A modest start

The Minister of Immigration has today announced some changes in New Zealand’s immigration policy.

The centerpiece of New Zealand’s immigration policy has, for many years, under both National and Labour-led governments, been a target (“planning range” they like to call it) for the number of non-citizen residence approvals of 45000 to 50000 per annum.  For all the talk about the volatility in the net permanent and long-term migration numbers, much of that volatility simply results from choices of New Zealanders to go, or not.  That has little or nothing to do with immigration policy.   In terms of overall numbers, residence policy itself has been pretty stable.  Some years, actual approvals undershoot a bit, and sometimes they overshoot, but the target itself hasn’t changed for a long time.  Of course, New Zealand’s population has grown quite rapidly, so approvals as a share of the population have been trending down, while remaining high by international standards.

In today’s announcement, for the first time in a long time, the target has been cut.  The cut itself is small –  for the next two years, the annual target will be 42500 to 47500 non-citizen residence approvals.  In other words, the target has been cut by 5.5 per cent.

That is a small step in the right direction.  I’ve argued for some time that the residence approvals target should be lowered to something more like 10000 to 15000 per annum, and that to do so would, over time, offer a path towards a material improvement in New Zealand’s dismal long-term productivity and relative income performance. Now that the hitherto sacrosanct (although, as everyone accepts, initially rather arbitrary) 45000 to 50000 target has been cut, even if only modestly, I’d hope to see further reductions in the residence approvals target in years to come.

Perhaps as encouraging is the other change.  A large chunk of residence approvals have been going to people, often older parents, who would not qualify for New Zealand residence on their own merits, but get in simply because they have family already here.  Since our immigration programme is explicitly focused on the potential economic benefits to New Zealand, and New Zealanders, this large share of approvals going to  relatives undermined the (already slim) prospects that the immigration programme was ever going to benefit New Zealanders as a whole.

In today’s announcement, the government is

reducing the number of places for the capped family categories to 2,000 per year (down from 5,500)

In other words, all (and more) of the reduction in the targeted number of residence approvals will come from that group of migrants who never qualified to get here on their own merits.  If anything, there is a slight increase expected in the number of people who will gain residence based on their own skills etc.  All else equal, that is a step forward –  economically and fiscally.

As part of today’s announcement, the number of points required for residency has been increased.  That is really only a logical corollary of the likely increase in the number of applicants under the skilled migrant stream (as a result of the influx of foreign students in the last few years), but should mean that the people we do grant residence approvals to in the next couple of years will generally be of higher “quality” (in terms of the sort of characteristics the programme rewards) than those in the last few years.

Today’s announcement is a small step in the right direction, and thus welcome.  It helps illustrate what a useful and flexible tool the residence approvals target is.  Contrary to many naysayers, it is relatively straightforward to alter our residence approvals numbers.  Annual approvals will fluctuate, as will flows of New Zealanders, and flows of people on temporary visas, but, over time, it is the residence approvals programme target that largely determines the contribution of immigration policy to New Zealand’s population growth.   As a natural resource dependent country, in a very poor location from which to base other sorts of internationally-oriented businesses, we don’t need more people, which is why –  ideally –  today’s announcement will be the first of many over the coming decade.

As a reminder, the United States issues around 1 million green card a years: that is one green card per annum for each 319 people already in the United States.

Our new target, centred on 45000 residence approvals per annum, offers one new residence approval per annum per 105 people already in New Zealand.

The evidence base for running an immigration programme three times the size of that of the United States, to an extremely remote location with an underperforming economy, remains scant to non-existent, even after decades of the current policy.  A challenge for MBIE, and Treasury, and their respective Ministers, might be to show compellingly that New Zealanders as a whole are benefiting from the high immigration policy –  a policy that, slightly attenuated today, continues.

