Here’s the costing Angus Taylor isn’t sharing two days out from afederal election: the Coalition’s commitment to slash net migration by 100,000 from next year will smash a $24bn hole in the budget.
That more than erases the Coalition’s claimed$14bn improvement in the deficitover the four years versus Labor’s election policies. It shatters the Coalition’s pitch as better economic managers.
The shadow treasurer on Thursday again confused cutting the permanent migration program by 45,000 with a separate pledge to reduce net overseas migration by 100,000 people a year.
“Well, permanent migration, humanitarian, student visas, and that adds up to 100,000 people over the next 12 months,” Taylor told a press conference.
No it doesn’t.
Typically, about three in 10 permanent visas are granted to people who are already in the country. So that means that 45,000 becomes more like 13,500 in net migration terms.
The 30,000 pledged reduction in student numbers brings that to 43,500, and cutting the humanitarian intake by 6,250 brings it to about 50,000 (assuming all are new to the country).
Even then, that still underplays the immensity of the task to bring net overseas migration to 100,000 below the already very low budgeted estimate of 260,000 people next year.
But it’s their target, so they should cost it.
And that’s where things get really ugly.
The Coalition’s election costings show that cutting the permanent migration program will cost $4.2bn over four years.
And based on the Parliamentary Budget Office’sbuild your own budget tool, the planned reduction innet overseas migrationdrives another $24bn cumulative deterioration to the commonwealth’s underlying cash balance over the four years to 2028-29.
Over a decade the fiscal hit from a lower population blows out to a huge $201bn, erasing the already slim hope of returning to surplus by the mid-2030s.
Remember why the Coalition are even talking about migration.
The shadow treasurer and Peter Dutton have repeatedly blamed the spike in net migration over recent years for causing the housing crisis –an argument not supported by the numbers.
That’s not to say migration plays no role in housing costs – it does. But so do borrowing costs, tax settings, the rate of supply of new homes, the health of the labour market, and shifts in preferences.
Peter Tulip, the chief economist at the Centre for Independent Studies, estimates the Coalition’s plan to cut net migration by 100,000 a year would reduce housing prices and rents by about 11% over the next decade.
That’s about 1% per annum lower property values than would otherwise have been the case.
Then let’s, once more, consider the fiscal cost of Dutton’s migration targets (however impossible it is to achieve) compared with the most recent budget estimates.
From an expected $28bn in this financial year, the deficit in 2025-26 blows out by $2.3bn to $44.4bn, the PBO’s budget model shows.
By 2028-29 the deficit is nearly $10bn bigger at $46.7bn.
And instead of the shallow surplus the March budget predicts by 2035-36, the strangled migration program means we have a deficit of $38.4bn, or nearly 1% of GDP in 10 years’ time.
Why such a big impact?
Bluntly, a bigger population generally means a bigger economy: more people spending and working, which drives higher tax receipts for governments.
It doesn’t necessarily mean abettereconomy, especially after accounting for inflation – witness the decline in per-person real GDP for much of the past two years.
But longer term, migrants tend to be young, motivated, and are often skilled. Instead of a drain on the national purse, they tend to deliver a fiscal dividend over the course of their lives – that’s why cutting the permanent migration programs costs the budget.
It’s what governments choose to do with that fiscal dividend – whether they effectively invest in infrastructure, housing and services – that can make a difference to how well a country can accommodate a higher population.
Which brings us back to another major Coalition promise to massively boost defence spending over the coming decade.
And in that context, slashing net migration looks even more unwise.
Of course, bigger deficits lead to more debt – $200bn more by 2035-36, according to the PBO tool.
The Coalition didn’t include these numbers in their costings, but they should have.