The Treasury on the government’s plans to reward migrants to the regions

The sadly inadequate quality of New Zealand’s immigration policy, and official advice around it, is on display again today.

In late July, as the headline announcement in the Prime Minister’s National Party conference address, the government announced a number of immigration policy changes.  One of those changes was to offer materially more points to people applying for entry as skilled migrants if they had a job offer outside Auckland.  The relevant Cabinet paper hasn’t been released, and nor has there been any regulatory impact assessment published.

But the Herald asked for a copy of Treasury’s advice on these changes.  The Treasury’s view on the proposal to grant permanent residence to certain low-skilled workers was withheld (we might reasonably assume the comments were quite sceptical), but the Herald reported what they got here.  My thanks to Kim Fulton at NZME who passed on a copy of what was released.

Here is what Treasury had to say about the proposed scheme.

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Cabinet must have agreed with them to some extent, since the final announced version of the policy was twice as generous as the version of the proposal Treasury was commenting on.

I entirely agree with them that the proposed changes –  and even the amped-up approved version –  is unlikely to do anything useful for regional development.  It is just another “subsidy”, and subsidies are both costly and aren’t what the regions need.  A sustainably lower real exchange rate –  and perhaps some comprehensive reform of capital income taxation – is much closer to the heart of what would make a difference.

But what I found surprising and disappointing was how blasé Treasury seemed to be about the whole proposal: “won’t do much good, but not many risks either”, which is pretty much a message from the government’s chief economic adviser that Cabinet might as well go ahead.

What are the risks?  Well, first and foremost, as I noted here, any person who just gets across the points threshold and secures permanent residence will beat out some other potential migrant who was objectively better qualified (whether on age. education, employment or capital investment –  Treasury’s own list).  And contrary to what Treasury suggests, this proposal isn’t just affecting a small number of people. On Treasury’s own numbers around half of migrants go somewhere other than Auckland, so the potential for debasing the average (and marginal) quality of New Zealand’s migrants is quite real.  As I’ve been highlighting in the last few weeks, a large proportion of our migrants (and temporary workers) are already not that skilled at all.  As Treasury has struggled to produce any convincing evidence of the gains from the large scale immigration programme, we might have hoped that they would be rather harder-nosed in pushing back against changes that worsen the chances of real and tangible gains to New Zealanders ever showing up.

And then Treasury observes that there isn’t much risk of competition with people at the lower end of the New Zealand labour market because the skilled migrant category rewards high-skilled people.  Yes, and very high-skilled people will easily cross the threshold already, and won’t represent competition for people at the bottom end of the market.  But this change is about making things easier for people who just aren’t that highly-skilled –  they are the marginal cases, and they get in only because they manage to get the extra points that will come from securing a job offer outside Auckland.  At the margin, it is those people –  the ones who directly benefit from this policy –  who are most likely to be competing with people at the lower end of the New Zealand labour market. I’m not suggesting they’ll be competing with shelf-fillers and checkout operators, but there are plenty of immigrants who don’t appear to rank very high up the spectrum of skills. There will be more under this policy.

As I read the advice I wondered why Treasury was not rather harder-nosed in its advice.  As we saw in previously released papers, they seem much less sanguine about the economic benefits of immigration to New Zealanders than their chief executive has been.  Perhaps they just didn’t have much time to look at the proposal and the weaknesses in the proposal just slipped through?  Perhaps they just knew it was all about politics, and the headlines in the media after the Prime Minister’s speech?

The permanent residence approvals programme, and especially the skilled migrant category, is seen by the government as an “economic lever”.  It operates on a very large scale, and has significant effects across the country.  We should expect a rather more rigorous critique –  and some of that rare free and frank advice – when ministers want to debase the currency (points), in ways that must, if the policy works at all, debase the average quality of the new migrants.  Productivity growth isn’t so abundant in New Zealand that we can afford a cavalier Treasury when proposals turn up that will, if they do anything, worsen our productivity prospects.

11 thoughts on “The Treasury on the government’s plans to reward migrants to the regions

  1. Blasé is what it sounds like but it could be they actually approve of policy initiatives that give the impression of the government ‘doing something’ but which will (in their opinion) make no material/economic difference. In other words, they see many of this government’s proposals as largely PR exercises (i.e., means to quell public discontent) and they have nothing against looking at public policy from this perspective.