I’ve long argued that lowering the residence approvals target materially would, over time, lower the real exchange rate, and assist in shifting the economy towards a more international orientation (more exports, more imports, and less reliance on the non-tradables sector).  Media accounts suggest that the NZD actually fell on today’s announcement.  If so, that is welcome –  and consistent with the fact that asset markets tend to be forward-looking.  But, as everyone knows, exchange rates are volatile, and in the grand scheme of things, it is unlikely that a 5 per cent in the residence approvals numbers in isolation will make much discernible difference in the medium-term.  Now a 50 per cent fall, well….that really should make a difference.

 

 

33 thoughts on “A modest start

  1. Just two points where I disagree with you:

    1) The change to the family category is a wrong move if New Zealand wants to attract high-skilled immigrants, cause i’m sure many of migrants will choose other countries if they can’t bring their parents.

    Such as myself, a permanent resident working in IT, plus owning an IT business: when my mother-in-law retires, we’ll have to make some hard choices unless we can bring her to New Zealand. Such as moving overseas (maybe US, don’t know yet) where our parents will be welcomed.

    2) Neither skilled migrant category _granted overseas_ nor parent category are a major source of permanent residents. The largest source is students who arrive for a year, then automatically get 1-year work visa, find a job then get their residence based on the job. 90% of migrants I see around me have moved this way. Raising the points from 140 to 160 does exactly nothing to this category. The change just stops highly skilled people from getting resident visa overseas before moving to NZ. Previously IT professional around 30yo with partner with qualifications etc could get 145-155 points, get resident visa, and then arrive to NZ. Now they will either have to pay for 1 year of “study” in NZ, or look elsewhere.

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    • On your first point, there is an argument along the lines you make. I’m not persuaded by it in general. Most of the migrants we attract aren’t that highly skilled to start with (they look a lot like the NZ population) and so to “burden” NZ with parents who will typically have only a short time in the workforce, or none at all, and will eventually be entitled to NZS and the public health system, skews the game further to NZ’s disadvantage. We typically gain if we get really really top notch people, otherwise the gain in mostly to the immigrants themselves, and often – in the case of the parent visas – at a fiscal cost to NZers. But bear in mind, they haven’t scrapped family visas, only cut the number back (quite materially).

      Yes, I agree that most people who get residence under the skilled migrant stream first work in NZ under other visas. Only a small proportion of people getting residence are offshore at the time of approval – and that is probably one of the weaknesses of the system, even tho the focus on people in country was initially quite well-intentioned (MBIE focused on short-term integration, and it is easiest for people to integrate — all else equal – if they are already here).

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      • With regard to people first working here before gaining residence was seen as a good thing when the policy was first devised because we were grappling with migrants settling and becoming productive more quickly. If a person was educated in a NZ university, had then worked under a temporary visa and then applied for residency that overcame a major problem of settlement. That is, they new the country, they could live with our culture, and know what the labour market was. People may think that establishing proxies for policy ideals is easy but I can assure you it is an inexact art eg qualifications are a proxy for skills, IELTS is a proxy for for being more employable and functioning in the community, etc etc. Also remember that our system is an application form verification assessment very much like insurance. Very few applicants get interviewed, so the proxies have to be paper verifiable.

        Instead of applicants being in NZ as one of the weaknesses it is a strength for the reasons above. The more history they have here the more we know of them. Some applicant from the wilderness, with a PHD is bio chemistry is more of a worry. People pontificate on policy ideals but this needs to be tempered with reality of procedural design that delivers the policy in a world where people dont always have the same values.

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  2. So we get fewer skilled migrants and yet more unskilled migrants. Defacto relationships and marriages of foreign spouses still unstoppable. All this racist pressure is making the government do silly things.

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      • No because you cannot stop kiwis getting their spouses residency ahead of skilled migrants. Kiwis have the ear of their MPs. Skilled migrants do not.

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      • But that issue isn’t changed by today’s announcement. What is certain from today’s announcement is that we have fewer parents and adult siblings coming as permanent residents, people who could not gain entry on their own merits.

