Thursday, February 24, 2011

We Need More Migrants - Treasury

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

Related Posts

. 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


The Lorax said...

Firms in declining sectors can't afford to employ people, so we need more people?

Sorry I just don't get it. Can anyone explain this comment from Gruen?

"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 own and run a business in a declining sector. I've laid off most of my staff. The ones that are left are on half pay. Having a larger population base to choose from will make no difference to my future survival prospects. A lower dollar certainly will.

I agree entirely we should support the people who have been "freed up" in declining sectors, but they will never be directly employed by the resources sector, which is unlikely to ever employ more than 5% of the population. Better to retrain people to work in the domestic services sector, primarily providing welfare services because there won't be much else happening in the Australian economy.

Australia's future: Welfare nation supported by mining income.

The Lorax said...

Perhaps Gruen is calling for wage deflation in the non-resource tradable sectors?

Gruen's vision for Australia: Quarry economy, non-mining workers on minimum wage, vastly expanded welfare state, and overcrowded as well!

I can't wait.

Anonymous said...

Lorax, I had exactly the same question - your answer is spot on.

Once upon a time, Treasury used to tell us we needed larger immigration intakes to fund pension/aged-care costs. One of the last 3 Intergenerational Reports even described the process as an attempt to lower the age of the average worker in Aus so more workers would be supporting each pensioner.

Eventually Treasury seems to have worked out what any primary school student would understand - immigrants also age, and large increases in immigration simply delay and even exacerbates costs associated with providing pensions.

Now the con-job is that large immigration intakes will help local industries hollowed by the flight of capital to cheap offshore labor.

Besides the attempt to lower wages here, more people equates to more GST events.

There is really a Third World mentaility behind this all - pity.

calyptorhynchus said...

Whereas what we actually need are higher taxes on mining profits and less immigration (for environmental, not racist reasons).

Nice one Treasury.

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