ABUL RIZVI: Migration confusion again (Part 1)

Mar 26, 2019

Judith Sloan writing in The Australian (We’re the big losers in this immigration numbers game) has called on the Morrison Government to do much more to drive down immigration, not just the migration program which is measured in terms of permanent visas granted, but also net migration which measures long-term and permanent arrivals minus departures.

Similar to Premier Berejiklian’s call prior to the recent election for net migration to NSW to be halved, Pauline Hanson’s policy of zero net migration and Dick Smith’s call for the migration program to be reduced to 70,000 places, Sloan gives no indication of how she proposes a big reduction in net migration should be delivered.

So let’s look into that a little more deeply.

Sloan argues there is strong support in the community for much bigger cuts to immigration and that such cuts are justified because the economic benefits of our skills focused immigration arrangements are minor.

Let’s take Sloan for her word on the views of the Australian community although reducing such a complex issue as immigration to a simple ‘more or less’ question run by pollsters is similar to the UK Government asking the public about whether to leave the EU.

Let’s also accept Sloan’s assertion that the beneficial economic impact of immigration is minor despite the view of the Treasury Department in 2018 that “the economic and fiscal benefits that migrants have brought to Australia have undoubtedly played a part in Australia’s 26 years of uninterrupted growth.”

Let’s also dismiss the Productivity Commission’s conclusion in 2016 that “continuing net migration at the long-term historical average rate and assuming the same young age profile as the current intake is projected to increase GDP per person by around 7 per cent (equivalent to around $7000 per person in 2013-14 dollars) in 2060 relative to a zero NOM scenario.” The Productivity Commission assumed net migration averaging 180,000 per annum and a relatively high fertility rate of 1.85 babies per woman.

Sloan makes no mention of the impact of current levels of net migration on slowing our rate of population ageing. For example, Sloan makes no mention of the view of the Governor of the Reserve Bank in 2018 that “back in 2002, Australia was expected to age quite quickly, with the median age projected to increase significantly to over 45 by 2040. But after a decade of increased immigration of younger people, the latest estimate is that the median age in 2040 will be around only 40 years.”

Let’s assume the Reserve Bank’s concerns about a much faster rate of ageing resulting from a very much lower level of net migration are misplaced.

Sloan’s article also makes no mention of the strong opposition to further cuts to migration from all three of Australia’s major business bodies. So she is encouraging us to also dismiss their views.

Where is net migration headed under current policy settings?

Taking policy action to reduce net migration requires an understanding of where net migration is headed under current policy settings. Unlike the migration program, there are many aspects of net migration government does not directly control such as emigration and the movement of Australian citizens. Like the economy, governments can only seek to manage net migration rather than control it.

The level of net migration is strongly correlated with the relative state of the economy and in particular the labour market. Each major downward movement in net migration since at least the 1970s has coincided with either a major recession or an economic slowdown. For example, Sloan, Hanson and Smith would have rejoiced in net migration of 13,515 in the 1975 recession; or net migration of 54,995 in the 1982 recession; or net migration of 34,900 in 1993. But their merriment would have coincided with hundreds of thousands of Australians losing their jobs and the Budget plunging into deep deficit.

The last time net migration fell below 200,000 was under the Abbott Government in 2013-14 at 187,780 and in 2014-15 at 184,030. These outcomes were not due to any immigration policy changes. The reductions were almost entirely due to the weak economy and labour market in these years leading to a large increase in the net number of Australian citizens leaving and a fall in the net number of NZ citizens arriving. While the migration program in each of these years was delivered at record levels, there were few public calls for cuts to immigration, possibly because of the lower level of net migration.

Net migration in 2016-17 (262,490) and 2017-18 (236,733) was relatively high as the economy and labour market were stronger than under the Abbott Government.

In the 2018 Budget, Treasury had assumed net migration would fall from 242,600 in calendar year 2017  to 221,400 in 2021. To keep population growth strong over this period, Treasury also assumed our fertility rate would spike from 1.75 babies per woman in 2017 to 1.9 babies per woman.

But even more extraordinary was that Treasury was forecasting strong economic and employment growth while net migration was falling steadily – that has never happened in Australia’s modern history.

For the upcoming 2019 Budget, Treasury is in an impossible position for its forecast for net migration. Either it must forecast net migration will continue to fall to justify the Prime Minister’s congestion busting rhetoric or it must forecast net migration to rise with an assumption of a strengthening economy and to support the Prime Minister’s commitment to create 1.25 million jobs over the next five years.

If the Australian economy slows significantly over the next few years, however, net migration will fall without any further immigration policy action. The size of the fall will depend on the extent of the relative economic slowdown and the size of the deterioration in the labour market.

If there is a deep recession in the next few years similar to the early 1990s, there are four reasons net migration would fall very rapidly and possibly into negative territory. Firstly, overseas job opportunities for skilled Australians are much greater than in the 1990s. Secondly, the number of temporary residents is much larger and if these people are unable to keep their jobs, they will very quickly leave Australia in large numbers. Thirdly, the wait for access to social security is now four years for most recently arrived migrants rather than the six months in the late 1990s. Finally, most NZ citizens in Australia do not now have access to social security at all which was not the case in the  early 1990s.

So before considering policy action to reduce net migration outside the economic cycle, we need an agreed view on the state of the economy and the labour market over the next few years. This would enable us to forecast net migration over that time under current policy settings as a base from which to work. We may get some idea of the Government’s thinking on this in the forthcoming budget.

In part 2 of this article, we will delve more deeply into the various categories of net migration.

Abul Rizvi was a senior official in the Department of Immigration from the early 1990s to 2007 when he left as Deputy Secretary. 

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