Border closures affecting more than our travel plans

As severe as the effects of COVID-19 continue to be for those living in Australia, the most significant impact on our economy could actually be related to those who never arrived in the country at all.

According to Prime Minister Scott Morrison, net migration in the 2020-21 financial year could be as little as 15% of that in FY2019¹.

There are many who won’t see this as a problem, and some who consider it welcome news, for example, those who are worried about our capacity to provide for our growing population. Unfortunately, the ramifications of falling migrant numbers will be felt throughout the economy, and especially so, in a number of critical sectors.

Education and tourism impacts

Tourism is the most obvious example, it is worth around 1% of GDP with education worth another 2%. A recent survey from the Australian Tourism Export Council found that seventy-seven per cent of tourism businesses reliant on foreign visitors said they would be out of business within a year if the borders were not re-opened.

But as much as we might believe that our local tourism industry is reliant on hordes of foreign tourists, this needn’t be as much of a problem as it might seem. Australia is, in fact, a net importer of tourism, meaning that we spend more on travelling overseas than we collect from inbound tourists to Australia².

We all know, however, that it’s not as simple as asking every Australian tourist to holiday at home rather than overseas. At a time when many can’t leave their houses for more than an hour a day, holidays are probably the last thing on the agenda. But the point, in theory, remains – if restrictions were eased, the demand could be there. The same can’t be said for tertiary education.

International students left high and dry

Students make up about 40% of our annual migrant intake. International education contributed almost $38 billion to our economy in FY2019 and is growing at a rate of knots³. But with the closure of Australia’s borders to non-residents in March, the sector ground to a halt and 87,000 students were stranded abroad⁴.

The effect on our universities has been devastating, particularly as most are excluded from the JobKeeper program. Melbourne University recently announced 450 redundancies, the latest in thousands of jobs lost in tertiary education due to the pandemic⁵. Universities Australia estimates that more than 20,000 workers could eventually be at risk⁶.

In response, the Federal Government announced last month that it would recommence approvals for student visas, allowing entry to students as soon as borders re-open⁷. It will also allow study at Australian universities conducted overseas during the pandemic to count towards residency requirement for post-study work visas. Both initiatives were welcomed by the sector, but in the meantime Australia’s competitors (with the notable exception of the US) are progressively re-opening to international students and placing our market share at risk.

The bottom line on border closures

As dire as the situation may be for the tourism and education sectors, in the almost six months since the borders were shut, the ramifications have been felt far more widely in the economy. The housing sector is a case in point, where we expect construction will fall by 15% next year due in large part to lower migration.

More broadly speaking, however, increases in the labour force – along with productivity gains – is one of the principal drivers of growth in any economy. Australia’s productivity has been fairly stagnant in recent years⁸  (you might remember a fuss being made over the country having experienced a “per-capita recession” in the lead-up to last year’s Federal Election⁹), and as long as our borders remain closed, we can expect lower migration to remain a drag on our GDP.  

¹ https://www.wsj.com/articles/australia-immigration-halt-is-a-cautionary-lesson-for-other-nations-11596981602
² https://www.bloomberg.com/opinion/articles/2020-07-22/coronavirus-opening-up-travel-bubbles-will-hurt-some-economies
³ https://ministers.dese.gov.au/tehan/international-education-makes-significant-economic-contribution
⁴ https://theconversation.com/coronavirus-how-likely-are-international-university-students-to-choose-australia-over-the-uk-us-and-canada-142715
⁵ https://www.smh.com.au/national/with-losses-set-to-pass-200m-uts-fears-up-to-500-jobs-could-go-20200807-p55jp5.html
⁶ https://www.smh.com.au/national/universities-urged-to-bring-back-international-students-as-researchers-face-huge-job-losses-20200520-p54usd.html
⁷ https://www.theguardian.com/australia-news/2020/jul/20/australia-to-restart-granting-visas-to-international-students-to-lift-struggling-university-sector
⁸ https://www.pc.gov.au/research/ongoing/productivity-insights/australia-leader/productivity-insights-2020-australia-leader.pdf
⁹ https://www.theguardian.com/business/grogonomics/2019/sep/04/no-surprise-but-shocking-theres-no-other-way-to-spin-australias-gdp