Brian Gaynor: Population, the debate we need to have

New Zealand's migration growth has fallen dramatically from a net positive of 42,500 in 2003 to 12,500 in the June 2009 year. Photo / Greg Bowker

Migration and population growth are leading issues of debate during the Australian general election campaign.

These are important topics because population growth is a powerful driver of economic growth and population structures will become increasingly important as Western societies age.

We rarely debate these issues even though there are clear indications that our low population growth, and the age distribution of our society, will have a big bearing on social and economic prosperity.

The accompanying table shows the population growth of Australia and New Zealand over the past seven years and the breakdown of this growth between net migration and natural causes. The figures do not always add up, particularly before 2007, because of post-Census adjustments.

A number of features are notable, including:

* Australia's population has increased by 11.7 per cent over the seven years while New Zealand's has grown by 9.3 per cent.

* Australia's growth rate has accelerated from 1.2 per cent in the June 2003 year to 2.1 per cent in the 2008-09 year while New Zealand's has fallen from 2 per cent to 1.1 per cent a year over the same period.

* World population has grown by 1.2 per cent a year over the past five years with Australia well above this rate and New Zealand below.

* Australia's net migration growth has usually exceeded its natural growth whereas New Zealand's natural growth has exceeded net migration growth in recent years. France and the United States are the only other OECD countries where natural growth has been higher than net migration growth.

* New Zealand's migration growth has fallen dramatically from a net positive of 42,500 in 2003 to 12,500 in the June 2009 year while Australia's net migration increase has surged from 116,500 to 298,900 a year over the same period.

* Our net migration is now lower than it was in the 1950s when there was a net inflow of 146,400 in the 1950 to 1959 period compared with 124,900 between 2000 and 2009.

* Australia's main migrant sources are the United Kingdom, New Zealand, India and China while New Zealand is dependent on the United Kingdom, China, South Africa and India in that order.

Successive Australian Governments have used migration for economic and nation-building goals. The OECD, which supports this migration growth strategy, wrote in its International Migration Outlook 2010: "Immigration will continue to play a vital role for OECD economies in the long term because of the need for extra workers to maintain growth and prosperity."

Migration has clearly been an economic driver in the past, particularly in the United States, Canada, Australia and New Zealand, because migrant workers are usually young, energetic and ambitious.

China's current economic growth has been largely driven by vast regional migration, particularly the movement of huge numbers of individuals from rural areas to the cities.

Slow-growing economies usually have low population growth and this is clearly evident in Australia with Tasmania, a low-growth state, experiencing just 1.1 per cent population growth in 2009 and 1 per cent in 2008, the same as New Zealand.

Migration has become a hot election issue, even though Julia Gillard, who was born in Wales, is the country's first foreign-born Prime Minister since World War II.

Australia is projected to have a population of 36 million by 2050, compared with 22.4 million at present, based on net migration of 180,000 a year. This compares with net migration of 298,900 in the June 2009 year, an estimated 240,000 in the June 2010 and a forecast 175,000 in the June 2011 year.

Migration is expected to fall because the strong inflow from across the Tasman is forecast to slow as the New Zealand economy recovers, foreign student numbers will flatten out and a four-year workers' visa programme, which was highly successful, is about to expire.

Gillard has indicated that the 36 million population forecast is "unsustainable" and the net migration target of 180,000 a year is unrealistic. Her argument is that Australia doesn't have the infrastructure to support a population of 36 million.

The pro-business media, which have taken a strong stance against Gillard on this issue, argue that state Governments, particularly those run by the new Prime Minister's Labor colleagues, are to blame for crowded trains, traffic jams, long hospital waiting lists and other infrastructure deficiencies.

This is a debate that New Zealand should be having because the country's net migration growth is low, particularly compared with the 1950s and 1960s, and this is the main reason why Australia's population growth rate is now around 2 per cent a year while New Zealand's has fallen to around 1 per cent.

As population growth generates economic growth then Australia becomes increasingly attractive to our brightest and best educated. This suggests that Prime Minister John Key's ambition to close the gap with Australia is unrealistic unless we adopt far more aggressive growth policies as far as population, infrastructure and the economy are concerned.

The other issue is the role that migration can play in dealing with the problems of an ageing society and a decline in the workforce population compared with those below 20 and those over 65.

The OECD forecasts that the working-age population in its 30 member countries will grow by only 1.9 per cent between 2010 and 2020 compared with the 8.6 per cent growth rate from 2000 to 2010.

A number of countries face a difficult time ahead, particularly Japan, with the working-age population expected to decline while those in the dependency age groups (0-19 and 65+) will increase dramatically.

New Zealand is expected to be relatively well off compared with other OECD countries although our working-age population growth rate is forecast to fall from 13.2 per cent in the 2000-2010 period to 6.7 per cent between 2010 and 2020. In other words there will be only 1.6 workers in New Zealand for every dependent in 2031 compared with two workers for every dependent at present.

This will put enormous pressure on the working-age population and public finances.

The answer to this problem as far as New Zealand is concerned is that migration to Australia must slow down, the existing workforce will have to remain in employment beyond the traditional 65 retirement age and net migration will have to increase substantially.

We need a combination of all three to deal with the problem of an ageing society but national superannuation will have to be raised to 68 or 70 and KiwiSaver extended beyond 65 if individuals are to be encouraged to work beyond that age.

As far as net migration is concerned New Zealand will have to raise the annual figure above the natural increase number, now about 35,000 a year.

This won't be easy to achieve as average net migration during the seven years covered in the table was only 15,900 a year.

Unfortunately, unlike our neighbours, we aren't even debating the population issue even though there is an obvious link between population growth, economic growth and a country's ability to look after its ageing society.

Unless we develop a clear plan to deal with these important issues New Zealand will continue to drift behind Australia and the gap will widen rather than narrow.

Disclosure of interest: Brian Gaynor is an executive director of Milford Asset Management.