High population growth key to Australia’s economic success: RBA’s Philip Lowe – The Australian Financial Review

RBA governor Philip Lowe says he expects Australia’s jobless rate to fall to 5 per cent ‘at some point over the next few years’. In June it held steady at 5.4 per cent for a second consecutive month.

The brisk pace of population growth over the past decade has made Australia both richer and younger, and helped set the stage for the country’s future prosperity, Reserve Bank of Australia governor Philip Lowe said.

Australia’s population reached 25 million on Tuesday night, according to calculations by the Australian Bureau of Statistics, sparking further debate around the positives and negatives of a rapidly rising population.

The central bank chief credited Australia’s strong population growth, compared to peers in the developed world, as one of the reasons for our economy’s outperformance over the past decade. While population increase over the past decade has lifted to average 1.7 per cent, most other advanced economies have recorded rates of less than 1 per cent.  Countries such as Germany, Japan and Greece have experienced stagnant or declining populations.

“This is an important difference, with Australia’s faster population growth being one of the reasons our economy has experienced higher average growth than many other advanced economies,” Dr Lowe said in prepared remarks to the annual Anika Foundation lunch in Sydney.

Net migration has played a large role in pushing up the population in recent times, adding on average around 1 per cent a year, with the balance of 0.7 per cent coming from natural increases. Workers coming to Australia tend to be relatively young, Dr Lowe said, with an average age of migrants between 20 and 25, more than 10 years younger than the median Australian.

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“This inflow of younger people through immigration has significantly reduced the rate of population ageing in Australia,” Dr Lowe said.

“Many countries are rightly concerned about their population dynamics, their ageing workforces and their rapidly rising old-age dependency ratios,” Dr Lowe said. “We, too, need to keep an eye on these issues, but we are in a better position than many others.” 

How to fund support for a growing proportion of older, dependent citizens on a dwindling income tax base is a key challenge for policymakers across the developed world, as well as in China.

The ratio of older (65 and older) to working-age Australians is rising, but less quickly than in most other countries, Dr Lowe said. Our relative youth among advanced economies and higher fertility rate “mean that the dependency ratio is expected to remain lower than elsewhere over the next generation”.

The pace of new housing construction is now above population growth. The pace of new housing construction is now above population growth. RBA

“The movement to Australia of large numbers of young people over the past decade has changed our demographic profile in a positive way. This has implications for future economic growth and the pressures on government budgets.”

“We are better placed than many other countries,” he said.

The climbing population has added to the nation’s overall prosperity, economists say, but it has also placed increasing pressure on infrastructure and living standards, especially in major cities such as Sydney and Melbourne.

Dr Lowe acknowledged some “pressures” associated with the recent rapid pace of population growth, and that the effects on Australia’s economy and society were “complex”.

He noted that Australian policymakers “were slow” to respond to the additional pressures of a climbing population, but the more recent pick-up in housing construction and infrastructure investment “in time will alleviate some of the pressures”.

“This slow adjustment is one of the factors that contributed to the large increases in housing prices in some of our cities over recent times,” Dr Lowe said. “The adjustment, though, has now taken place, with growth in the number of dwellings exceeding growth in the population over the past four years.”

Dr Lowe also detailed how Australians are working longer, boosting the proportion of older workers and making us “better placed to deal with population ageing than most other advanced economies”. Nearly one in five employees is aged over 55 years old, against less than one in 10 in the 1980s and 1990s, Dr Lowe said.

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