Would slashing migration tank the economy or reset Australia’s living standards? Canada may offer clues

The Australian government is debating whether cutting net overseas migration would harm the economy or reset living standards. The nation has seen a slowdown in annual population growth to just 0.5%, and politicians on both sides of the political spectrum have contrasting views on the matter. Labor and One Nation have presented starkly different visions for a migration program in the national interest.

One Nation leader Pauline Hanson recently announced a plan to reduce temporary migrants in Australia by over 750,000 over three years, aiming to turn net overseas migration (Nom) negative for three years before capping it at 130,000. In contrast, Labor aims for a longer-term Nom target of 225,000, and the last official estimate for the year to March was 292,000.

Hanson argues that One Nation's plan would "trash Australian services and trash the Australian economy", while Tony Burke, the home affairs minister, says the party's plan would "trash Australian services and trash the Australian economy." Hanson claims that Australia's high population growth over the past few years has led to an economy-wide recession, while Canada has shown positive living standards growth when migration is cut.

Canada, with a similar size, culture, and economy to Australia, is currently in the midst of a migration adjustment that has flattened population growth. The government has reduced temporary arrivals and made it harder for temporary migrants to extend their stays. Annual population growth in Canada has slowed from 3.1% in early 2024 to 0.5% now.

A recent report from the CD Howe Institute, a leading Canadian thinktank, analyzed the country's economy during a lower immigration era. The report's authors, Don Drummond and Parisa Mahboubi, estimated that employment could fall this year and next, with real GDP growth in 2026 possibly reaching only 0.5%, and a long-term average of less than 1%. The authors argue that these signs are actually what a normally operating labor market delivers in the face of demographic shifts, and not evidence of a struggling economy.

However, economists warn against assuming Canada's experience would be replicated in Australia. Jonathan Kearns, the chief economist at Challenger, points out that Canada's post-pandemic surge was far larger than Australia's, and Canada's population is still 5% above where it would have been based on pre-Covid trends. Moreover, Canada began its migration crackdown at a time of high unemployment and widespread labour shortages, unlike Australia, which currently has a tight labor market with 4.6% unemployment.