Treasury warning Govt that surge in temporary work visa arrivals and working foreign students lowering skill levels of migrants and pressuring productivity and wages; Peters calls for sharp cuts in migration; Little eyes changes; Key denies issue

By Bernard Hickey

Debate is growing within Government and in the Parliament about whether a surge in the number of migrants with temporary work visas and foreign students able to work is actually improving the economy and GDP per capita, and whether the resulting pressure on infrastructure and housing costs is worth it.

Treasury has argued to Finance Minister Bill English and Immigration Minister Michael Woodhouse over the last year there was a growing risk that much of the migration by non-New Zealand citizens was of low skilled workers who were ending up in low-skilled jobs that could repress wages and take jobs that New Zealanders were skilled enough to fill.

New Zealand First Leader Winston Peters, who has increased his support as preferred Prime Minister in opinion polls as migration has risen to record highs, has leapt on the Treasury research to argue for net migration to be slashed from over 65,000 currently to between 7,000 to 15,000 to take pressure off infrastructure and housing in Auckland.

Labour Leader Andrew Little has also questioned whether the Government should cut back on the number of temporary work visas to take pressure off the lower-skilled part of the labour market, although he stopped short of calling for the drastic cuts that Peters wants.

"With immigration pouring the equivalent of the population of New Plymouth in each year, and taxpayers pushed further back in hospital queues, we’re at breaking point,” Peters said.

“More than half all immigrants settle in Auckland. Motorways are clogged and housing is unaffordable and scarce. Immigration must focus on benefits to New Zealand – people we need, not people who need us," he said.

Peters challenged Prime Minister John Key in Parliament on Tuesday on the issue: "If he truly does not want New Zealanders to become, in his words, “tenants in their own country”—said in the campaign, of course—then why did his Government let immigration get so out of control that so many young New Zealand families today are going to be tenants and not owners of their homes?."

Key defended the current migration settings as 'about right' and downplayed the impact of lower-skilled arrivals.

"If one takes an objective look at the net migration numbers, they reflect a number of areas. They are largely the Kiwis not leaving or Kiwis coming home, they are people on working holidays, or they are students," Key told Peters in his answer to the Parliamentary question.

"I think most New Zealanders would see that as a pretty good thing," Key said.

Treasury warnings

Meanwhile, Treasury has released various briefing papers to English and Woodhouse from mid 2015 through to early 2016 detailing its concerns about the quality of migration and its impact on productivity and lower-skilled New Zealanders.

Its first paper expresses concerns about a plan to allow temporary migrants to Canterbury to move from one employer to the next without changing their visas.

"This effectively removes the labour market test for migrants moving within the Canterbury labour market, and means that employers who would not have been able to access migrant labour previously will now be able to. This creates a risk that roles that previously would have been able to be filled by local labour, would now be filled by migrant workers," It wrote.

A paper from May last year on the future direction of the immigration system recommended changes to increase the skill levels of migrants, including focusing on bringing in more entreprenuers.

"It is consistent with our recent advice to you about the risk of continued growth in low-skill migration and the opportunity to facilitate more high-skill migrants to New Zealand," Treasury wrote.

"New Zealand also needs to tailor residence policy more closely to expected economic impact: too many principal applicants who are unlikely to contribute much to economic performance are currently being granted residence on economic grounds, particularly through the Study to Work category," it wrote.

"Migrants can contribute to New Zealand’s economic performance across the skill spectrum, particularly where there are supply bottlenecks, but at the lower end, some existing settings appear to add little value on a per capita basis, and risk crowding out opportunities for New Zealanders."

Treasury pointed out in another paper that temporary work flows were now much larger than permanent flows and were rising due to large increases in Working Holiday Scheme approvals.

"Increasing temporary flows through Working Holiday Visas does not appear to be viewed as a high risk strategy for New Zealand, but they provide relatively low returns in terms of GDP per capita, and may lead to actual or perceived negative impacts on New Zealanders working in low-skilled, low-wage industries," it said.

"Although this would be more challenging to achieve, there would be greater value in developing more generous, targeted reciprocal arrangements for more highly-skilled migrants with specific countries of interest (one of the hardest to achieve, but arguably the most valuable, would be the United States). There would be considerable value in making it easier for people with skills that New Zealand could benefit from to understand their entry options, including through better marketing and online “visa checker” facilities."

