Reducing non-citizen immigration by “tens of thousands”

Debate around New Zealand immigration policy continues to heat up.  That is what one should not only expect, but hope for, in an election year, especially in a country where non-citizen immigration is such a significant economic instrument, contributor to population growth etc, and even more so where –  despite all the talk of a skills-led immigration programme to lift overall New Zealand productivity – our productivity performance remains woeful.   And it isn’t as if the Think Big immigration experiment is a new thing, so that the gains might be just over the horizon (“the cheque is in the mail”).  Rather, the last few years have just been a somewhat intensified version of a strategy adopted for almost 30 years now.   Serious debate is long overdue.

Of course, some want to pretend that to pose any questions, raise any doubts, propose any cutbacks, about one of the most aggressive immigration programmes anywhere in the world is somehow “xenophobic”.  That’s just nonsense.  No doubt there are all sorts of reasons why some are in favour of large scale migration –  I’ve read New Zealand perspectives along those lines from libertarians and  from Marxists –  and all sorts of reasons why different people might now have some significant doubts.    Lack of any good robust evidence that New Zealanders have benefited economically from the large scale non-citizen immigration is only one of those reasons.     But when an experiment hasn’t shown clear signs of working after almost 30 years, it is almost a definition of insanity to expect different outcomes in future from keeping on doing the same thing.  And, while house prices shouldn’t be the main issue, for all the talk from the pro-immigration people that we should just “build more houses” (or free up the land) –  which I happen to agree with –  there is no sign at all of it happening to any great extent.  And it hasn’t in other places that got themselves into the mire of “town planning” and land use restrictions.

The government is keen to suggest that much of the high net migration numbers is about a return of New Zealanders from abroad.  In fact, of course, all that has happened is that the net flow of New Zealanders has slowed down (to near zero) at present.    Basically, all the 71000 or so net arrivals over the last year have been non-New Zealand citizens.   Here is the chart I’ve run many times before.

plt by citizenship apr 17

Over the last three months there has been an annualised net inflow (seasonally adjusted) of 75280 non-citizens, on a PLT basis.    (Relative to history it isn’t quite as high as it looks –  later SNZ research showed that in the 2002/03 boom there were more net permanent and long-term arrivals than the self-reported arrival/departure card estimates suggested –  but it is a large number, and large as a share of the population). That is around 35000 per annum more than were coming in, on average, in the decade prior to around 2012/13.       Almost all those non-citizens who come here require a discretionary decision by the New Zealand government (the exception being Australian citizens, for whom there is a long-term New Zealand government decision to allow free access).

Too few commentators focus on these non-citizen numbers.     Each of the main opposition parties seem to talk in terms of targeting the overall net PLT inflow.  NZ First talk in terms of, I think, 10000 to 15000, the Greens talk of 1 per cent of population, and now it appears that Andrew Little is talking of a target net inflow of around 20000 to 25000.      As I’ve noted before, and as many others have also argued, it is all but impossible, and not very sensible, to try to target the net PLT flow, and certainly not on a year to year basis.  The decisions of New Zealanders –  in turn heavily influenced by the state of the Australian labour market –  often play the largest role in fluctuations in the PLT numbers, and we don’t, can’t and shouldn’t try to control what New Zealanders do.

It is relatively straightforward, as a technical matter, to materially reduce (even by “tens of thousands”  –  Little’s language)  the net and gross inflow of non-citizens.  I outlined my own preferred approach in a post a week or two back.    Frankly, I’m a little sceptical that you could make quite that much difference if one focused narrowly on work visas, but even they offer a lot of potential.

The centrepiece of our medium-term immigration policy is the residence approvals programme.    Current policy is to offer around 45000 residence approvals each year.   Most of those approvals are offered to people who are already in New Zealand –  either on work or student visas  –  but over time it is the number of residence approvals on offer that largely determines the contribution of immigration policy to population growth (and, in the absence of good supply side policies) and to the pressure on roading infrastructure, house prices etc.    Many people only seek work or student visas to help them get points for residency.  If fewer residency places were on offer, there would be many fewer applicants for short-term positions.

The residence approvals target was reduced a little (from a range centred on 47500) last year.  But if I’ve done my calculations correctly on MBIE’s very unwieldy spreadsheet, 57623 people were approved for residence in the year to end of March 2017.     (UPDATE: I hadn’t done the calculations correctly, and the actual number seems to be 49991.  Readily accessible summary statistics – as we have in the rest of the economy –  would avoid such slips.)

Sometimes MBIE officials like to tell stories about being overwhelmed with good applicants in good times, whom it might be a shame to turn away.  But we now know, from MBIE’s own data, that that simply isn’t the situation.    Of the people applying for the most skilled stream in the residence approvals programme, more than half weren’t able to command an income as high as $49000 –  roughly what a starting primary school teacher earns – in the New Zealand labour market.    Our migrants might be more skilled than those in many other countries, but they aren’t very skilled at all, and most of them simply aren’t likely to be making a positive difference to the economic fortunes of New Zealanders (as a whole).

So let’s cut the target.  And in my view this is the nettle that the Labour Party really should grasp –  the key on which the whole programme turns.  If they want to look to their own past and their own traditions, it was one of the icons of the Labour movement, Norman Kirk who led the government that sharply cut back on non-citizen immigration, easing pressure on house prices and wider economic performance, in the mid 1970s.  Kirk did it by limiting open access for Britons.  In today’s term, the relevant metric is the residence approvals target (or “planning range”).

