Victoria’s growing population has economic benefits, but there are downsides

By Professor Guay Lim & Dr Viet Nguyen
Melbourne Institute of Applied Economics and Social Research, University of Melbourne

The Victorian economy is performing well, with activities and jobs buoyed by strong population growth.

To sustain growth per capita, and especially to maintain living standards, the political parties are devoting attention to some of the negative consequences of a growing population.

The election debate on growth and jobs is being played out indirectly through proposals for infrastructure spend. The question is whether they have been rigorously costed.

Economic growth and jobs

In the three financial years to June 2017, the latest available annual data shows Victoria’s Gross State Product (GSP) per capita grew at an average rate of 1.0% per annum. This compares to 1.7% in New South Wales, 0.5% in both Queensland and South Australia; and negative 0.4% in Western Australia.  State Final Demand (which measures economic activity excluding net trade and inventories) has been growing strongly, but so has population.

The latest data shows that in the almost four financial years between 2014 and 2018, 535,000 people have been added to Victoria’s population, which is about 35,000 persons (on average) per quarter.

By comparison, New South Wales has added an average of around 30,000 people per quarter, or a total of around 447,000 people, over the same period.  Trend wise, Victoria has had a decade long growth in population, spearheaded by overseas migration - nearly half of which have been skilled migrants.

The upshot of the strong growth in population has been the strong growth in economic activity, with construction and services being especially important as engines of growth.

A strong demand for housing stimulates investment in housing and leads to positive spill over effects in related sectors like financial, real estate and insurance services.

Jobs have been created at a steady pace and over the last four financial years, Victoria has seen an increase of 385,000 employed persons, 62% of which are in full-time positions.

It should however be noted that this period of growth, is occurring in an environment of low real wage growth, relatively high household debt levels, and tighter lending standards for home loans across Australia.

In the next few years, interest rates are expected to rise and housing and related activities are expected to moderate.  Without robust economic growth, there is no guarantee that Victorian households will be immune to mortgage stress and job losses.

Pressure on services

The robust growth in population has also increased demand for healthcare, education and other essential and recreational services, especially in Melbourne.

Though population growth has been wide-spread in Victoria, it has been enormous in the Melbourne area. In 1998, Melbourne’s population was projected, by the Australian Bureau of Statistics, to hit the 4-million mark around 2051.  Fast forward 20 years, Melbourne’s population reached five-million in 2018 and is expected to overtake Sydney, population-wise, by mid-2020.

This remarkable rise is placing increasing stress on Melbourne’s public services and transport system - threatening to make one of the world’s most liveable cities increasingly less liveable.

Victoria’s population is projected to reach 10 million by the mid of the current century. Are Victorian policy makers poised to manage rapid population growth? Are there plans for jobs and growth? And, importantly, will all Victorians benefit and will living standards be maintained?

Policy Options

What are the parties offering in the State Election on November 24th?  Recent increases in public sector revenue has created much needed fiscal space to tackle the economic consequences of population change, for Victoria, in general and for Melbourne in particular.

Labor: Pitching to retain the right to govern Victoria for another four years, Labor has based its re-election campaign (amongst other proposals) on infrastructure. Labor promises to begin building a rail link between the city and Melbourne Airport and to build a suburban Melbourne rail loop (construction to start in 2022). The party claims its infrastructure projects will directly create 75,000 jobs.

Coalition: The Victorian Liberal party is focusing its campaign on regionalising Victorian population growth.  To execute this plan, the opposition has announced plans to build fast trains to the regional cities of Geelong, Bendigo, Ballarat, Shepparton and Traralgon.

The Coalition also promises to reduce the current payroll tax rate for qualifying businesses in regional Victoria to 1% from the current 2.425%, hoping that this will create new jobs outside of Melbourne.  The party also aims to manage population growth in Melbourne by proposing a 50-50 split between Federal and State authorities in determining General Skilled Migration applications, hoping that the state will have a bigger say in diverting skilled migrants to where there are skill shortages.

Greens: The Victorian Greens currently have three seats in the Legislative Assembly but could win the balance of power. They promise to spend between $2.3-4.9 billion, mainly on extending Melbourne’s metropolitan train network to areas of the city not currently serviced by trains, such as outer north western and south eastern areas. The Greens also promises a $2.3 billion upgrade to the busiest and most overcrowded tram routes and a $4.1 billion worth of additional high capacity trams (30 per year) over 10 years.

Infrastructure spend and well-thought out urban planning across Victoria’s major cities may well be extremely sound long-term investment. The question is:  Have these infrastructure commitments been subjected to rigorous cost benefit analysis with an eye on multi-year financing plans.  The parties promise to say more about this.

Image: Flinders St Station, Melbourne. Credit: Rae Allen/Flickr


economy; politics; election; policy; population Economy/Jobs; Politics; Election; Policy; Population Growth

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