The New Zealand government’s permanent residence approvals target is 45000 to 50000 per annum.  The target hasn’t changed for quite a long time, although actual approvals fluctuate from year to year.

As I’ve noted previously, even though the immigration programme is explicitly described as an “economic lever” only around half the permanent residence approvals have been under the skills (or business) stream, and even that total includes the immediate family of the primary applicant.

It is well-known that it takes many immigrants years to reach the earnings that a New Zealander with similar qualifications would achieve.   Here is how Julie Fry summarised the evidence in her 2014 Treasury working paper.

However, they also face language and adjustment barriers, at times including discrimination, which on average take 10-20 years to overcome. In common with overseas patterns, recent New Zealand immigrants have poorer outcomes than others in the labour market, although those outcomes improve over time.  Immigrants who are from culturally similar source countries (such as Australia and the United Kingdom) adjust more quickly. On average, migrants from Asia take longer to adjust, and migrants from the Pacific Islands never reach parity with the New Zealand-born, reflecting the fact that they enter mainly on family reunification grounds and non-skills-based quotas.  University-qualified migrants also adjust more quickly.

Ten to twenty years is a large chunk of a working life, and if the New Zealand immigration programme is really going to boost productivity and per capita incomes of New Zealanders that adjustment period is a significant hurdle to get over (as for much of their working lives here many of the migrants can’t even match the earnings New Zealanders reach).  That probably wasn’t the experience of migrants to New Zealand in the mid to late 19^th century.

The issue is even more acute in respect of older immigrants, and is likely to be particular so for those from countries that are not (in Fry’s words), “culturally similar”.  A migrant arriving at age 55 has only perhaps 10-15 years left in the workforce, and that expected time in the workforce drops as the arrival age increases.

Unfortunately, although the permanent residence approvals target has not changed, the proportion of it being used up by older immigrants has been steadily increasing.  Unsurprisingly, not many people 55 and over come on work visas (around 275 in the latest year, not much changed over the previous decade). By contrast, 3279 people aged 55 and over arrived on residence visas in the year to June 2015, just over double the number who came in the year to June 2004 (the first year the data are reported).  The chances of many of these people making any material contribution to boosting productivity and incomes of New Zealanders seem small.  And yet they now make up 7 per cent of our total (skills-focused) permanent residence approvals target.

If there is little obvious economic reason to allow in most of these older arrivals –  and, in fairness, the arguments made for doing are not typically economics ones –  there are fiscal reasons to be quite uneasy about doing so.  As I’ve highlighted previously, someone who moves to New Zealand need only live here for 10 years before becoming eligible for full New Zealand Superannuation entitlements, and once granted residence they are eligible for our public health system (and time spent in Australia counts as time spent in New Zealand for NZS eligibility purposes).

The New Zealand Superannuation issue is less severe in respect of those coming from advanced economies.  Pensions earned in those countries are set off against NZS entitlements, so that New Zealand pays only a portion of the total retirement income cost.  But for people from poorer countries where there is no public pension entitlement, or nothing that can be claimed abroad, the full cost falls on New Zealand once the ten year residence period has passed.   Considered from a fiscal perspective, it is perhaps unfortunate that most of the increase in the number of older arrivals has been of people from India and China (numbers from the UK are significant, but have not increased materially).

Of course, there is a much larger fiscal risk in the possibility of large numbers of older New Zealanders returning from Australia (in particular) at around retirement age, having paid few New Zealand taxes and now claiming full NZS and health entitlements.  The number of older New Zealanders returning from Australia has been increasing (around 2700 of those 55 and over in the last year, about 800 of whom are 65 and over), but are still modest compared to the total number of New Zealanders living in Australia.

The average migrant to New Zealand probably makes a net positive fiscal contribution over the course of their time in New Zealand.  But that average is dragged materially downwards by these older arrivals. It tends to reinforce the argument that any real economic gains from the immigration programme could be obtained with a much lower permanent residence approvals target.

Without even touching the refugee component of the target (perhaps even increasing it), restricting permanent residence approvals to the sorts of high skilled positions illustrated in yesterday’s post, and prohibiting any permanent residence approvals for people aged over 55[1], would enable us to capture most of the putative gains with a permanent residence approvals target of perhaps 10000 to 15000 per annum.  Reducing the permanent residence approvals target by two-thirds would materially reduce the demand pressures associated with a fast-growing population.  Doing that would materially ease pressures on real interest and real exchange rates, which would allow New Zealanders and the remaining highly-skilled immigrants to take advantage of the new tradables sector business investment opportunities that would become much more attractive as a result.

As a comparative benchmark, the average annual net inflow of non-New Zealand citizens was 8500 in the 1980s.  If we are serious about lifting economic performance, and using a skills-focused immigration programme as part of that we need to get much more hard-headed about the sort of people we allow in (refugee issues aside).  In fact, over the last decade or more we’ve been going in the wrong direction, as the highly skilled have made up a decreasing share of migrants.  Many of our business migrants seem to be attracted more by the lifestyle than by the prospect of building high productivity businesses here. And the immigration programme was diluted against just recently with the decision to award more points to people moving to places other than Auckland, which will squeeze out other better-qualified applicants.

[1] With an exception perhaps for a small number of people who are entirely self-funded for their lifetime.