Could Cutting Australia’s Immigration Intake to 180,000 Increase Inflation and Slow Economic Growth?

Immigration has long been a cornerstone of Australia’s economic and demographic strategy. But as policymakers debate reducing the annual immigration intake to 180,000 people, the question remains: what would this mean for inflation, labour markets, and long-term economic growth?

Australia’s Ageing Population and Dependency Ratio

Australia’s population is ageing rapidly. The old-age dependency ratio—the number of people aged 65 and over per 100 working-age individuals—is climbing steadily. According to the IMF, net overseas immigration already accounts for nearly 60% of population growth due to falling fertility rates and rising life expectancy. Lower immigration would accelerate the demographic challenge, meaning a smaller taxpayer base supporting ballooning health, aged-care, and pension costs​1​.

The Role of Immigration in Workforce Growth and Tax Revenue

Immigration has been pivotal in sustaining labour force participation. Skilled immigrants typically exhibit high workforce participation and low unemployment rates, significantly contributing to income tax and GST revenues. Research by the Productivity Commission and ABS shows that immigration increases GDP per capita and provides a demographic dividend by enhancing labour supply​2​.

By cutting annual intakes, workforce growth would slow, constraining potential GDP and reducing government revenue streams. This could worsen fiscal pressures as a growing proportion of government spending is directed to essential age-related services.

Labour Shortages and Inflationary Pressures

Sectors such as construction, healthcare, aged care, hospitality, technology, and agriculture already face chronic shortages. Treasury and RBA analysis confirms that constrained labour supply during COVID border closures led to acute shortages in these industries, which in turn drove wage pressures faster than productivity gains​3​.

If immigration is cut significantly, wage escalation in shortage sectors could occur, raising production costs for businesses and contributing to cost-push inflation. These pressures would likely be most pronounced in housing-related trades, impacting dwelling completion rates and affordability.

Housing Supply and Affordability

While some argue that reducing immigration could ease demand, the picture is more complex. The housing shortfall exceeds supply by tens of thousands of homes annually, partly due to limited availability of skilled construction trades. Cutting immigration while these shortages persist could exacerbate bottlenecks in construction, driving up building costs and keeping property prices elevated. According to the RBA, after population growth slowed during the pandemic, new dwelling supply also contracted, creating future supply deficits once demand recovered​3​.

For the mortgage and property industries, prolonged construction delays reduce housing turnover, construction finance demand, and subsequent lending opportunities.

Impact on Economic Growth, Consumption, and Investment

OECD and IMF research concludes that immigration delivers positive impacts on employment, productivity, and innovation, with no significant inflationary pressures outside housing markets. For example, a 1% increase in immigration inflows correlates with a 0.5% rise in employment for Australian-born workers and boosts labour productivity and patenting activity​4​.

Conversely, a major reduction in immigration could shave significant points off GDP potential, strain infrastructure project viability, and dampen business confidence—all negatives for consumption and investment.

Fiscal Implications

A smaller working-age population erodes the tax base, yet demand for government-funded services—healthcare, aged care, pensions—continues climbing. The Productivity Commission warned that immigration reductions intensify fiscal stress and accelerate pressure for higher taxes or spending cuts in other areas​2​.

Common Arguments for a Lower Immigration Intake

Proponents of reduced immigration argue that it could:

• Ease housing demand and improve affordability.
• Reduce congestion and pressure on infrastructure.
• Lower environmental strain.
• Deliver wage gains for some domestic workers.

While these benefits are not insignificant, evidence suggests they are largely short-term and unevenly distributed. Treasury and ABS reports indicate that infrastructure stress results more from planning lags than sheer population growth, while housing affordability relies heavily on supply-side reforms. Furthermore, wage hikes in shortage sectors may be offset by broader inflation and reduced real wages elsewhere.

Implications for Brokers and the Property Market

For mortgage brokers, these demographic and economic shifts matter. Lower immigration could slow housing demand growth marginally in some areas, but the structural undersupply combined with persistent labour shortages suggests price pressures may remain, especially in major cities. Lending activity linked to construction could flatten, while slower overall GDP growth may weigh on consumer confidence.

Bottom Line

Cutting Australia’s immigration intake to 180,000 per year might reduce demand pressures superficially, but the broader economic trade-offs are substantial. Reduced labour supply risks amplifying inflation, constrains long-run growth, and heightens fiscal vulnerability—all while doing little to solve systemic housing supply issues. For brokers and property professionals, these dynamics reinforce the critical link between population policy, economic performance, and housing market behaviour.