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      • The nice thing about being a kiwi is that you can raise a ruckus right up to the General Manager of immigration and yell at him, failing that push onto the Prime Minister and yell at him, therefore the needs of a kiwi will always precede the rights of a skilled migrant that has to play nice.

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      • Michael, exactly right. No changes to spouses and defacto relationships policy but we have shrunk the skilled migrant policy which means more unskilled people and less skilled migrants.

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  3. Nigel Latta confirmed what I figured about immigration – that the elephant in the room is the low productivity of NZ born people. The P fueled prison-hopping underclass created by misguided welfare policies of the last 50 yrs has grown to a size which means the only way to offset that is thru hard working immigrants.

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    • But Latta is simply wrong. As OECD data, cited by MBIE and their Ministers, highlights, native NZ workers have among the very highest skill levels in the OECD (and immigrants are on average slightly less skilled than natives).

      https://croakingcassandra.com/2016/06/30/skills-matter-and-we-already-seem-to-have-them/

      (None of which is to defend the ravages of the welfare state – tho it isn’t obvious that ours in worse, more debilitating ,than those in other advanced economies.)

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      • If you follow back thru the links, you can find the surveys/exercises that were used in the calculation of these skill estimates. I had a go at one of them and, on the face of it, it seemed quite a reasonable test – certainly better, say, than just totting up the numbers of people with particular paper qualifications.

        To be honest, I’m probably a bit skeptical myself of claims that NZ workers are among the most highly skilled in the world, but….the data are there for someone to refute, and in the absence of anyone doing so I think the onus really needs to be on the enthusiasts for the large scale immigration programme to show that (a) our workers are so much inferior to those in other countries, and (b) that importing the sort of people who will come to NZ could really make a difference, not just for them but for us.

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      • This is a rather silly argument as to who has the most skilled sets. The skilled migrant category is market tested therefore we bring in the skills demanded by industry. Migrants exist only in one generation. The next generation are usually kiwi born anyway. Anyway it is never a fair comparative because you are never really comparing the same migrants. I come back to the issue of retention. As these are young and highly skilled people they have lots of job opportunities in other countries. The statistics you keep throwing around erroneously keep measuring a whole bunch of new people that come in and not just the skills of those migants that remain here in NZ and that would skew the data quite badly.

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      • The so-called “market test” is just a test of whether these people can get a job offer. Chefs (by the thousands), retail and café managers etc, aged care nurses are in demand – and for employers hiring immigrants is cheaper than the market solution of raising wages. They don’t seem like transformative new skills. On average, re retention, one would have to expect that we keep the relatively less skilled of those who come – since the most highly skilled will have better opportunities in richer countries should they choose to pursue them

        But, yes, I largely agree about the one generation point – altho assortative mating, and slow reversion of capacity towards the mean tends to mean that really able people also have pretty able kids. So if we were getting 10000 really really able migrants, NZers would probably be gaining too. I’m just skeptical that 45-50K of mostly not very skilled migrants is doing anything much for us – on my arguments, it is actually holding us back, leaving us poorer than we would otherwise be.

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  4. Michael, I am increasingly shocked at the continuing lack of any commonsense understanding in how you relate migrants to the NZD. The real exchange rate has very little to do with migrants. They only require the NZD once in a lifetime when they bring their funds across from overseas. They are more likely to sell the NZD rather than buy the NZD when they go on holidays.

    The NZD is held up by tourists and international students as they required $14 billion in NZD every year at retail rates for their spending in New Zealand and as the numbers of tourists escalate so will the demand for NZD.

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    • THe point isn’t, and never has been, about migrants’ own supply of or demand for foreign exchange, but about the pressure that a fast-growing population puts on resources in a country with a modest savings rate, in turn driving up domestic interest rates (relative to those in the rest of the world) and the real exchange rate. I commend to you my 2013 paper on these issues.

