Whenever Australia’s immigration settings come under pressure, both Labor and the Coalition tend to reach for the same response.
We cannot reduce migration too far because the country needs newcomers to fill vacant jobs.
It is a revealing political reflex. Immigration Minister Tony Burke offered a familiar version of it again during a recent address to the National Press Club.
Underlying that argument is an assumption that the workers who count most are those still waiting to arrive, rather than the millions already living in Australia.
Opponents of One Nation’s proposal to return temporary migrant numbers to their pre-Covid level warn that such a move would trigger skills shortages and make Australia more exposed to an ageing population.
That binary thinking has come to dominate Australia’s immigration debate: either migration remains exceptionally high, or hospitals, construction sites and other essential industries supposedly come to a standstill.
In that framing, there is no middle ground.
Australia clearly needs a continuing flow of skilled migrants, and no responsible government would close the door to highly trained doctors, engineers and other specialists.
But the idea that every new arrival automatically fills a labour-market gap overlooks a basic economic point: migrants add workers, but they also increase demand for homes, healthcare, transport and other services.
Home Affairs Minister Tony Burke told the National Press Club on September 17 that the Albanese government would bring net migration down through changes to working holiday visas and tighter rules for temporary migrants. However, he stopped short of supporting deep reductions in Australia’s overall migration rate.
A Spanish hospitality student became a prominent example of the impact of Tony Burke’s reforms after telling Our News Outlet earlier this month that the changes had left her devastated. Fighting back tears, she said reduced access to extended working holiday visas could make it impossible for her to remain in Australia.
A migrant nurse may help staff a hospital, but that nurse also requires medical care, housing and public infrastructure capable of supporting a growing population.
Two decades of high migration have not eliminated Australia’s skills shortages. One reason is that fast population growth creates new demand at the same time as it expands the available workforce.
If simply adding more people were enough to solve labour shortages, Australia would have settled the issue long ago.
The argument that mass migration is a solution to population ageing is no more convincing. At best, it postpones the challenge. Migrants age as well.
As each new intake grows older, an even larger intake is needed to maintain the same demographic balance, creating a cycle that becomes increasingly difficult to sustain.
Relying on successive waves of migrants to keep the median age down resembles a demographic Ponzi scheme.
Rather than focusing only on how many people Australia can bring in, politicians should also examine why so many potential workers already here remain underused.
Almost five million Australians are aged over 65, yet just 16 per cent participate in the workforce. In New Zealand, the comparable figure is above 26 per cent.
So what explains the gap?
There is another way to increase the workforce without mass migration, writes Peter van Onselen – it’s using the workers the country already has, but deters from paid employment: Australians over 65
One important reason is that New Zealand doesn’t punish its seniors for working. New Zealanders can keep working after 65 without having their pensions clawed back.
Australia does the exact opposite. We claim we want more older workers, then financially punish them for remaining in the workforce.
After the available Work Bonus and income-free allowances are exhausted, the pension is clawed back by 50 cents for every additional dollar earned, and that is before ordinary income taxes whittle wages away even further.
It’s a big deterrence tax on work for older Australians. A pensioner who gives up their leisure to help an employer fill a vacancy is financially penalised for the privilege well beyond normal tax rates. And politicians wonder why so many stay home?
MacroBusiness chief economist Leith van Onselen has done the arithmetic: ‘Australia would gain just over 500,000 workers if its 65-and-over labour force participation rate matched New Zealand’s,’ he argues.
That’s more than three per cent of our current workforce, a perfect way to fill existing gaps without super-charging migration numbers, which as mentioned, cause other issues.
Health, workplace flexibility, retirement savings and personal preferences also influence whether older Australians choose to continue working. But even if Australia is only able to entice a fraction (say 20 per cent) of the over 65-year-olds New Zealand has back into the workforce, that’s around 100,000 extra workers to fill gaps.
‘These people already live in Australia’, Leith points out. They increase labour supply without producing a corresponding population driven demand shock.
The fix is glaringly obvious: exempt employment earnings from the pension income test.
Let pensioners pay ordinary income tax on their combined income like everyone else. It would preserve the safety net while eliminating the penalty for working, giving Australia more workers in industries where we need them.
One Nation deserves credit for injecting a version of this reform into the debate. It is vastly more economically serious than the media’s reflexive insistence that a large scale reduction in migration risks economic ruin.
Any cost attached to letting working pensioners keep their payments would be more than recovered via additional income taxes and associated economic growth.
Nobody is forcing retirees back to work. It’s about giving them the choice in a way that helps address skills shortages.
A dramatic reduction in the immigration intake doesn’t have to be a foolhardy endeavour.
