conference.
"I am not necessarily saying we need to ramp up immigration, I am saying immigration is one way to make the adjustment less painful."
"Some of the resistance is a response to other things people blame on immigration, such as congestion, and disputes over water. I would argue we should deal with them directly."
Reserve Bank Governor Glenn Stevens told the conference there was a case for setting up a macroeconomic stabilisation fund to store some of Australia's mining wealth for use in a downturn but would say no more.
"I am a cautious enough person not venture further down that track today, the hares are already running I'm sure," he added.
Dr Gruen the right time for such a fund was "a few years down the track" when the budget was back in surplus.
A resource super profits tax would ease strains form the mining boom.
Mr Stevens said roughly half of Australia's mining sector was foreign owned meaning only about half of the extra income earned from mining was flowing to Australians.
Published in today's SMH and Age
The Resources Boom and Structural Change in the Australian Economy
. The barely spoken fear - our boom won't end
. Hurt by the dollar? Don't expect support. Henry
. Oh, and we're slowing down the flow of migrants - Access