NZ Treasury pushes back against population ponzi

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By Leith van Onselen

The New Zealand Treasury has released a bunch of briefing papers warning that an increasing share of New Zealand’s record intake of non-New Zealand migrants are increasingly low skilled and could be lowering the nation’s productivity and GDP per capita. From Bernard Hickey at Interest.co.nz:

“New Zealand… 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”…

“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…

“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…

“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 the impacts on the export education industry need to be borne in mind, international comparisons suggest higher minimum achievement levels are warranted…

“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.

Sounds a lot like Australia’s immigration system, doesn’t it? I wonder if the Australian Treasury is raising similar concerns with the federal government? I doubt it.

The New Zealand Treasury’s concerns have, of course, arisen after New Zealand’s population growth has surged to record highs, driven primarily by rapid immigration:

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The Treasury’s warnings and growing concerns within the electorate have prompted resistance from New Zealand’s opposition parties, who want the population ponzi reined-in. New Zealand First Leader, Winston Peters, has explicitly called 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:

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“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.

Labour leader Andrew Little has also called for low skilled migration to be pared-back.

Much like Australia, New Zealand is wrongly pursuing quantitative ponzi growth. This might be good for the aggregate economy and big business (i.e. more inputs equals more outputs and more customers for business), but it also represents a step backwards in living standards for the average Kiwi.

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But unlike Australia, New Zealand’s politicians are at least debating the issue, whereas in Australia it is the ‘elephant in the room’ that few will discuss for fears of being wrongly labelled a “racist”.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.