If you’ve ever wondered why Australia is so generous with its student visas, there’s a reason – the country’s mandarins are out to poach our brightest talent.
As your sons and daughters head Down Under for a year out when they leave university, the Australian government is banking on some of them staying.
Immigration by highly-educated young people is one way Australia believes it can wean the country off its long-term dependence on raw materials such as iron ore and bauxite.
In 2016, 43% of Australia’s exports consisted of minerals and fuels – it produces 25% of the world’s iron ore, and 30% of the bauxite used to make aluminium.
Economy in good shape
Demand for raw materials from China and South-East Asia is likely to remain strong, but will decline slightly over the next couple of years, according to February’s monetary policy report from the Reserve Bank of Australia (RBA).
However, it believes the economy is in good shape.
Leaving interest rates unchanged at 1.5%, the RBA forecasts that GDP growth will pick up, averaging just above 3% over the next couple of years.
“The data over the summer have been consistent with this outlook,” says the report. “Business conditions are positive and the outlook for non-mining business investment has improved. Increased public infrastructure investment is also supporting the economy.”
High levels of debt
One cloud on the horizon is household debt. The RBA warns household incomes are growing slowly and debt levels are high – a recent survey by the Australian Bureau of Statistics revealed 29% of households can be classified as over-indebted.
The issue is compounded by low wage growth – wage inflation stood at just 2.0% year on year in the third quarter of 2017, only marginally higher than the all-time low of 1.9% earlier last year.
Market doves suggest wage growth will have to break through the 3% barrier before the RBA acts to quell inflation potential, according to research by Rabobank.
It’s for this reason the Australian Prudential Regulation Authority (APRA) has tightened bank lending guidelines to consumers.
Inflation remains low, however, with the forecast for the consumer price index (CPI) to be “a bit above 2 per cent” in 2018.
The Australian economy is ticking over nicely, then, with no regrets over its historic focus on exploiting the country’s abundant natural resources.
RBA assistant governor Luci Ellis said in a speech last autumn that “around the turn of this century, I remember foreign investors telling me that Australia was an ‘old economy’. We should stop digging things out of the ground, they said, and start building microchip factories.
“Considering the relative price movements of iron ore versus microchips since then, we are better off for not having taken that path.”
She added: “In searching for a replacement for the mining investment boom, too often people forget that it gave way to a mining exports boom. That boom is now happening, and for LNG [liquefied natural gas] it still has a bit longer to run.”
Ellis said resource exports – which account for around half of Australia's export income – would add about a cumulative 1.2 percentage points to GDP over the next two years.
Looking to long term
But Australia is not complacent, and is very much looking to the long term.
Ellis said it was often forgotten that the rest of the economy had been squeezed to make way for the mining investment boom, with sectors such as tourism and manufacturing affected by the stronger Australian dollar.
“So part of the answer to the question ‘where is the growth going to come from?’ is ‘all the industries that had been growing more slowly than usual during the boom’,” she explained.
Which brings us to those overseas students.
The three keys to Australia’s long-term growth and prosperity are, she believes, the three Ps: population, participation and productivity.
Rapid population growth
Australia’s population is growing faster than in almost any other developed economy – and most of the growth is coming from immigration.
“Just adding more people and growing the economy to keep pace wouldn't boost our living standards,” she said.
But she added: “Recent migrants have a different profile to the incumbent Australian population. They are generally younger, and the youngest age group are significantly more likely to have non-school qualifications.”
She said because so many recent migrants initially arrive on student visas and then stay, “the average education level of newly arrived Australians is actually higher than that of existing residents”.
“So Australia's migration programme is structured in a way that, in principle at least, it can grow the economy while raising average living standards.”
As well as boosting the numbers of highly educated migrants, Australia is increasing participation – the second ‘P’ – by women in the workplace thanks to flexible childcare arrangements.
And finally, it is spending on communications and transport infrastructure to boost productivity and innovation – with improved transport links seen as particularly important.
“Online commerce still needs good physical logistics. Unless it's a purely digital product, something still needs to be delivered,” said Ellis.
Boosting transport infrastructure
“Australia is a highly urbanised country, but it is also a highly suburbanised country.
“Improving urban transport infrastructure, as well as inter-urban transport infrastructure, could help boost productivity across a range of both traditional and new industries.”
Ellis said there was “an ingrained doubt that Australia can become more prosperous without identifiable external triggers”.
She added: “I believe that it can, and that it will do so through continual innovation and productivity growth spurred by ongoing growth and competition.”
So when your son or daughter asks you to foot the bill for an air fare to Australia when they leave university, beware of where it may lead… It’s hard for the UK to compete with sun, surf and ‘winter’ barbies on the beach.