Australia: After the Boom Years

By Philip Bowring, Op-Ed Contributor, International Herald Tribune

The low quality of debate between Australia’s major political parties appears to have been one reason why neither achieved a majority in Saturday’s election. The electorate does seem to recognize, however incoherently, that after a decade of almost uninterrupted growth and prosperity the nation faces some difficult choices. The most important of these revolves around one word: population.

Several aspects of this problem were highlighted in the election. The most obvious and politically most potent is the rate of immigration, which has recently been very high even by the standards of a nation built on migrants.

The second is the rapid aging of the population. The median age is likely to rise from 35 in 2000 to 40 by 2020, while the number of people 65 years and over is set to climb from 12 percent to 17 percent by the end of the decade. This makes the issue of how to pay for pensions and age-related services a crucial tax consideration.

The third factor is the divide between comfortable, expanding urban Australia and the vast rural hinterland, some of which faces depopulation and cries out for government support.

Since 1945 Australia’s population has grown from 7 million to 22 million thanks to policies favoring an ever expanding population to fill the continent. Numbers have changed from year to year, depending on economic conditions, and there have been sporadic minority demands for zero population growth. But the belief that Australia could and should have annual population growth of 1.5 to 2.5 percent remained strong.

Now, however, both parties have committed to slash the number of migrants entering the country from 270,000 in 2009 to 170,000 or less. With the existing population aging fast, the image of an ever-bigger Australia will be further eroded.

Part of the change in attitude may be simply cyclical. Australia’s economy has been growing on the back of Chinese demand for the country’s mineral wealth, but this does not directly create jobs in the big cities, particularly for migrants with limited skills. But other pressures are not just economic. Unease over cultural diversity is still a factor. Inadequate public investment in transportation, water and hospitals and sharp rises in house prices have added to public doubts about high immigration.

Environmentalists worry about the excessive demands that population growth is making on a dry continent that is getting drier. Their concerns may increase now that the two main political parties have effectively abandoned putting a price on carbon emissions, even though Australia has one of the world’s highest per capita emission rates.

Australia has survived the global recession very well, thanks mainly to strong mineral demand from China that has supported both continued immigration and a boom in housing prices. But it is likely that demand for immigrant labor would fall sharply if the mining sector, which is supposed to provide more taxes to support the demands of an aging society, falls on harder times. However, the question of how much the mining sector will be taxed remains up in the air. A plan put forward by former Prime Minister Kevin Rudd contributed to his sudden downfall in June.

While a new tax is likely, it might be of scant value if mineral prices plunge. For now, with government debt at only 6 percent of gross domestic product, Australia is the envy of most developed nations. But much of the country’s success in recent years has simply been the result of buoyant commodity prices. Despite this good fortune, foreign debt has risen to 50 percent of national income and household debt to 112 percent.

The mining sector’s current prosperity contrasts dramatically with the depressed incomes of many Australians who live in rural areas and are dependent on agriculture.

Addressing the rural-urban divide is an expensive proposition. For example, the Labor party has proposed building a fiber-optic network that would reach 97 percent of the population, to meet rural demands for equal access to modern communications and, hopefully, bring jobs. But it will cost some $37 billion, financed mostly by taxpayers.

Rural distress is partly a result of water shortages and land degradation but rural grievances have political and emotional clout. Farmers invariably press for more government support and, in some cases, protection from imports. But now they will have champions in the three independent members of Parliament who may hold the balance of power. All are from rural constituencies. All are inclined to more nationalistic economic policies than Australia has seen in recent years.

It is unlikely that either main political party can devise policies that unite these diverse population issues. But whoever governs will have to address all of them at a time when mining may no longer be such a magical source of wealth, and age catches up with Australia and the global commodity price boom.

This article was originally published here.