    The problem with that kind of “blasé” is that over time they get extremely lazy from an analytical point of view – where the key focus is on no particular harm to the status quo. It kind of ‘fits’ with John Key’s style of incrementalism/tweeking.

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  2. Interesting.
    One of my full time staff recently wanted some extra income so applied to work at the local fried chicken outfit from Kansas. She wanted 18-20 and applied on that basis. She was accepted on that basis and went to the training. Now she is a well organized person and with a couple of weeks they wanted her to do close to 40 hours. That of course created an issue with us and our work.
    We talked to her about solving this. About 2 weeks ago a “new” manager was appointed. seems he is organized as well.
    Within 2 weeks most of the staff that were previously there have been replaced. Replacements, like the Manager, are all Indian. Yep those people who are getting student visa’s and going to work.
    Its happening in the countdowns both here and Australia.and no doubt other parts of the Restaurant Group the call then selves a Brand.

    Low skills, job arranged so they can tick a box on the immigration form. don’t complain and work when they are told.

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  3. Michael,

    The advice says that not many migrants who don’t meet the current requirements will be pushed over the line (since there is no strict cap on SMC it is unlikely they will displace other migrants). Their assessment is that simply too few points are being allocated for residency to make much difference, I have not done the numbers myself but it is not clear that simply looking at the number of people outside of Auckland as you do rebuts this point. I think your case is unproven that this debases the system in a material way. Annex F of the report below may help consider this issue (for example give your previous post an extra 20 points is the same as the difference between being in your 20s and in your forties).

    There is a wider point about the overall approach. Given you postings on the ABCs on thing you might find interesting is pages 58 or so of this comparative review by the OECD on NZ migration policy that explains how the process in NZ of assessing and measuring essential skills. http://www.oecd-ilibrary.org/social-issues-migration-health/recruiting-immigrant-workers-new-zealand-2014_9789264215658-en

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    • Thanks for the comment/link. I think I phrased my comment carefully enough to make the point that if the policy has any material impact (presumably attracts more migrants to the regions) that in must do so by reducing the average quality of the migrants. Yes, I take the point that there is no strict cap for SMC numbers, but the whole system operates with the 45-50K pa target. You may be right that the proposal they were commenting on wouldn’t actually make much difference ( and I suspect that is so), but the risk is that it would, in which case it would be costly in a national sense.

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      • Until we first move businesses and enterprises providing jobs out to the regions and have another international airport providing a second gateway we cannot have a successful regional shift. Perhaps expand on Queenstown as more than just a holiday destination. After the Chch earthquake businesses and people are rather wary of returning to Chch. Chch as a major hub is going to be a big question mark for at least the next 10 years. So a quick fix would have to be Queenstown.

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  4. I think the proximity of mountains is rather an obstacle to Queenstown isn’t it?

    My approach would be to cut the permanent residence approvals target to 10-15K per annum. If we did, (house prices would fall, especially in Auckland and) real interest rates would fall materially and the real exchange rate would too. A whole bunch of export opportunities from the provinces would quickly look much more viable, and job opportunities in the provinces would look much more attractive to NZers and to immigrants. Of course, we’d still have exchange rate cycles, but averaging around a much lower level.

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    • When you are consistently losing 40k to 50k New Zealanders a year as expats, setting a policy target of 40k to 50k makes a lot of sense. A declining and aging population is a bigger problem than a growing population in the proportion you have indicated is a net loss of 30k to 35k a year. You might as well plan to shut down businesses in NZ.

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  5. But that strategy is failing…we’ve had among the worst productivity growth rates among advanced economies over the 25 years it has been tried. Countries with flat or falling populations – in some cases smaller than ours – have done considerably better. There is always a range of factors in play, but our strategy just hasn’t worked for us.

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    • I would place the blame squarely on higher than average global interest rates and a NZD that is persistently on the higher end of the scale. The blame lies squarely on the shoulders of the RB. Interest rates are a cost to a business. Higher interest costs means that cost need to be cut somewhere else to maintain a profit. Higher productivity requires stability for business confidence to invest in infrastructure and in new technologies, both of which has suffered greatly in our interest rates moving up far to quickly to dampen any confidence for investment in the future.

      A persistently high NZD held up by higher than global average interest rates erode margin for our exporters which creates niche high value products that that resist the erosion of profit when the NZD rises.

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      • High value products are a niche product which caters to a small niche market which keeps our industries small.

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