Would slashing net overseas migration “trash the economy” or deliver the necessary population “reset” to restore Australia’s stagnant living standards?

Labor and an ascendant One Nation have presented starkly different visions of what a migration program in the national interest looks like.

Pauline Hanson, the populist party’s leader, last month announced a plan to cut the number of temporary migrants in Australia by more than 750,000 over three years by targeting international students and family members of skilled migrants.

To achieve that reduction, net overseas migration (Nom) would need to turn negative for three years, the party says, before an ongoing cap of 130,000.

That compares with Labor’s longer-term Nom target of 225,000, and to the last official estimate of 292,000 in the year to March.

Tony Burke, the home affairs minister, said One Nation’s plan, if enacted, would “trash Australian services and trash the Australian economy”.

Hanson disagrees, and is quick to blame Australia’s high population growth over the past few years for the economy’s woes.

In a social media post, she said “vested interest [sic] are warning Australia could face a technical recession if migration is cut”.

“Australians have been in a per-capita recession for years. Their lives have been getting worse because of migration. Canada has shown living standards improve when migration is cut.”

For those looking for international comparisons, Canada has long been a type of sister country to Australia – similar size, similar culture, similar economy.

And the North American nation is in the midst of a dramatic migration adjustment that has flattened population growth.

Unlike Hanson, Canada’s policymakers have not targeted a specific net overseas migration level. Instead, they have rolled out a suite of policies to reduce the number of temporary migrants as a share of population from a peak of 7.6% in 2024, to 5%.

Canada is about halfway to this goal. The government has done this by reducing temporary arrivals, particularly international students, making it harder to extend stays, and giving some temporary migrants permanency.

Annual population growth has slowed from 3.1% in early 2024 to just 0.5% now.

So how well has Canada’s economy coped? And what does their experience tell us about how Australia should respond to growing calls for a more hardline approach to migration?

‘Canada’s economy is not broken. It is adjusting’

In May, the CD Howe Institute, a leading Canadian thinktank, issued a report on the country’s economy in a “lower immigration era”.

The title was “resetting expectations”.

Modelling by the report’s authors, Don Drummond and Parisa Mahboubi, estimated that employment in Canada could fall this year and the next.

Real GDP growth in 2026 may be no more than 0.5%, they forecast, and “little more” than 1% on average in the long term.

Falling employment would normally be cause for alarm, but Drummond and Mahboubi say this is actually “what a normally operating labour market delivers, given the demographic shifts underway”.

“These are not signs of a struggling economy,” they said.

“Canada’s economy is not broken. It is adjusting. Understanding that adjustment is a precondition for sound policy in the years ahead.”

Nathan Janzen, the assistant chief economist at the Royal Bank of Canada, agrees with this assessment.

“What the population shifts have done has changed how we need to interpret economic data.”

The university sector has been hit particularly hard by the tighter migration rules. The government also provided exceptions to migrants working in areas of particular labour shortages, such as agriculture and the care economy.

But overall, Janzen says, “the Canadian economy has been relatively resilient”.

“If our population estimate numbers are right, we could have negative employment growth and still have falling unemployment. And the per capita economy looks like it’s getting better.”

Canada’s recession and ‘cyclical factors’ at play

But economists warn against assuming Canada’s experience would be replicated here.

Jonathan Kearns, the chief economist at Challenger, says the first point to make is that Canada’s post-pandemic surge was far larger than Australia’s.

“While people here get excited about our post-Covid immigration, it was nothing compared to theirs,” Kearns says.

Even now, Canada’s population still sits 5% above where it would have been expected to be based on pre-Covid trends.

In comparison, Australia’s population is tracking just 0.2% above its pre-pandemic trend line.

“So the decline [in Canada’s population growth] has to be taken in context of the massive run-up,” Kearns says.

Canada also began its migration crackdown at a time of high unemployment in the wake of an aggressive series of interest rate hikes by the Bank of Canada.

In contrast, were Australia to crack down hard on migrants, it would do so with a tight labour market where unemployment sits at 4.6% and at a time of widespread labour shortages.

Luci Ellis, Westpac’s chief economist, says: “I don’t think you can just point to Canada and say, ‘Look, they did OK.’”

Ellis says there are cyclical factors at play that help explain Canada’s apparent economic resilience to its migration crackdown.

“It’s also because they are recovering from a recession,” she says.

The challenge of ageing populations

While Canada’s economy has, so far, coped with the country’s stricter migration policies, there is little appetite for them to be a permanent feature in a nation that remains open to immigration.

Canada, like Australia, is ageing. That means a shrinking share of taxpaying workers to fund the cost of providing pensions, aged care and health services to older Canadians.

The CD Howe Institute analysis shows that if the current era of low population growth became a permanent one, then Canada’s economy would be about 11.5% smaller by 2060, compared with official government projections.

“The implications for fiscal sustainability are significant,” the authors said. “This gap translates into structurally weaker revenues and higher debt ratios.”

Janzen says that, without immigration, “labour shortages are going to be a structural feature of the economy”.

“The view is that this will be a temporary adjustment, before we return to something more like historical rates of immigration.”

And while Australia may not want to exactly replicate our North American peer’s dramatic migration reset, there remain legitimate questions around how we can better manage a temporary migration program that has ballooned over recent years.

Ellis believes Australian employers have become too reliant on overseas labour, from chefs to workers in rural areas, and that this has come at the expense of training and hiring locals, even if it means paying higher wages.

“By choosing higher population growth with a high temporary component, we have made it easy for employers to look offshore any time they need to find someone for a job. There are definitely industries that have grown to be reliant on that,” she says.

“That degrades your ability and willingness to train your local workforce.”

• Patrick Commins is Guardian Australia’s economics editor