Business

How NZ First could achieve its migration cuts

Michael Reddell looks at the mechanics of how Winston Peters could get net migration down to 10,000 to 15,000 and offers an option

New Zealand First has long called for reductions in the rate of immigration. And now that are about to enter negotiations with the two main parties. Before getting to some specific policy suggestions that look consistent with what that party has been saying, and might well make New Zealanders as a whole better off, it is worth looking through the numbers on New Zealand’s immigration experience and policy.

Most of the media coverage of immigration in New Zealand focuses on net permanent and long-term (PLT) migration, calculated from the declared intentions of those (New Zealanders and foreigners) crossing the border. In the year to June 2017, a net 72,305 people arrived as PLT migrants. Just slightly more than that number of non-New Zealand citizens arrived, and 1284 New Zealanders (net) left.

Net outflows of New Zealanders have fluctuated between around 0 and around 40,000 per annum. But the choices of New Zealanders are not a matter of immigration policy.

By contrast, policy has pretty much full control over the number of non-citizens arriving.

Sometimes you will see this chart, which uses PLT arrivals data (gross, not net) to show what sort of visa people were on when they crossed the border as PLT arrivals (the “not applicables” are New Zealand and Australian citizens).

But this chart doesn’t tell us anything much about immigration policy. In the year to June 2017, 16,711 people arrived on residence visas. But during that year, MBIE granted 47,331 residence visas, the overwhelming majority to people who were already here (and who typically will have entered first on a student or work visa).

If we want to look at immigration policy itself, it is much better to turn to the administrative data on the numbers of people approved for various classes of visas. Unfortunately, unless you like playing with spreadsheets with half a million lines, MBIE only produce data annually, and the data for the year to June 2017 haven’t yet been released.  

Here are the numbers for visas granted to new workers under various policies (ie excluding renewals etc).

and there has also been a big increase in the numbers granted working holiday visas:

Student visa numbers are still  growing, but in the last year or two there has been quite a switch from private training enterprises (which will have included some of the more questionable institutions/courses) towards universities in particular.

But it is residence visas that are at the heart of our immigration policy. The number of those approved determines the medium-term contribution immigration makes to our population. Cabinet sets a “planning range” (in effect, a target) for the number of residence approvals granted. That range was cut slightly to 42,500 to 47,500 per annum late last year. Actual approvals fluctuate around the target, rather than being mechanically managed to meet it month by month or year by year.

The residence approvals planning range –  the centrepiece of the immigration programme – has been pretty stable for a long time (just the modest cut last year). It doesn’t contribute much to the variability in the headline PLT numbers. Much of the variability in the headline PLT numbers is changes in what New Zealanders are doing, and most of the variability in the non-NZ citizen net inflow relates to policy streams (eg student visas, or working holiday arrangements) other than the residence approvals programme. Recall that most of those getting residence visas were already living here (on work, study, or related visas).

But, of course, the variability is only part of the picture. Perhaps the most striking thing about the residence approvals programme is its sheer size: equivalent to almost one percent of the population each year, and in per capita terms three times the size of the US “green card” issuance (under both recent administrations). We have a very large number of legal temporary foreign workers here by international standards, but most of them will eventually go home. What really marks us out is the size of the residence approvals programme –  bigger per capita than in almost any OECD country, and far bigger than most. I’ve argued for cutting programme back to, say, 10,000 to 15,000 per annum (a similar size, per capita, to the US programme).

As I’ve written about previously, if one looks at the New Zealand First website there isn’t much specific on immigration policy. Winston Peters has sometimes talked of lowering the annual inflow to something like 10,000 to 15,000. But what he means by that hasn’t been clear. Since he was talking to a public that, if they have any numbers in mind, will presumably be thinking in terms of the PLT flows, it would be most natural to assume that Peters was suggesting a net PLT inflow of around those numbers. The variability of the inflows and outflows of New Zealanders (which policy doesn’t affect) means such a target would be impossible to manage on an annual basis. But as a target set looking forward on average over the medium-term it would be a much more feasible guidepost.  

For the last 40 years there has been an average net outflow of New Zealand citizens (mostly to Australia) of around 20,000 per annum. At present the net outflows are small. But they are likely to pick up again as the Australian labour market improves, since Australian wages are so much higher than those here. If the government were to assume that outflow will be 20000 per annum on average over the business cycle, a residence approvals target of 30,000 to 35,000 per annum would produce an average net inflow (across citizens and non-citizens) that would, over time, be consistent with the 10,000 to 15,000 inflow per annum Peters has talked of.

That wouldn’t be terribly radical at all. In per capita terms, it would still involve non-citizen immigration running at twice US rates. And frankly there looks to be plenty of room to drop off the lower-skilled portion of the current residence approvals (lots of chefs and shop managers, and more than a few adult family members of other skilled migrants who don’t themselves meet our skills standards) without any risk of damaging economy-wide productivity. At the same time, we could remove some of the absurd bureaucratic hassles many really skilled people seem to face in getting established here.

One of the other, rather general, strands of New Zealand First’s immigration policy seems to relate primarily to work visas. It is stated that:

“Ensure that there is effective labour market testing to ensure New Zealanders have first call on New Zealand jobs.”

I’m sympathetic to the concerns that motivate this strand of the policy, but I don’t think bureaucrats should be trying to decide which skills really can’t be met locally – almost any can at the right price - let alone try to reach Soviet-type judgments on which regions should be favoured. Why not set some (demanding) standards, and then pull the bureaucrats back from the details and let firms decide whether, given the rules, they really need a foreign employer on a short-term work visa. In various recent presentations on the adverse economic effects of New Zealand’s immigration policy I have included an option for reforming the work visa system that would involve:

a) Visas capped in length (a single maximum term of three years, with at least a year overseas before any return on a subsequent work visa), and

b) Visas would be subject to a fee payable to the government, of perhaps $20,000 per annum or 20 percent of the employee’s annual income (whichever is greater).  

To limit risks of exploitation, require any employer with a work visa employee to be able to demonstrate that the employee has been paid at least $10,000 above the minimum wage, and no “fees” would be allowed to be paid back to the employer or related entities.

If your firm really needs a highly-skilled person (surgeon, lawyer, CEO or whatever, earning say $200,000 or more), and can’t find one on market in New Zealand, the annual fee is unlikely to be prohibitive given the key such a person is like to be playing. But, equally, there aren’t many of those sorts of people/roles, and many of the people who take these short-term positions won’t want to stay here forever. So I’d make it easy to recruit them, but with a strong emphasis (because the visa is non-renewable) on the need to identify a local resident to replace them. At the lower paid end of the labour market, if the business your firm is doing is really so valuable you can afford the $20,000 annual fee on top of the annual salary (of, say, $40,000) to recruit a temporary foreign worker, that might be a reasonable pointer to serious scarcity. Work visas can then still function as a bit of a short-term safety valve. But it seems unlikely that we’d be granting consistently many visas to lower-end chefs, or dairy workers, or care staff in rest homes. And that would, over time, be a good outcome for New Zealanders.

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