Is Bigger Really Better?

In 2009, when former Prime Minister Kevin Rudd said he was a supporter of the idea of a ‘Big Australia’, the topic polarized the nation.

The logic behind the argument of an increased population, from around 22 million in 2010 to 36 million in 2050, was that it would be good for homeland security, good for business and good for the economy thanks to a larger market and more players.

The arguments against a population boost, apart from the politically unpopular idea of an increase in rates of immigration to Australia, highlighted the fact that our infrastructure – water supply, in particular, but also housing and other necessities – would need massive investment before a larger population would be sustainable.

By 2050, Australia’s population will increase by as much as 14 million. What does this mean for our economy and potential investment opportunities?

After developing a new modelling system, researchers at the Queensland Centre for Population Research (The University of Queensland) announced in 2011 that, by 2050, Australia’s population will increase by as much as 14 million whether our infrastructure is ready or not.¹

So what does this mean for our economy as a nation and for our investments as individuals? Is a bigger population really better for business? And what challenges and opportunities does it present?

Future tense

Experts believe that if our population stalls, so will our economy. But at the same time, the challenge involved in housing and feeding an extra 14 million is an extraordinary and expensive one. All of the extra people filling jobs and paying tax though, will certainly make a positive difference in terms of helping to cover the rising health and pension costs caused by that other great population threat – ageing.

Then Prime Minister Rudd argued that our rising population was a good thing, especially when compared with issues being faced by nations with declining populations such as Ukraine, Hungary, Russia and Japan. And declining or stagnant population rates have long been recognised by experts as a serious problem.

In his maiden speech to parliament, Malcolm Turnbull explained the issue concisely when he said, “Societies such as those in Italy, Spain, Greece, Russia and many others in Europe with birth rates of 1.3 or lower are not ageing – they are dying. Unless fertility rates dramatically improve, societies with birth rates substantially below replacement level will either dwindle into an insignificant fraction of their current numbers or be swamped by larger and larger waves of immigration.”

Consider the example of the Republic of Moldova which, in the five-year period leading up to 2011, suffered an average annual population decrease of 1.1%. A TIME magazine report titled ‘Nobody home: The countries where population is on the decline’ said “vicious combinations of low birth rates, high death rates, low immigration and rising emigration” had caused immeasurable damage to the Eastern European nation.²

The biggest problem, the report says, is the number of people that have left the country, including one-third of the economically active population and a whopping 60% of 20 to 39 year olds. They have gone to Russia, the USA and Western Europe seeking greater opportunity. In doing so they created crippling skills shortages in their country, the government of which is now struggling with the added problem of a top‑heavy, aged population.

Stagnant or declining populations introduce a series of major problems that are difficult to address. Political intervention, such as Australia’s Baby Bonus, to artificially increase birth rates can be effective when the threat is at its earliest stages. But once the decline gathers pace it can be all but impossible to stop. It’s no wonder many politicians support the idea of constant, but not rampant, growth.

So a lack of population growth has a negative side. But as mentioned, fortunately current studies show Australia is heading in the opposite direction. What challenges and opportunities will this create?

Investment, lifestyle and tax revenue

An area to continue to watch for the purposes of investment is that of infrastructure. Water, gas, electricity, roads and housing, and their related industries, are all likely to experience increasing demand over the coming decades as the population increases. An increased population is also good for the retail industry.

Size does indeed matter. For the growth of the economy, for successful business and for quality of life in Australia, population growth is a vital ingredient.

A report from the Reserve Bank of Australia titled Demography and Growth said “Demographic change can have profound effects on a country’s economy and public finances. These effects generally manifest themselves over multi-decade periods, but the deterioration in many countries’ public finances, and concerns about the underlying growth potential, have recently brought demographic issues to the fore.”³

The growth of an economy’s annual output, the report says, is equal to the sum of growth in labour input and labour productivity growth. In other words, growth results from a combination of more workers and better ways of working. An increase in the number of workers can come from population growth or from growth in the working-age share of the population. With our rapidly ageing population, Australia is not likely to organically achieve growth in the working age share of our current population. In fact, it will be quite the opposite. But population growth is a likely ally for our economy.

A report from the Australian Bureau of Statistics, called Does size matter? – Population Projections 20 and 50 years from 2013, says the proportion of today’s population over the age of 65 is approximately 14%.⁴ If we continue our current population growth pattern then that level of over 65s will rise to 19% by 2033 and 23% by 2063. In the same period the amount of population within working age (15 to 64) would drop from 67% to 61% – meaning 65 dependants for every 100 workers as opposed to today’s 50 dependants for every 100 workers – a set-back to the public purse.

But if we grew net overseas migration, which is already the major driver of Australian population growth (in 2013 it contributed 60% of population growth, the report says), then by 2063 there would be 63 dependants for every 100 workers, two less than if we maintain current trends. With zero net overseas migration (the same number of people leaving Australia as arriving) the picture is more severe, with the population beginning to decline in 2041 and, by 2063, 29% of the population being over 65, forcing 79 dependants onto every 100 workers.

Size does indeed matter. For the growth of the economy, for successful business and for quality of life in Australia, population growth is a vital ingredient. Along the way it may provide opportunities for the investor in various related industries.

Key takeaways

• By 2050, Australia's population will increase by up to 14 million.
• Population growth is a vital ingredient of business and economic growth.
• Increasing the number of people in the working age population will reduce the burden on each taxpayer caused by an ageing population.
• Potential investment opportunities in infrastructure such as water, gas, electricity, roads, housing and related industries.
   

1 Bell, M., T. Wilson, and Charles-Edwards, E. (2011). ‘Australia’s population future: probabilistic forecasts incorporating expert judgement’. Geographical Research 49(3): 261–275.
2 ‘Nobody home: The countries where population is on the decline’, TIME magazine, October 2011.
3 ‘Demography and Growth’, Reserve Bank of Australia Bulletin, June Quarter 2010.
4 ‘Does size matter? – Population Projections 20 and 50 years from 2013’, Australian Bureau of Statistics, August 2014.