Was immigration critical to Australia achieving surplus?


The big news out of yesterday’s Budget is that in 2022-23, the current financial year, there is a small budget surplus forecast. The treasurer says this is due to a surge in revenue to the tune of $146.5 billion, driven by strong employment and wages growth, as well as high commodity prices.

This 2022-23 surplus will be different to the ‘back in black’ 2019 budget surplus in that the 2022-23 surplus is likely to actually be delivered, although it will be similar in that both assumed high levels of net migration.

The forecast ongoing surpluses in the 2019 Budget assumed net migration of over 270,000 in the early years and then settling at around 268,000 per annum ongoing.

For 2022-23, Treasury has assumed net migration of 400,000. While on my calculations that may be an over-correction, the fact is 2022-23 will set a new net migration record for Australia.

Note that net migration counts actual long-term arrivals minus long-term departures and is different to the migration program which counts permanent visas issued, irrespective of whether the migrant is already a long-term temporary entrant or an offshore applicant who receives a permanent resident visa.

But why would net migration be so important to delivering the 2022-23 Budget surplus?

The record net migration in 2022-23 is being driven by students, working holiday makers, skilled temporary entrants and visitors extending their stay after arrival.

As none of these new arrivals have access to social support in Australia, most of the adults must work to survive. That is, they would have a very high employment rate and take up relatively little in government services and benefits.

Their income would be taxed and they would pay GST on their spending. They would have supplied crucial labour to help many businesses survive at a time of massive labour shortages.

In the nine months to March 2023, total employment grew by 263,800. This may be closer to 300,000 by the end of 2022-23. While part of this growth would be driven by lower unemployment, which fell from 3.8% to 3.5%, the larger portion of the employment growth in 2022-23 would be driven by the record level of net migration.

This is remarkably similar to Budget surpluses under Howard-Costello, which were also driven by a mining boom and rapid growth in employment.

In the latter years of Howard-Costello, net migration grew from 142,580 in 2004-05 to 277,340 in 2007-08. Over the same period, unemployment fell from around 5.5% to 3.7% and employment grew from around 9.9 million to 10.7 million.

Like the current government, the rapidly improving Budget position was unanticipated by Howard-Costello, with revenue forecasts consistently underestimating the outcomes. The rising levels of net migration were also unanticipated.

The Howard-Costello surpluses were brought to an abrupt halt by the Global Financial Crisis (GFC) that forced the Rudd government to spend big to prevent the economy going into recession.

Despite Rudd’s statements about a big Australia, net migration fell and employment growth both fell sharply after the GFC. Many newly arrived migrants and temporary entrants left the country while those who stayed faced a desperately difficult challenge to survive.

For 2023-24 and 2024-25, Treasury is forecasting a sharp decline in employment growth to 1% per annum compared to 2.5% in 2022-23. But it is forecasting a much slower decline in net migration to 315,000 in 2024-25 and 260,000 in 2024-25.

That would suggest a rise in unemployment, and indeed, Treasury is forecasting unemployment to rise to 4.25% in 2023-24 and 4.5% in 2024-25.

That would leave a very large number of temporary entrants and newly arrived migrants, both of whom do not have access to social support, in an extraordinarily vulnerable situation. Some will be forced to return home leading to lower net migration. However, many will not be able to return and will be vulnerable to exploitation and/or reliant on charity.

While we may celebrate the budget surplus temporary migrants and newly arrived migrants have helped deliver in 2022-23, in Australia’s history, sharp economic slowdowns always hit temporary entrants and newly arrived migrants hardest.


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