As we’ve seen – especially over the past decade or so – population growth isn’t inevitable.
While the global population has grown every year for the past seven decades, some countries have seen their numbers shrink. And increasingly, those with falling birth rates (including Australia) have relied on immigration to keep their populations growing.
We’re often told countries such as Japan give us a glimpse into our future: a shrinking population with an increasing share of older people – many of whom require health and aged care. These services, of course, require workers. But when the population is shrinking (and becoming older), it becomes harder to find the people able to fill the roles we need.
When there are fewer workers, total economic growth, or gross domestic product, also tends to slow. Why? Because there are fewer people tinkering away and producing goods or services, and fewer people spending. (But as we’ll come to, total economic growth actually isn’t the most important metric).
What’s the solution? One is to continue topping up our population, either through encouraging people to pump out more babies or by welcoming more immigrants. The latter is usually easier.
Not only is it very hard (and often expensive) to get people to change their minds about having children, but “importing” workers means you don’t have to spend decades getting them toilet-trained and ready for the workforce – as you would have to with an influx of babies.
When there’s an urgent need for workers – to care for our growing pool of grandparents, for example – or to make our GDP numbers look good (we can partly blame the media for its obsession with these figures), it’s easy for decision-makers to just bring in more people. Although as we’ve seen, it comes with political risk.
But relying on population growth alone as a Band-Aid fix for our workforce shortages and to fuel our economic growth is a problem.
While having more people increases the amount we can produce as a country, it’s not total economic growth we should care about so much as economic growth per person. There’s little point in having a bigger pie when each slice is unchanged – or smaller.
That’s not to say immigration is a bad thing. Immigrants and the new ideas and processes they bring can make us better at our jobs (and therefore help us increase our economic growth per person). And they can play a crucial role in providing many of the services we rely on, from hospitality to healthcare. The economic benefits of skilled immigration are well established.
The problem is that governments over the years have relied too heavily on population growth, failing to put enough thought, weight or money behind what is needed to support that growth – much of which would also help us to improve living standards for Australians across the board.
By failing to invest enough in housing, for example, we have ended up with a housing market that is weighing down our productivity (and for which opportunists disproportionately blame immigrants).
People having to live further away from their workplace are getting drained by long commutes and have to spend large chunks of the income they earn on simply keeping a roof over their heads, leaving them with less energy to dedicate to work and less money to spend on other goods and services, dampening business growth.
While the Albanese government is spending billions of dollars on improving housing supply, it’s simply not enough to make up for the many decades of shortfalls.
If we want to fix one of the biggest barriers to economic growth, we have to pay up through our tax system. Right now, though, we rely far too heavily on taxing workers: the people who are generating the ideas, making the products and developing the technology we need to boost our living standards.
Compared to other OECD countries, Australia raises a relatively small share of its government revenue from taxes on property. That’s because we only really tax property when it changes hands, and there is a capital gains tax exemption on the family home, as well as other concessions such as the capital gains tax discount.
Moving to a land tax and reducing some of these concessions, while gradually cutting back income taxes – especially for lower- and middle-income earners – would be a more efficient and fair way of structuring our tax system, and probably generate more tax revenue in the long term.
Taxes, while necessary, often dampen economic activity. But we also know taxes on land have the least negative effect on GDP per person, compared to taxing workers, for example.
While lifting income taxes can discourage people from working and investing, taxes on land can’t reduce the supply of land. Why? Because land can’t just grow legs and move around – it can’t be hidden away and it can’t be shrunk.
We also know most property wealth in Australia is concentrated in the hands of older generations. It makes sense for those older Australians who own property and have done well out of it (generally just by holding on to it), to contribute their fair share, especially as they start needing more health and aged care services.
Meanwhile, by reducing income tax, we can encourage younger working Australians to push to their potential, work in the places we’ll be needing them in (such as hospitals and aged care homes) and invest in doing things better – all of which are harder to do if we continue to squeeze them by taxing them too heavily and keeping housing out of their reach.
Without making these changes, and especially if we don’t want to rely on more immigrants, we end up with a situation like Japan, where there is intense pressure on healthcare systems, labour shortages and a struggle to fund essential services, all while younger workers shoulder the burden of paying for these things and keeping the economy going.
That doesn’t mean the Australian government should just rely on population growth. Without investment in the infrastructure and housing needed to support a larger population, and without shifting some of the tax burden back onto older, wealthier Australians, we risk everyone ending up with a smaller slice of the economic pie.
Slowing down our population growth comes with costs, but so does keeping it going. Whether we want more, less or the same amount of population growth, fixing our tax system – and making sure we all pay a fairer share – is key to giving ourselves the best chance of keeping our living standards up.
Millie Muroi is the economics writer at The Sydney Morning Herald and The Age.
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Millie Muroi is the economics writer at The Sydney Morning Herald and The Age. She was formerly an economics correspondent based in Canberra’s Press Gallery and the banking writer based in Sydney.Connect via X or email.