Australia’s $48 billion education industry and fourth biggest export sector is about to get a kick in the guts of macroeconomic proportions for three reasons. First, too many people coming here is inflationary. Second, it keeps pressure on home prices and rents. And third, there’s an election next year!

Yep, despite 13 interest rate rises, part of the surge in inflation and its prolongation has been a whole pile of people coming to Australia either as permanent immigrants or as temporary arrivals, here for work, study, or both!

The pandemic taught us that when 500,000 students and other overseas-based workers came here as backpackers but then left to hide in their hometowns during global lockdowns, we really needed them, especially when we tried to get back to economic normalcy.

Their absence caused inflation, as baristas were allegedly demanding and getting $80 an hour. But when these immigrants came back they brought demand to buy stuff and that caused inflation to stay high.

New arrivals come with a need to spend. This week I met a guy who owns 13 mobile phone shops, and he said when a new immigrant comes to Australia, they want a phone or something to make their own phones work here. I bet Cotton On and K-Mart sell them a lot of stuff too. And then there’d be McDonald’s, Woolies, and evens second-hand car sellers, who’d love these new arrivals.

These people would’ve been threats to the Reserve Bank’s desire to cut spending to make price-setting business owners to feel the loss of sales that would’ve then brought lower prices and a reduction in inflation.

However, in 2023, gross migration to Australia was 737,000 and that was a big number of new spenders. Luckily, others left so the net migration number was smaller, but it was still historically huge. So now Prime Minister Anthony Albanese and his opposite number Peter Dutton are fighting over immigrants and how many will come here after the next election.

So, this is what we’re being told from both sides of politics:

1. Peter Dutton promises to cut net temporary migration to 160,000 with 10,000 to 15,000 overseas students allowed in each year!
2. The AFR says that this “…would reduce Australia’s fourth-largest export sector to under 5% of its pre-pandemic size, which was about 244,000.
3. Labor plans to cut net migration down to 235,000 over the next three years, so student arrivals would be around 95,000, which is about 40% of the pre-pandemic numbers.

Clearly, these political pitches to Aussie voters by both Labor and the Coalition will have a huge impact and this from the AFR’s Education Editor, Julie Hare and NAB’s economics team put it all into numerical clarity. “Analysis from National Australia Bank found that spending by international students accounted for more than half of Australia’s economic growth in 2023 – equivalent to 0.8 percentage points of annual GDP growth, or more than half the 1.5 per cent annual rate in December,” Hare revealed. “Analysis by The Australian Financial Review reveals that new student enrolments would be reduced to levels not seen for at least two decades under both scenarios.”

The interesting implication of this waving goodbye of foreign students is that it helps reduce inflation by KO’ing the demand they bring, but it will drive up the costs for pubs, cafes and other businesses using students for staffing their operations.

Clearly, it won’t affect inflation and interest rates until next year, which should push out the election date so the Government can get the benefits of lower inflation and falling interest rates news. By the way, the falling demand effects of less students will help lower inflation faster than the cost-increasing effects on inflation from having less workers.

But it could mean whoever wins the election might have to bring back students ASAP to beat down wage-rising boosts to inflation!

Economics is never as straightforward as politicians would like it to be.