Policy gaps put nation at risk of resource curse
By Paul Cleary
The Australian, August 6, 2010
To make matters worse, both major parties, and the Greens, have flagged sharp cuts to immigration, thereby creating pressure for high wages. Prime Minister Julia Gillard has dumped Kevin Rudd's Big Australia and opted for a 'sustainable population', while Opposition leader Tony Abbott has announced a cut of 100,000 to immigration.
These policies are certain to lead to a tighter labour market, exacerbating the pressures that have underpinned 1970s-style industrial action on the North West Shelf.
It is no accident that the idea of a bigger Australia came out of Treasury and Reserve Bank thinking about the scale of the resources boom.
Treasury secretary Ken Henry has argued that a decades-long resources boom, underpinned by the transformation of China and India, called for continued high rates of immigration that would lead to a much bigger population.
A bigger population would also be needed because the proportion of working-age people was in decline, with the over-65 population projected to increase from 13 per cent to 22 per cent by 2049.
As Mr Henry put it in a speech late last year, Australia faced increased demands from the resources boom at a time when its workforce was in decline.
Treasury's intergenerational report showed that, in part, Australia was responding to this challenge by increasing immigration and fertility.
That is why the report lifted the 40-year population from 28.5 million to 35 million people in 2049.
Mr Henry made the obvious point that this raised profound challenges for policymakers.
Australia would have to rethink its pattern of low-density settlement, reliance on motor transport and heavy environmental impact.
These challenges notwithstanding, the idea of a bigger Australian population provided an effective way to cope with the dual challenges of population ageing and a resurgent resources sector.
Mr Henry explained that the resources boom would lead to a sustained rise in Australia's terms of trade — the relative price of exports compared with imports — thereby squeezing the non-resources sectors and creating a two-speed economy.
The solution to this problem was Big Australia. Continuing high immigration would help ease what would otherwise be a very painful adjustment.