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Population Policy and the Budget

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Announced two weeks prior to the 2019–20 Budget, the Morrison Government’s Population package was a combination of migration, infrastructure, higher education and regional development measures.  This FlagPost examines the population and immigration aspects of the package with reference to the 2019–20 Budget.

Background

The size and distribution of Australia’s population have long been topics of public interest. However in 2018, as the population passed 25 million, public debate stepped up a notch.

There are a number of salient facts to this debate. Population is growing at around 1.6 per cent per year while 68 per cent of Australians live in a capital city. Migrants in particular are much more likely to live in capital cities than Australian-born people. According to the 2016 Census, 83 per cent of overseas-born people lived in a capital city compared to 61 per cent of Australian-born people. With recent migrants helping to drive population growth, this creates uneven growth: capital cities are growing at about double the rate of non-capital cities.

Population depends on two components: natural increase and net overseas migration. In recent years, the major factor shaping the trend of Australia’s population has been migration. During most of the 1990s and into the early 2000s, about half of population growth came from net overseas migration (the official term for Australia’s rate of migration) while about half came from natural increase (births minus deaths).

Yet since about the mid-2000s, net overseas migration has accounted for a larger share of population growth. Figure 1 shows Australia’s population growth rate over time (grey line), with a marked increase in the proportion of growth coming from net overseas migration (orange line) compared to natural increase (blue line):

Figure 1: Australia’s population growth, June 1982 to September 2018

Figure 1: Australia's population growth, June 1982 to September 2018 graph

Source: ABS, Australian Demographic Statistics, September 2018, cat. no. 3101.0, ABS, Canberra, 21 March 2019.

Note: The NOM estimates above contain a break in series. Estimates for September 2006 onwards use an improved methodology and are not comparable with NOM estimates from earlier periods - see paragraphs 13-19 of the Explanatory Notes.

Budget estimates

Before discussing the key policy components of the Morrison Government’s Population package, it is worth pausing and noting some important estimates in the 2019–20 Budget. Budget Paper No. 1 estimates population growth will ‘average around 1.7 per cent per year over the forecast period’ (Statement 2, p. 5). This is noticeably higher than the 1.58 per cent average growth observed in previous four financial years. Using the estimates for population and net overseas migration found in Budget Paper No. 3, it is possible to show both components of forecast population growth:

Table 1: 2019–20 Budget population and immigration estimates

2019 2020 2021 2022
Population 25 621 000 26 070 000 26 525 000 26 981 000
Pop. growth 439 000 449 000 455 000 456 000
Pop. growth (%) 1.74 1.75 1.75 1.72
Net overseas migration 271 700 271 300 267 600 263 800
Natural increase[1] 167 300 177 700 187 400 192 200

Source: Parliamentary Library analysis of figures published in Australian Government, Federal financial relations: Budget Paper No. 3: 2019–20, pp. 91-92.    These population estimates and components of change are high compared to recent trends. All four years in the Budget estimates assume natural increase at historically high levels, with the previous largest 12 month period of natural increase being 163,100 (Jan-Dec 2012). This appears to be driven by an assumed 7 per cent rise in the fertility rate. Net overseas migration is also estimated to rise by approximately 17 per cent compared to the 2018–19 Budget estimates.

The population estimates in the Budget are important for a number of reasons. They help create a baseline for growth in relation to many key economic indicators, such as household consumption and employment, which feed directly into the aggregate Gross Domestic Product estimates. In addition, general revenue and expenditure will be shaped by how many new people are earning an income or using a government service. 

Key measures

While the Morrison Government’s Population package and Budget measures cover a number of areas, there are two key policies relating to population and immigration.

Cutting the number of permanent visas

The headline announcement is a reduction in the ‘ceiling’ number of skilled and family permanent visas available, reduced from 190,000 to 160,000 for each of the four years from 2019–20 (see Budget Paper No. 2, p. 11). The effect of this over the Budget estimates period is a 120,000 reduction in the number of permanent visas available. In the press conference announcing the change, Minister for Immigration, Citizenship and Multicultural Affairs, David Coleman said, ‘Now, that [visa reduction] enables us to take some of the pressure off the cities that are experiencing, as Alan pointed out, some very significant pressures in terms of the congestion and so on. By reducing the total cap under the programme, we create the opportunity to reduce that pressure.’

