Budget loses billions, nation in deeper debt: The cost of cutting migration

Any cuts to Australia’s overseas migration intake will cost the federal budget’s bottom line and plunge the country into deeper debt, complicating the equation for political parties as they promise to significantly slow the flow of immigrants into the country.

Fresh costings released by the independent Parliamentary Budget Office on Tuesday show the budget’s underlying cash balance would improve by $80.6 billion in a decade if the annual migrant intake increased by 40,000 more people than current assumptions.

But cutting the assumed annual net migration figure by an extra 40,000 people would deteriorate the bottom line by about $79.1 billion.

The reason higher overseas migration improves federal coffers is that migrants are generally younger and arrive in Australia at working age, after most of their education costs have been covered, meaning they deliver more in personal income tax and economic activity than they cost in government spending over time.

The PBO said its report was seeking to assess just how sensitive the federal budget is to changes in net overseas migration, which tracks long-term arrivals to the country minus departures. “This trend shows the fiscal improvements to the budget of higher net migration into Australia,” it says.

But immigration has become a political debate in Australia since the net intake it surged to a record high of 550,000 immediately after the pandemic, before falling to about 300,000, which is significantly lower than the 2022-23 peak but still above the long-term average of 230,000.

Immigration expert Abul Rizvi said the fiscal benefits of migration, particularly skilled and temporary migrants, had been well understood for 30 years – but the considerations in establishing migration settings went beyond their fiscal impact.

“Of course, there are other things to consider here: demography, housing and infrastructure, service delivery. If you press a net overseas migration accelerator too much, which is what happened immediately after COVID, other problems will arise. This is what we’ve seen,” he said.

“It’s not that simple as ‘they’re a budget positive’. There is a balance, and a point where benefits outweigh the costs. When you go too far, the costs outweigh the benefits.”

As the Coalition and One Nation pledge to drive down migrant numbers, the costings demonstrate they will need to either cut costs or raise taxes elsewhere if they want to reduce the budget deficit over time.

The costings assume annual net overseas migration levels of 245,000 this financial year, 225,000 in the three years afterwards, and 235,000 until 2036-37.

These align with Labor’s budget forecasts. Crucially, the Albanese government has never met its net overseas migration targets.

The Coalition is promising a lower intake, although Opposition Leader Angus Taylor has not yet given a number. The opposition wants to align its target with housing construction, and figures previously floated are between 150,000 and 200,000 – not dissimilar to former leader Peter Dutton’s overall intake of about 160,000.

According to the PBO costings, this would lower the baseline by between 25,000 and 75,000 people, which would cost the budget bottom-line billions. Given Taylor also wants to index personal income tax brackets, and has been campaigning for lower tax settings overall, it is likely he would need to make deep cuts to federal spending.

One Nation would have an even greater challenge balancing the budget, given its policy is to reduce the number of visas issued each year to 130,000. This would most likely lead to either net zero or negative migration, since more than 200,000 people leave the country each year – more than double the decrease that the PBO modelled.

According to this masthead’s Resolve Political Monitor, 35 per cent of voters regard One Nation as the best party to handle immigration, while 24 per cent name Labor and 19 per cent named the Coalition. Previous surveys of Australians have shown increased anxiety about immigration has been fuelled by angst over housing affordability and supply shortages.

Australia’s debt is currently about 33 per cent of its economic output, a figure that’s expected to rise in the next four years before coming down to about 28 per cent by 2036.

Increasing the intake by 80,000 more than planned would drive debt down to 24 per cent of GDP, while bringing in an extra 40,000 people a year would lower it to 26 per cent.

Reducing immigration further would have the opposite effect. Cutting an extra 40,000 people would lift debt to 30 per cent of GDP in 10 years’ time, while slicing the annual intake by 80,000 people would increase debt to 32 per cent of GDP in a decade, and almost 37 per cent in the interim.

The PBO said this was primarily driven by higher tax receipts, particularly personal income taxes, but also company and superannuation fund taxes as well as fees, charges and broader economic activity.

While there were costs associated with higher net overseas migration – such as demand for health, education, housing and infrastructure services – the impact was less than the revenue game.

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