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      • Migrants numbers have been static around 15k a year GROSS arrivals for now 15 years. We do not have the retention numbers. Demand for short term resources has been driven by the 120,000 international students of which 90,000 reside in Auckland plus the 3.3 million tourists. Auckland airport handles 17 million inbound and outbound passengers every 12 months of every single day and you blame migrant numbers that have been static now for 15 years??

        Clearly your 2013 paper is misguided because you have missed out the elephant in the room. Clearly a migrant bias in your paper.

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      • I’m not going to waste my time again engaging on your 15K number. the residence approvals programme target has been stable at 45-50K per annum for 15 years or more, and that target level of approvals has, on average, been met. But yes, I have no problem with the idea that foreign students put net pressure on demand – all exports do. So long as an export industry isn’t subsidized – which export education effectively is – we should welcome the exports.

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      • Michael, with respect to NZ modest savings. NZ savings deposits total $156 billion in June 2016. An increase of 22% from June 2014 compared to House debt of $139 billion an increase of only 14.8% from June 2014. NZ Household cash deposits clearly outstrip NZhouse debt.

        http://www.rbnz.govt.nz/statistics/c22

        This lie is perpetuated by Tamsyn Parker Money Editor for NZ Herald, “Bank profits dip as lending growth outpaces deposits”.

        http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11726681

        I would have thought a money editor would know that the bank makes more profit from Lending growth outpacing deposits rather than the reverse. Such a erroneous headliner. Extremely poor effort by a money editor.

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      • I was a bit surprised by that headline – but it can sometimes happen that way, if funding costs (esp offshore wholesale) unexpectedly rise).

        Re the savings numbers, I’m not talking about households, let alone household financial assets, but about national savings rate (business, household, government) in a flow sense – a standard macroeconomic approach. Our national savings rate – the voluntary choices of NZ entities – is relatively low, especially for a country that needs so much investment (partly because it has such rapid population growth on average over the decades).

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      • Michael, it is rather convenient for you to ignore facts in your analysis because it does not fit your migrant biased hypothesis. Fact – migrant arrivals have been only 15k gross each and every year. 45 to 50k target is just a target. But not necessarily factual as a target does not factor in the retention rate.

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      • It is not a matter of convenience, just that we have covered this ground many times before. Over the last 15 years, residence approvals averaged 45042 per annum, ie inside the target range. Yes, some people who get residency eventually leave again – and in setting the target that is known – as some NZers do, so the growth in the population is not simply equal to the number of approvals. But the approvals target (achieved) is that policy lever that, over time, most determines the contribution of immigration policy to population growth.

        As a reminder, most residence approvals are given to people already here (on work visas), so that the PLT numbers (about what visas people arrive on) simply aren’t very enlightening in understanding immigration policy.

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  5. Good on you for giving the Government a degree of credit for this move. One can only hope that it has been done to genuinely improve the outcomes of NZ’s immigration program rather than cynical politicking.

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      • Of course, he is the man who at the National Party conference not many months ago asserted that only racists and xenophobes had concerns……

        But, yes, modest credit to the Cabinet, and to Woodhouse if he actually led on this one.

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  6. UK and Australia should follow suit and limit the number of Kiwis migrating there. Less diversity is likely to make NZ even more boring for the young generation. Get ready for emptier streets.

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      • Faced with the prospect of 1.25 million people above the old age of 65 in 20 years, an increase of 80% above current levels, I think we would be rather silly to expect old people to look after old people. We need more young migrants and not less.

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      • Not many 65 year olds need care. But the more fundamental point is that the market has ways of taking care of structural changes in demand: relative wages of rest home workers etc should rise, attracting more people to that sector, and some labour-saving technologies will be become more attractive to install.

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  7. The problem with toughening the English test is that you won’t get people from English speaking countries. Tests are the domain of eastern nations. Their school systems gear them up to handle tough tests. Natural english speakers are actually technically very weak in the English language.

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