Whenever the prospect of further immigration cuts in Australia is raised, Labor and the Coalition tend to offer the same response.
We cannot reduce migration that far because the economy needs migrants to fill vacant jobs.
It is an instinctive—and revealing—argument. Immigration Minister Tony Burke repeated it recently at the National Press Club.
As I will explain, that reasoning assumes the only workers who count are those who have not yet arrived in Australia.
Critics of One Nation’s proposal to return temporary migrant numbers to pre-Covid levels warn that the move would create skills shortages and leave Australia exposed to the pressures of an ageing population.
That simplistic thinking has infected the broader immigration debate. The choice is presented as either maintaining exceptionally high migration or watching hospitals and construction sites come to a standstill.
Apparently, there is no middle ground.
Australia clearly needs a continuing flow of skilled migrants. No credible government would close the door to highly specialised doctors, engineers or other essential professionals.
But the assumption that every new arrival automatically fills a labour shortage overlooks a fundamental economic reality: migrants add to the supply of workers, but they also create new demand for workers.
Home Affairs Minister Tony Burke told the National Press Club on September 17 that the Albanese government would reduce net migration through an overhaul of working holiday visas and new restrictions on temporary migrants. However, he stopped short of supporting deep cuts to Australia’s overall migration rate.
A Spanish hospitality student became a prominent example of Tony Burke’s immigration changes after telling the Daily Mail earlier this month that she was devastated by the Albanese government’s reforms. Fighting back tears, she said the reduction in access to extended working holiday visas could prevent her from staying in Australia.
A migrant nurse may help staff a hospital, but that nurse also needs access to a doctor, a home and the infrastructure required to support a growing population.
Two decades of high migration have not eliminated Australia’s skills shortages. One reason is that rapid population growth generates additional demand at the same time as it adds to the labour supply.
If simply adding more people were a guaranteed economic solution, Australia would have resolved its workforce problems long ago.
The argument that mass immigration can solve population ageing is equally unconvincing. At most, it delays the problem. Migrants grow older too.
As each new intake ages, an even larger intake is required behind it to maintain the same demographic momentum.
Relying on successive waves of migration to keep lowering the median age resembles a demographic Ponzi scheme.
Rather than focusing only on how many people Australia can bring in, politicians should ask why they are overlooking the millions of workers already living here.
Nearly five million Australians are over the age of 65, yet their workforce participation rate is only 16 per cent. In New Zealand, the figure is above 26 per cent.
What explains the difference?
There is another way to increase the workforce without mass migration, writes Peter van Onselen – it’s using the workers the country already has, but deters from paid employment: Australians over 65
One important reason is that New Zealand doesn’t punish its seniors for working. New Zealanders can keep working after 65 without having their pensions clawed back.
Australia does the exact opposite. We claim we want more older workers, then financially punish them for remaining in the workforce.
After the available Work Bonus and income-free allowances are exhausted, the pension is clawed back by 50 cents for every additional dollar earned, and that is before ordinary income taxes whittle wages away even further.
It’s a big deterrence tax on work for older Australians. A pensioner who gives up their leisure to help an employer fill a vacancy is financially penalised for the privilege well beyond normal tax rates. And politicians wonder why so many stay home?
MacroBusiness chief economist Leith van Onselen has done the arithmetic: ‘Australia would gain just over 500,000 workers if its 65-and-over labour force participation rate matched New Zealand’s,’ he argues.
That’s more than three per cent of our current workforce, a perfect way to fill existing gaps without super-charging migration numbers, which as mentioned, cause other issues.
Health, workplace flexibility, retirement savings and personal preferences also influence whether older Australians choose to continue working. But even if Australia is only able to entice a fraction (say 20 per cent) of the over 65-year-olds New Zealand has back into the workforce, that’s around 100,000 extra workers to fill gaps.
‘These people already live in Australia’, Leith points out. They increase labour supply without producing a corresponding population driven demand shock.
The fix is glaringly obvious: exempt employment earnings from the pension income test.
Let pensioners pay ordinary income tax on their combined income like everyone else. It would preserve the safety net while eliminating the penalty for working, giving Australia more workers in industries where we need them.
One Nation deserves credit for injecting a version of this reform into the debate. It is vastly more economically serious than the media’s reflexive insistence that a large scale reduction in migration risks economic ruin.
Any cost attached to letting working pensioners keep their payments would be more than recovered via additional income taxes and associated economic growth.
Nobody is forcing retirees back to work. It’s about giving them the choice in a way that helps address skills shortages.
A dramatic reduction in the immigration intake doesn’t have to be a foolhardy endeavour.