Does the lucky country need migrants?

Paradoxically, immigration is a problem for resources industries in this start-up phase because it is a leading contributor to growth in demand for housing, hospitals and roads in the cities. The minerals industry is trying to attract construction workers when their services are in demand in their home cities.

Proponents of immigration do not acknowledge that employment growth is dominated by service industries in the cities. Their rapid growth is largely because of an increasing population - as might be expected, given their function is people-servicing. Most of this growth is occurring in health, education, welfare and community services and business services, which includes property. Most skilled migrants work in cities in these industries. Many temporary migrants are employed in lower-skilled retail and other service industries.

The Australian economy is like a dog chasing its tail. More migrants fuel growth in the building and people-servicing industries, which then demand more migrants for labour.

Most other advanced Western societies are not experiencing, and do not want, population growth on this scale. Unlike Australia, they have avoided being lured into an industrial structure so reliant on population growth.

The most extreme example is Melbourne. It is a parasite city whose economy has remained vibrant through the global financial crisis (relative to Sydney) because of record population growth and a consequent boom in city-building and people-servicing.

Employment in its manufacturing industries has contracted and Victoria has little mining activity. The city is thriving, yet exports of goods and services from Victoria are barely half the value of imports of goods and services. It depends on Commonwealth funds to accommodate and service its growing population. Successive premiers, from Jeff Kennett to John Brumby, have lobbied for more migration. They understand how central migration is to Melbourne's population growth and the short-term health of its economy.

Should population growth slow, there will be severe adjustment pains for some. But the big-Australia model is not sustainable in economic terms. Australia's total foreign debt is about $650 billion, with interest payments requiring 4 per cent of gross domestic product. Most of this has been raised overseas by banks to lend to home-owning mortgagees. This is one reason why interest rates are so high in Australia. As with competition for construction labour, industries competing to sell products against international competition have to compete for capital against the city building industries.

What will Australia have to show economically for the enormous effort of accommodating an extra 9-10 million migrants by 2050? More debt and a more daunting greenhouse emissions challenge. Meanwhile, much of the fiscal benefit from selling off Australia's non-renewable heritage, which could have helped fund industrial restructuring, will be spent on accommodating migrants.

If overseas migration declined sharply to about half that proposed, it would take much of the heat out of the city building boom. With only 90,000 a year, there would be fewer migrant workers available but far fewer would be needed. With less recourse to skilled migrants, governments and businesses would have to put more effort into preparing young and older residents with the required skills.

In this economy, Australians will be twice as rich by 2050 as today. This population will be older but so wealthy that older people will be able to look after their own welfare.