Past Intergenerational Reports under-projected the rate of migration. Will next week’s report do the same? - Grattan Institute

Projecting Australia’s population growth is hard.

The Federal Government’s best attempt to peer over the horizon, is the regular Intergenerational Report (IGR). The 2002 IGR projected Australia’s population would be 25.8 million in 2042. The 2015 IGR projected we would have 39.7 million people by 2055.

A faster projected rate of ‘net overseas migration’ is an important part of this story. Net overseas migration is the number of immigrants to Australia minus the number of emigrants.

The first IGR, published in 2002, projected an additional 90,000 net overseas migrants each year from 2002 to 2042. By the time the fourth IGR was published in 2015, the projection had increased to 215,000 net overseas migrants each year to 2055.

The earlier IGRs did not make a mistake when projecting a lower rate of net overseas migration. Rather, the increase reflects changing government policy. Successive federal governments have increased the number of permanent visas available. Combined with other migration policy changes, this has resulted in an increase in the number of net overseas migrants arriving this century compared to the 1990s.

The chart shows the rate of net overseas migration to Australia from 1925 to 2020.

Past IGRs projected a lower-than-actual rate of migration

The IGR seeks to project current government policy. Yet what constitutes ‘current government policy’, at least regarding net overseas migration, appears somewhat fungible.

The first two IGRs, in 2002 and 2007, assumed future net overseas migration would be equal to recent aggregate rates of net overseas migration: 90,000 and 110,000, respectively.

The third IGR, in 2010, assumed future net overseas migration would be equal to the average rate as a share of population over the previous 40 years: 0.6 per cent of population, or 180,000 each year averaged over 40 years.

The fourth IGR, in 2015, assumed future net overseas migration would be equal to the fixed number of permanent visas made available at the time: 215,000.

While each of these projections of government policy is different, they share a common feature: a projected decline in the rate of net overseas migration as a share of the population over 40 years.

Net overseas migration as a share of population from 1925 to 2020 and the rate assumed in the first four intergenerational reports

But this projection is hard to square with actual trends in migration policy in recent decades. The actual annual rate of net overseas migration, as a share of population, has increased over time:

  • 1980-2019: an average of 0.72 per cent per year,
  • 2000-2019: an average of 0.87 per cent per year,
  • 2010-2019: an average of 0.92 per cent per year.

The contrast is stark: successive IGRs have projected ever-faster declining rates of net overseas migration as a share of the population, yet the actual rate of net overseas migration as a share of population continues to increase.

Why does this keep happening? If the IGR projected the Australian population using net overseas migration as a share of population based on recent trends, it would assume future increases in the number of visas issued each year and project a bigger Australian population. After Prime Minister Kevin Rudd’s experience of advocating for a bigger Australia in early 2010 after the release of the third IGR, an IGR projecting a bigger population appears to be an unattractive political option.

Population projections matter

These modelling choices have consequences for the assessment of the sustainability of public finances, a core purpose of the IGR.

The difference between assuming net overseas migration tracks the 173,750 permanent visas available each year, or grows as a constant share of Australia’s population, is several million additional Australians in 40 years’ time. Those additional Australians would make a difference to the fiscal projections.

Past IGR projections of migration have under-projected on Australia’s population growth. Next week we’ll find out if the 2021 IGR is any different.