Population growth masking weak economy, making households worse off: CBA economist
By business reporter Michael Janda
Australian treasurers of both political persuasions have lauded the nation's relative economic performance since the global financial crisis.
The latest gross domestic product (GDP) figures for the June quarter, released last month, showed the economy growing at an annual pace of 3.3 per cent.
While it is undoubtedly true that Australia is comfortably ahead of most of advanced economies in the most commonly used statistic, GDP, it has not been doing so well on more meaningful measures.
"Despite the fact that the economy's growing at what looks like a healthy clip on the surface, the way that transfers to to how households feel at the moment suggests that things aren't too crash," observed Commonwealth Bank senior economist Gareth Aird.
The bank's economics team has released a report questioning the overwhelming focus on the headline GDP number, and relative ignorance around other indicators that better reflect how households are doing.
Population growth bumps up growth, lowers living standards
Mr Aird said a fundamental problem with the headline GDP figure is that it ignores population growth, which automatically grows the economy but not the standard of living.
"If you've got more people, you've got more spending," he explained, in an interview for RN Breakfast.
"But what really matters for households is not the overall growth rate of the economy but how their incomes are growing."
He said a better measure for this purpose is real net national disposable income (RNNDI) per capita.
This more closely reflects the income going to households and their capacity to buy goods and services.
Unlike GDP, which has been boosted by the rising volume of mining exports even though prices for those exports have slumped, RNNDI has been hit hard, and has been going backwards for most of the past five years when looked at per person
So why are governments so fixated on GDP growth if it does not necessarily translate to benefits for the population?
"It benefits businesses, I guess, that can take advantage of an ever growing population, or customer base if you like," Mr Aird explained.
"So ultimately businesses that have market power and can operate at scalability do benefit from population growth."
One of the economic arguments that has been used to support current immigration rates has been that it helps offset an aging population.
However, the Commonwealth Bank report noted that this is only "kicking the can down the road", with the current working age migrants themselves aging and leaving the workforce 20, 30 or 40 years from now.
Infrastructure, public services must keep up with population
That is not to say that Gareth Aird and the CBA economists see no benefits to immigration and population growth.
"If you look at the historical experience of Australia, there has absolutely been benefits to having pretty strong population growth," he said.
"But I think more recently we've seen some of the indicators suggest that those benefits are probably starting to wane and unless there's a commensurate lift in public investment, a look at housing affordability more broadly ... then I think the benefits to running a strong immigration program are questionable."
Mr Aird said to make the current bipartisan support for high rates of immigration work, there needs to be a national focus on building appropriate transport and other infrastructure, increasing funding to public services to match the population and building more affordable housing.
"If both sides of government still want to run with the current policy around immigration growth, then they must be looking at what it's doing to housing affordability, traffic, other issues relating to public investment, otherwise you simply dilute the quality of the public infrastructure that you already have," he concluded.