Gillard Dumps `Big Australia' Policy as Mines Seek Labor

Australia is abandoning a six-decade consensus favoring immigration, risking slower growth and faster inflation in a nation short of workers to help meet China’s demand for its commodities.

Prime Minister Julia Gillard is pushing reduced population gains to lure voters in suburban districts she needs to win Aug. 21 elections, an appeal to neighborhoods faced with pressure on road systems and housing. Since taking office last month, she’s dropped her predecessor’s endorsement of a “Big Australia” policy that envisioned a surge of more than 50 percent in citizens in the coming four decades.

The consequence of diminished immigration may be a hit of almost half a percentage point to the economic growth rate, according to the Treasury department. With job gains at the strongest since 2006, an end to the current migration program also may foreshadow a spiral of wages that forces the central bank to raise interest rates to contain inflation.

“Once unemployment falls below 5 percent, it’s sort of a danger zone” for the central bank, said Rob Henderson, chief markets economist at National Australia Bank Ltd. in Sydney, who has analyzed the economy for more than three decades and served as an adviser to former Prime Minister Bob Hawke. “Skilled migration forms a very important safety valve in the economy.” He declined to comment on the political aspect.

Growth Risk

Under the baseline scenario of a Treasury report in February, the population is forecast to expand 1.2 percent a year to 35.9 million by 2050. Paring that rate by one third would cut the average annual economic growth rate to 2.3 percent from 2.7 percent, according to the Treasury. Net migration is the “key” variable influencing the outcomes, the study said.

Most of Australia’s 22 million population is descended from immigrants. The U.K. began sending waves of its subjects in the 18th century as it set up penal colonies on the continent.

The Treasury’s projections take on added importance in the aftermath of the policy shift by Gillard, 48, who ousted her fellow Labor politician Kevin Rudd last month after polls indicated he’d lose the election.

Australia’s net migration surged to more than 1.1 million in the past five years, compared with about 575,000 in the 2000- 2004 period, according to data compiled by Bloomberg.

Change in Immigration

Gillard’s call comes amid a shift in immigrants’ home countries. The proportion of immigrants from northwestern, southern and eastern Europe declined 0.8 percentage point in the 10 years to 2008, and those born in northeast, southern and Central Asia increased by 1 point during the period, according to the bureau of statistics. As of June 30, 2008, a quarter of Australia’s population was born overseas.

“Gillard can never say so, but Australia is a country where bigotry abounds,” former Labor leader Mark Latham wrote in the Australian Financial Review this month, accusing her of trying to win over xenophobic voters in marginal districts. “Attend any sporting event in Australia and listen to the racial abuse. Walk through any shopping mall and witness the vilification of the burka and kaftan. Visit any country town and listen to the denigration of indigenous citizens.”

Gillard, campaigning to win Labor a second straight term in office in the Aug. 21 vote, in a July 20 speech warned against “hurtling down the track towards a big population” and said the current growth model is “irresponsible.” By contrast, Rudd said “I believe in a big Australia” in an October speech.

Opposition Leader

Opposition Liberal-National coalition leader Tony Abbott pledged July 25 to reduce Australia’s annual rate of net overseas migration to no more than 170,000 by the end of the next government’s first term from 298,924 in 2008-2009.

Gillard and Abbot drew level in personal support in a poll published yesterday. The Morgan telephone survey of 680 people July 27-28 also showed the Labor party still leading the opposition with 53 percent support to 47 percent.

Abbott’s party had sought to restrict the illegal entry of asylum seekers by boat in a campaign that began in 2001, when then-Prime Minister John Howard refused to allow mainly Afghans to land in the country. The move was credited with helping him win the election that year. At the same time, the coalition government allowed migrant numbers to accelerate to meet the demands of the expansion in mining.

Diminished labor-force gains would be bad news for Western Australia, the state that’s the center of the mining boom driven by demand from China. The region will need an extra 500,000 workers over the next 10 years as BHP Billiton Ltd., the world’s biggest mining company, and Xstrata Plc, the top thermal coal exporter, develop projects, said John Nicolaou, chief economist at the state’s chamber of commerce and industry in Perth.

Worker Shortage

Nicolaou estimated the state will be short 200,000 workers by the end of 2020, even on the basis of current population growth.

“If we don’t address it, it will lead to lower economic activity and higher prices due to capacity constraints,” Nicolaou said. That leads to a less productive workforce, project delays and higher interest rates, he said.

Australia’s unemployment rate dropped to 5.1 percent in June, compared with an average rate of 5.44 percent in the past decade. In Western Australia, the level was 4 percent.

“We need more people to grow,” said Steve Batchelor of S&N Civil Constructions in Perth, a contractor to clients including Melbourne-based BHP, London-based Rio Tinto Group and Zug, Switzerland-based Xstrata.

Higher Rates

Australia’s central bank has increased the benchmark rate six times to 4.5 percent since early October from a half-century low of 3 percent, citing an economic expansion it forecasts will almost double to 4 percent in the next two years fueled by China’s demand for iron ore and energy.

“Inflationary risks are on the upside with the labor market reaching full capacity over the next year” and export gains stretching the economy’s potential, the Treasury said this week.

Twenty-six percent of Australia’s population was born overseas as of June 2008, according to the Bureau of Statistics, about double the U.S. figure. The largest number was from the U.K., at 1.2 million, followed by New Zealand with 494,600, then China’s 313,600 and India’s 239,300.

Gillard sought to reinforce her move away from Rudd’s growth policy by adding “sustainable” to the title of her population minister, Tony Burke. Both he and the prime minister have declined to specifically say whether the government plans to cut back the migrant intake.

Congestion Rankles

In contrast with Western Australia’s open spaces, congestion in Sydney, in the state of New South Wales, has gotten to a point where the city’s business chamber is calling on the state government to delay starting hours for high schools to ease pressure on the transport network.

“Labor has 18 ultra-marginal seats in New South Wales and Queensland, where the issue of population is very sensitive,” said Nick Economou, a political scientist at Monash University in Melbourne. “This is particularly important to voters in western suburbs of Sydney where there are infrastructure and housing problems.”

Australia, the world’s sixth-largest country by size with a land mass of 7.7 million square kilometers (3 million square miles), had two-thirds of its people living in less than 0.5 percent of that area in June 2009, according to statistics bureau data, a pattern that reflects the lack of water in much of the continent.

Western Australia, which accounts for about a third of the nation’s landmass, is a relatively underdeveloped state, said Dale Alcock, managing director of ABN Group, a homebuilder.

“In the northwest, there’s a massive amount of infrastructure and housing required,” he said, referring to the area that captures many of the major resources projects. “All that points to needing more skilled workers.”

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

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