An inconvenient truth about rising immigration

JOHN HOWARD never wanted to talk about his booming immigration program. It seems Kevin Rudd's lot doesn't want to either. Why not? Because it just doesn't fit.

For Mr Howard, it didn't fit politically. Didn't fit with the xenophobic rhetoric he used to win votes back from Pauline Hanson and to wedge Labor.

For Mr Rudd, it doesn't fit with any of his professed economic concerns - about inflation, about mortgage stress and about climate change.

You'd hardly know it, but we're in the biggest immigration surge in our history. According to Rory Robertson of Macquarie Bank, net immigration has exceeded 100,000 a year in 12 of the past 20 years, having exceeded 100,000 only 12 times in the previous two centuries.

The Howard government planned for an immigration program of up to 153,000 this financial year, to which you can add a planned intake of 13,000 for humanitarian reasons, and maybe 20,000 New Zealanders.

That doesn't count an increase in the number of skilled workers on class 457 "temporary long-stay" visas, nor the growing number of young people on working holiday visas.

In his first 100 days, Labor's Immigration Minister, Chris Evans, announced an increase of 6000 in the skilled immigration program for this year, a liberalising of the working holiday visa scheme and a committee to propose ways of making the 457 visa scheme more effective.

The third point in Mr Rudd's five-point plan to fight inflation is to "tackle chronic skills shortages", and part of this is to do so through the immigration program. Clearly, the Government believes high levels of skilled migration will help fill vacancies and thus reduce upward pressure on wages.

That's true as far as it goes. But it overlooks an inconvenient truth: immigration adds more to the demand for labour than to its supply. That's because migrant families add to demand, but only the individuals who work add to supply.

Migrant families need food, clothing, shelter and all the other necessities. They also add to the need for social and economic infrastructure: roads, schools, health care and all the rest.

Another factor is that their addition to demand comes earlier than their addition to labour supply. Unemployment among recent immigrants is significantly higher than for the labour force generally.

Admittedly, the continuing emphasis on skilled immigration - and on the ability to speak English - plus the fact that many immigrants are sponsored by particular employers, should shorten the delay before they start working.

Even so, we still have about a third of the basic immigration program accounted for by people in the family reunion category. You'd expect the proportion of workers in this group to be much lower. So though skilled migration helps reduce upward pressure on wages at a time of widespread labour shortages, immigration's overall effect is to exacerbate our problem that demand is growing faster than supply.

The Rudd Government professes to great concern over worsening housing affordability. First we had a boom in house prices that greatly reduced affordability, and now we have steadily rising mortgage interest rates.

The wonder of it is that, despite the deterioration in affordability, house prices are continuing to rise strongly almost everywhere except Sydney's western suburbs.

Why is this happening? Probably because immigrants are adding to the demand for housing, particularly in the capital cities, where they tend to end up.

They need somewhere to live and, whether they buy or rent, they're helping to tighten demand relative to supply. It's likely that the greater emphasis on skilled immigrants means more of them are capable of outbidding younger locals.

In other words, winding back the immigration program would be an easy way to reduce the upward pressure on house prices.

Finally, there's the effect on climate change. Emissions of greenhouse gases are caused by economic activity, but the bigger your population, the more activity. So the faster your population is growing the faster your emissions grow.

Our immigration program is so big it now accounts for more than half the rate of growth in our population.

It's obvious that one of the quickest and easiest ways to reduce the growth in our emissions - and make our efforts to cut emissions more effective overall - would be to reduce immigration.

Of course, you could argue that, were we to leave more of our immigrants where they were, they'd still be contributing to the emissions of their home country. True. But because people migrate to better their economic circumstances, it's a safe bet they'd be emitting more in prosperous Australia than they were before.

My point is not that all immigration should cease forthwith but, leaving aside the foreigner-fearing prejudices of the great unwashed, the case against immigration is stronger than the rest of us realise - and stronger than it suits any Government to draw attention to.

Ross Gittins is the Herald's Economics Editor.