Victoria, which had been the nation’s fastest growing state or territory before the pandemic, has had its forecast population over the next two years sliced by 400,000. NSW’s population forecast was downgraded by 446,000.
Forecast populations for every state and territory were sliced due to the combination of a collapse in net overseas migration, which is expected to be negative this financial year and next, and a drop in the fertility rate.
Mr Tudge said Victoria would be particularly affected by the slowdown, its growth rate slowing from 2.1 per cent to just 0.2 per cent this year.
He said it was helpful Melbourne and Brisbane would be able to get on top of their infrastructure requirements because of the drop in population growth, but longer term it would have financial and economic consequences.
“It does have that benefit of giving us some space to catch up on the infrastructure, and we do need to have that catch up, but at the same time a slow population has big economic consequences,” he told The Age and The Sydney Morning Herald.
“If you consider the housing construction industry which does rely very significantly on population growth to sustain it and there are hundreds of thousands of people connected to that industry.
“Over the last decade we’ve had people flocking into Victoria from other states to take advantage of the strong economy and now we’re going to have the reverse.”
The government had been expecting the population to grow by 1.6 per cent per year over the long term.
Mr Tudge said it now looked like it would take many years for both net migration and the fertility rates to recover from the pandemic.
He said there was a historic link between economic confidence and fertility rate. This week’s budget was aimed at building confidence, so it could feed into mean a lift in the number of babies in coming years.
“This budget, which is aimed at the economic recovery and building confidence again, may well have a positive impact on fertility down the track because there will be greater economic confidence,” he said.
“It’s well known that when there’s economic uncertainty the fertility rate tends to drop and when there’s economic confidence the fertility rate increases.”
His comments came after the Reserve Bank used its financial stability review to warn a drop in population growth would affect property prices, hitting the broader economy.
“While housing prices have declined only modestly to date, they could fall further given weak population growth and the potential that some mortgage holders in financial difficulties sell their properties,” it said.
“Price falls would erode homeowners’ equity and increase losses to banks in some cases, though the vast majority of loans are very well collateralised.”
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Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.