The relationship between the number of permanent visas available and the rate of growth in capital cities is difficult to establish. Recent trends indicate the rate of net overseas migration tracks broadly in line with the number of permanent visas made available. For example, in the decade to June 2017, the Australian population grew by 3.7 million with 2.25 million due to net overseas migration. In the same period, 1.9 million permanent visas were granted. After accounting for time lags and visa transitions, this implies permanent visas were the overwhelming driver of migration in the decade.[1] This makes the decision to set the number of permanent visas the most important policy lever for government in relation to population growth over time.[2]

However there are a number of other factors to consider in terms of Australia’s migration framework. Importantly, about half of all permanent visas are granted to people already in Australia, implying the rate of migration will not immediately fall by 30,000 due to the permanent visa reduction.

Compared to the previous Budget, the 2019–20 Budget estimates for the rate of net overseas migration show a 17 per cent increase despite this permanent visa reduction. This means other factors, such as stronger growth in the number of temporary visas such as international students and temporary skilled workers, may be causing higher rates of migration overall, particularly in the short- and medium-term. It is also possible that past trends in relation to permanent visa grants and net overseas migration may not hold into the future.

Even factoring in the reduction in permanent visas, the increasing net overseas migration estimates in the 2019–20 Budget imply higher population growth in Sydney, Melbourne and Brisbane than recent years because, as stated earlier migrants are more likely to live in capital cities.

Introducing new regional provisional visas

To complement the reduction of permanent visas in seeking to mitigate congestion in cities, the Morrison Government also announced two new regional visas (Budget Paper No. 2, p. 114). The aim is to change the geographic composition of permanent residency visas by increasing the number of people settling outside major cities. Regional Australia is defined as ‘not be residing in Sydney or Melbourne or Brisbane or the Gold Coast or Perth.’

The two new visas replace existing regional visas. Like those being replaced, one requires an employer to sponsor the migrant (the Skilled Employer Sponsored Regional (provisional) visa) while the other requires no employer sponsorship and will utilise the points-test framework (the Skilled Work Regional (provisional) visa). These two visas will account for 23,000 places out of the 160,000 places available each year over the Budget period.

The capability of Australian Governments to shape geographic settlement patterns via migration policy has a mixed history. Writing in 1999, Professor Graeme Hugo found ‘economic development’ is more likely than policy measures to successfully settle non-metropolitan centres. However Hugo noted in a more recent publication that policy changes have partially resulted in an ‘emerging and subtle shift in settlement patterns.’

In relation to demand for these new visas, there are a number of unknowns at this stage given neither are scheduled to be introduced until November 2019. Both will require a three year period spent in ‘regional Australia’ before a permanent visa is granted. Potential migrants applying for these visas will rely on labour market demand from employers. Without employment, long-term migrant settlement is unlikely. In addition, there are implications for welfare support and pathways to Australian citizenship. A provisional visa means the exclusion period for welfare eligibility and pathway to citizenship is an additional three years compared to existing employer sponsored and other points-tested visas without geographic restrictions, which grant permanent residency immediately. This is a potential disincentive.

Notes

[1] This natural increase estimate has been derived. Natural increase is the residual of population growth minus net overseas migration. As Budget Paper No. 3 contains both population growth estimates and net overseas migration estimates, it is straightforward to derive the natural increase component.

[2] Parliamentary Library calculations based on the following sources: Australian Bureau of Statistics, Australian Demography Statistics, March 2018, cat. no. 3101.0, September 2018; J Phillips and J Simon-Davies, Migration to Australia: a quick guide to the statistics, Research paper series 2016–17, Parliamentary Library, January 2017.

[3] Assigning specific visa categories to rates of growth is difficult as the time period in question changes the composition of the growth. For example, the ABS calculates 12 month periods of population growth, showing temporary visas contribute a majority of net overseas migration. However over a longer time period, as explained above, permanent visas contribute a majority of net overseas migration. This issue of accounting can cause confusion when attributing permanent or temporary visas as the causal factor for migration growth. 

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