A Referendum on "Big Australia"

With polls showing Australia's general election too close to call, it's uncertain whether Labor Party Prime Minister Julia Gillard will keep her job or be replaced by Tony Abbott, leader of the Liberal-National coalition. Either way, it appears one group will lose: immigrants.

For six decades, Australia has had a political consensus in favor of immigration. But support is wavering as suburban areas struggle to cope with rising home prices and traffic congestion, by-products of a sharp increase in new arrivals in recent years. To appeal to voters from those districts, Gillard has said the government needs to do more to manage population growth, though she has stopped short of openly endorsing new restrictions on immigration. Abbott, her opponent, has pledged to reduce immigration levels to 170,000 a year by the end of his government's first term, from 298,924 in 2009.

Economists warn that Australia will risk slower growth and faster inflation if it clamps down on the flow of migrants. A February report from the Australian Treasury forecast the country's population will expand by 1.2 percent a year, to 35.9 million by 2050. Paring that rate by one-third would reduce the average annual economic growth rate to 2.3 percent from 2.7 percent, according to the study.

Australia has been experiencing strong job growth, with much of the gains coming in the mining industry. Curtailing immigration would shrink the supply of workers and potentially set off a spike in wages. To contain the resulting inflation, the central bank might be forced to raise rates, further choking off growth.

The national jobless rate dropped to 5.1 percent in June, compared with an average rate of 5.4 percent over the past decade. "Once unemployment falls below 5 percent, it's sort of a danger zone" for the central bank, says Rob Henderson, chief markets economist at National Australia Bank in Sydney. "Skilled migration forms a very important safety valve in the economy."

Immigration has played a central role in Australia's economic development, dating back to the 18th century when the British government dispatched settlers to establish penal colonies on the continent. One-quarter of the country's 22 million people were born overseas, according to the most recent figures from 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 with 313,600, and India with 239,300.

The pace of new arrivals has quickened recently, to more than 1.1 million in the past five years, compared with about 575,000 from 2000 to 2004, according to data compiled by Bloomberg. A rising proportion of recent migrants hail from Asia, while the share of those coming from Europe has been on the decline, a trend that has fueled racial tensions. "Gillard can never say so, but Australia is a country where bigotry abounds," wrote onetime Labor leader Mark Latham in an opinion piece published in a leading business paper last month.

Gillard's rhetoric on the campaign trail signals a break from the "Big Australia" policy of her predecessor Kevin Rudd, who was ousted by his party in June after polls indicated he would lose the election. Rudd envisioned a 50 percent surge in the number of citizens over the next four decades. Gillard in a July 20 speech warned against "hurtling down the track towards a big population" and said the current growth model is "irresponsible." To further distance herself from Rudd's policy, Gillard has tacked the word "sustainable" to Population Minister Tony Burke's title.

A more restrictive immigration policy would hit Western Australia particularly hard. The state is at the center of a mining boom driven by demand from China. The region will need an extra 500,000 workers over the next 10 years as companies such as BHP Billiton and Xstrata move ahead on new projects, says the state's chamber of commerce and industry in Perth. The chamber estimates that even if the population continues to grow at its current rate, the state will be short 200,000 workers by the end of 2020. "We need more people to grow," says Steve Batchelor of S&N Civil Constructions, a Perth contractor with mining company clients.

Australia's biggest city suffers from the opposite problem. Congestion in and around Sydney has become such a problem that the local business chamber is calling on the state government to delay starting hours for high schools so as to ease pressure on the transport network. Says Nick Economou, a political scientist at Monash University in Melbourne: "This [issue] is particularly important to voters in western suburbs of Sydney where there are infrastructure and housing problems."

The bottom line: Proposals to curb immigration are favored by many residents in Australia's cities. Businessess in the West need more workers.

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