Treasury said the relative lack of control over temporary migration increased the risk of actual or perceived negative effects on the New Zealand labour force, particularly at the lower end.

It also pointed out that many skilled migrant category applicants were not employed in shortage sectors.

"Increasingly, skilled migrants are employed in low earning ‘skilled’ jobs not associated with specialist training or qualifications, such as Café or Restaurant Managers and Retail Managers," Treasury said, also noting that in recent years that 80% of those granted permanent residence had already been in New Zealand as temporary migrants.

"The contribution of people flows to economic performance could also be increased by reducing the access of lower-value “skilled” migrants to permanent residence. The Ministry of Business, Innovation and Employment has noted trends towards increasing numbers and proportions of Skilled Migrant Category residence approvals for applicants with lower levels of skills than were anticipated when the policy was designed," it said.

'Former students getting permanent residence'

"From a purely economic point of view, it does not make sense to provide permanent residence to people working in low-earning retail management jobs. If these are agreed to be general areas of labour shortage, they are more appropriately dealt with through temporary visas, and through training New Zealanders," it said, adding that over a third of Skilled Migrant Category primary applicants in recent years had been former international students.

"However, former students have relatively little relevant work experience and are more likely to be unemployed or out of the labour force than other skilled migrants This reflects a growing trend for individual Study to Work applicants to seek lower-level and generic qualifications as a low-cost path to residence. The Ministry of Business, Innovation and Employment reports that these former students are more likely to take up semi-skilled service sector employment. There are also indications of ‘gaming’ via job title inflation and people paying for job offers."

It also noted former students who had graduate or higher-level qualifications were less likely to remain in New Zealand after receiving residence.

Dairy and aged care reliant on migrants

Treasury said some New Zealand industries, including dairying and aged care, relied relatively heavily on low-to moderately-skilled migrant labour due to labour shortages.

"In these sectors, migrants can have long-term temporary status, but very little prospect of converting to permanent residence. These migrants have limited access to services in New Zealand for themselves and their families. Their children grow up essentially “as New Zealanders”, but with none of the associated rights because of their temporary status. In any particular year, a visa can be declined and migrant workers expected to leave the country," Treasury said.

"The status quo creates a number of risks, not least to New Zealand’s reputation as a nation that treats migrants fairly. When migration is genuinely temporary, most parties to the transaction accept that lower levels of entitlement are reasonable and make economic sense. However, longstanding temporary migrants without residence status integrate less well, which compromises social cohesion," it said.

"It appears likely that existing policy settings are supplying too many low-productivity workers, and failing to supply sufficient workers with skills that would have greater economic impact. While it is possible for some top tier migrants to enter New Zealand without a job offer, this process is neither easy, nor quick, nor available to the majority of very highly-skilled migrants Study-to-work thresholds should be recalibrated to ensure that the types of students granted residence after graduation are more likely to contribute to improved economic performance," Treasury said.

"While the impacts on the export education industry need to be borne in mind, international comparisons suggest higher minimum achievement levels are warranted. Although detailed discussion of this issue is beyond the scope of this paper, New Zealand should continue to evaluate whether existing policy settings related to temporary entry (particularly for Working Holiday schemes and Silver Fern visas) could be more focused on the skills of migrants and the needs of businesses," it said.

"Some existing policy settings provide residence via skilled migration schemes streams to people who make a minimal contribution to economic performance, and may reduce GDP in per capita terms."

In a separate presentation, Treasury said it was possible that migrants were competing with and substituting for low-skill local labour.

"Also, the availability of low-skill migrant labour could be providing a ‘path of least resistance’ for low-productivity sectors of the economy," it noted.

"As a significant proportion of permanent and temporary labour migrants work in lower wage occupations, and recent trends show a relative decline in the skill level of permanent migrants. Migrants are meeting firm demands for labour and skills, but increasingly in low productivity growth industries and lower wage and skilled jobs," it said.

"Our current approach to selecting migrants may have encouraged reliance over time on lower-skilled labour in some parts of the economy. This may have been discouraging some firms from either increasing wages and working conditions or investing, either in training existing workforce or in capital."