I’ve proposed pulling that target down to a range of 10000 to 15000 per annum.   But one doesn’t need to go that far to make a big difference.    For example, an incoming government could direct MBIE to ensure first that residence approvals for a year are capped at the upper end of the range (that would now be 47500 per annum).  Then they could, to provide a degree of certainty all round, announce that the target range would be reduced by another 20000, phased in evenly over a first electoral term, so that by the end of that term, the residence approvals target would be centred on 25000 people per annum.    That would still be getting on for twice as many approvals, per capita, as the number of green cards issued for US permanent residence.   It would be a thoroughly mainstream thing for a responsible centre-left party to do.    (As part of trying to refocus the programme on genuinely highly-skilled people I’d review and probably terminate the Pacific Access categories –  if we are serious about a skills-led economic programme we need to be hard-headed, but I don’t suppose a Labour Party with a big Pacific base could really do that.)

Of course, changing the residence approvals numbers doesn’t affect actual arrivals on day 1.  Even people approved overseas take some time to arrive, and I’m not suggesting cancelling approvals already granted.   But over time the reduced number of approvals will make a lot of difference (“tens of thousands” in fact) to the expected net inflows, even if all other visa programmes were unchanged.

But there are plenty of other changes that should be made.  We put far too much emphasis, in offering residence points, on people already having a job, or a firm job offer, in New Zealand.   Being at the ends of the earth, that isn’t always easy if you haven’t been willing to take the big risk and first relocate yourself and family to New Zealand (it isn’t exactly like moving from Brussels to Paris, or Dublin to London).  We probably do miss out on really skilled and innovative people who might otherwise come.  If we are going to give residence points for people already having a NZ job, or job offer, do it only for pretty highly paid roles –  perhaps those paying $100000 or more (you could age adjust it a bit too –  older people who are likely to be of real value as permanent residents should probably be earning rather more than that; younger people perhaps a bit less).    Again, changes like this will reduce the appeal of New Zealand work visas –  to what they should be (something where there is a specific short-term labour market need –  eg a temporary surge in demand like earthquake repairs).

What of short-term visas themselves?   A lot of government rhetoric has claimed that a huge upsurge in student numbers is a big part of the surge in net PLT immigration.    First, what we’ve seen in the last few years around students is as nothing compared to what saw 15 years ago.   Between 1997/98 and 2002/03 the number of people granted student visas increased by 70000.  Between 2012/23 and 2015/16 the increase was only 27000 (and MBIE data show that the number of valid student visas outstanding didn’t increase over the 12 months to February 2017).    As importantly, no one seriously questions that much of the increase in student visas –  mostly via lower-level PTE courses –  isn’t about the quality (or even cost) of our export education offerings, as about the residence points that such courses offer, both directly, and by providing access to a post-study “study to work” visa, which allows those completing these lower-level courses to work in any job they can find, no matter how relatively unskilled.      Severely cut back the ability of foreign students to work while doing lower-level courses, remove any residence points offered for such courses, and cut back on the “study to work” options and (the export incentives would drop away and) foreign student numbers would quite quickly fall back a long way.   One doesn’t even need to cut for every programme –  one can treat lower-level PTE courses differently to university degree courses, and even within university programmes treat post-graduate courses rather more generously.  We are happy to take –  even want –  really able people.  We shouldn’t be taking people who can’t even command $49000 per annum in the domestic labour market.

There were 25000 valid student visas outstanding earlier this year for PTE courses (and another 13000 or so for polytechs).  Halve those numbers and you make a material contribution to reducing the inflows of people (many of them working in quite lowly-skilled roles) by ”tens of thousands”.   It will be tough for those running the providers (the PTEs etc).  It was tough for many firms in the 1980s when export incentives and import protection were stripped away.  But they are changes that really need to be made.  Give some notice, sure, but many of the rule changes that facilitated the big inflows are themselves quite recent, so there shouldn’t be any sense of obligation to phase these concessions out very slowly.

I could go on, but won’t.   But as one last immigration thought for the day, I was rather puzzled by Fran O’Sullivan’s column in the Herald this morning.  Headed Forget immigration –  let’s talk wages, it was something of a mixed bag.    She seemed to recognise that immigration historically mostly raised total GDP and total population, and hadn’t been any sort of answer to New Zealand’s long-term productivity underperformance.    But her alternative was one that I suspect both pro-immigration economists like Eric Crampton, and sceptical ones like me, would both look at rather askance (to put in politely)

But if New Zealand is to evolve as a highly skilled economy it needs to set the bar higher, and pay decent wages which will also spur employers to take initiatives to drive greater movement on the productivity front.

This requires a major reset of the NZ economy – not simply using immigration to spur economic growth, then screwing the taps down when the cost of running things too hot becomes a political negative.

Where Labour is on point is with addressing the “Future of Work”.

Raising wages –  whether by government fiat (as in “pay equity” deals, or simply from employers swayed by the rhetoric) without the pre-conditions for growth in productivity is just a recipe for more unemployment (for New Zealanders), and the sort of insider/outsider bifurcated labour market that has given Spain what has long been one of the worst unemployment records anywhere.     We all want a high-wage high-productivity economy, but for everyone not just those who keep their jobs, and there is little evidence that putting the cart before the horse in the way O’Sullivan appears to suggest has ever worked on any sort of widespread basis.   The structural problems New Zealand faces aren’t mostly about bad choices by New Zealand firms (or indeed, foreign firms investing here) –  mostly they do their very best in the environment governments deliver to them –  but about that wider macro environment.

Higher real wages is a highly desirable outcome –  and on offer from policies that lead to closing the gap between New Zealand and world real interest rates (which, to be clear, has nothing to do with monetary policy) and allowing the real exchange rate to finally fall back to the sorts of levels that our dismal productivity performance suggests should have been warranted.  I hope that whatever Labour has in mind on the “future of work” it doesn’t involve leading with higher wage increases.  Rather, when they happen, consistent with low sustainable unemployment rates, it will be sign that we’ve got right much more of the rest of the policy mix.