Meet the guy (who should be one of Australia’s best economists) who has admitted his miscalculations have led to inflation, big rising interest rates and the reason why those rates will stay higher for longer. If he was simply a banking economist who got it wrong, the problem could be for his employer, but if he’s the Treasury Secretary of Australia, it’s a big mistake!

The forecasting mistake was linked to the fact, that he and his team miscalculated the number of foreign students here by 24%, which contributed the HUGE net immigration number of 528,000! By the way, the gross number of arrivals was over 700,000 and that Treasury forecast was a big miss and Mr Kennedy admitted that yesterday.

To be fair, he didn’t sugar-coat his mistake. “That’s frankly poor performance on our behalf,” he told One Nation senator Malcolm Roberts, the AFR’s Michael Read reported. “While there has been a catch-up in arrivals, we are yet to see a pick-up in departures, predominantly because many of the international students who have arrived over the past couple of years are still studying and are yet to depart.”

What’s worrying about a mistake like this is that it doesn’t go away fast because the students are in three- to five-year courses and are often part of a family plan to set down roots in countries like Australia. And on that point, many businesses want these students as employees.

With all immigration — both temporary and permanent — there are wins and losses, but immigration has been a big part of why we grew for over 30 years without a technical recession. Governments in the past have used immigration to not only grow the economy but to build it as well.

That’s all well and good, but my 2GB colleague Ben Fordham asked me: “How does one of the country’s best economists in Steve Kennedy, who was good enough to get the Treasury Secretary’s job, make such a big mistake?”

It's a good question. As an economist, who has taught economists at UNSW and has tried in the media to work out our economy for decades, here are some excuses:

1. During and after Covid, I tell my audiences at speeches that I neither studied nor taught Pandemic Economics 101, because it was never offered!
2. Lockdowns changed the global economy supply chain, like never before.
3. It created a special kind of surge in inflation.
4. Government over-compensated to avoid a Great Depression with unemployment in the double-digit levels.
5. Central bankers like Dr Phil Lowe totally misread the future economy and what would happen to interest rates.
6. We lost around 500,000 students/workers from overseas when Covid hit. When the lockdowns ended, we had a labour shortage that governments here were keen to get rid of, so attracting staff from overseas made sense.
7. The lockdown, which forced travellers, including students to return home, undoubtedly created circumstances that meant young people were desperate to escape their parents and their parents were glad to see them go!
8. The price of real estate worldwide means younger generations are priced out of being homeowners and that makes travelling and studying more attractive.
9. The Covid lockdowns and the related deaths in other countries must make places like Australia must-see destinations.

This chart from Statista.com shows the number of novel coronavirus (COVID-19) deaths worldwide as of 2 May 2023 and we have a population over 26 million, while Austria has 9 million. Look at the similar death rates.

The USA lost 1,161, 164 people, Brazil 701,494 and the UK buried 223,396!

So, there were understandable push factors added to the usual pull or magnetic factors that make students and backpackers head to places like Australia. However, other places were attractive, and their economists also got their student immigration numbers wrong and Mr Kennedy was keen to inform us about it.

“Other countries have faced similar challenges, including New Zealand, where the equivalent forecast was 42 per cent lower than the latest [net overseas migration] estimate, and the United Kingdom, where the forecast was 58 per cent lower.”

A lot of foreign students come from countries where Covid was a huge killer, which probably explains the global surge in students looking for overseas education opportunities. As I pointed out, Brazil lost over 700,000 people and India lost over 531,000, which might explain why we see lots of young people from these countries here in Australia nowadays.

And thanks to Treasury’s miscalculations based on its lack of experience of forecasting a post-Covid world, it looks like the implications of that mistake — sticky inflation, high rents, a housing shortage and higher for longer interest rates — could be with us longer than we’d want.

Clearly, immigration will be a big political issue in next year’s election.