PC shoots down Leyonhjelm’s cash for visas scheme

By Leith van Onselen

Last year, Senator David Leyonhjelm proposed that Australia establish a fee-based immigration system, whereby immigrants would pay a certain amount, say $50,000, to receive Australian residency, subject to certain conditions (e.g. not having access to disability or age pensions for 20 years).

Yesterday, the Productivity Commission (PC) released its final Migrant Intake into Australia report, which shot down Leyonhjelm’s proposal because it believes it could lead to detrimental outcomes longer-term, despite delivering a huge Budget revenue windfall:

The estimated visa charge is in the region of $55 000 per person, consistent with maintaining the current non-humanitarian permanent intake at 190 000, and results in total charge revenue of around $9 billion per year.

Alongside the charge revenue, the modelling identifies significant changes in the composition of immigrants, some negative as well as some positive. In particular, the modelling suggests that there would be a reduction in the average educational attainment of migrants and a large increase in younger adult migrants. Other compositional effects include a shift towards family stream migrants and a significant increase in currently ‘ineligible’ migrants…

The modelling suggests that such a price-based proposal, were it to be implemented, could generate net fiscal benefits in the order of $20-25 billion per year (figure 3). Without tightened access to government payments and services, the estimated net fiscal benefits would be lower, ranging between $5–10 billion per year…

However, some important factors not captured in the model’s estimates would reduce the economic benefits of the proposal. For example, the skewing of the intake towards migrants with lower educational attainment could reduce knowledge spillovers and productivity. Further, although the Commission has found that enhanced employment of immigrants generally does not reduce the employment of local workers, an influx of less qualified migrants could harm domestic equity by depressing the wages of lower skilled local workers.

Moreover, by removing the qualitative criteria attached to the current system, a price-based system could enable the entry of some immigrants who do not possess the attributes that underpin successful integration. For example, there could be an increase in immigrants with poorer English-language skills. There could also be a further skewing towards permanent immigrants from less developed countries — social concerns can arise when a high concentration of immigrants from any one group or country reduces diversity. And the gender balance and family structures of the intake could be altered…

Summing-up

Immigration is not intrinsically suited to a price-based system… the Commission considers that many of the (mainly fiscal) benefits of a price-based system can be captured through reforms within the existing system (discussed below), without the downside risks and uncertainties. For example, improved qualitative criteria for selecting migrants, augmented by targeted increases in visa charges in some cases, could achieve significant economic benefits while avoiding the adverse compositional changes and other problematic features of the price-based proposal.

The Commission is not recommending adoption of the price-based proposal.

Personally, I see some merit in Leyonhjelm’s plan when compared against to the existing migration system. Here’s why.

First, the massive immigration program that has been run over the past decade (see next chart) has helped to create a massive infrastructure backlog across Australia, which has increased congestion, lowered productivity, and reduced living standards for the existing resident population. Charging a fee of say $50,000 to $100,000 would help cover immigrants’ share of costs, and provide governments with revenue to expand public services and infrastructure provision.

Second, Australia in some respects already runs a fee-based immigration system, except that it is conducted through the student-migration program.

Australia’s education system has become an integral part of the immigration industry – effectively a way for foreigners to buy backdoor permanent residency to Australia.

The RBA’s submission to the parliamentary inquiry into home ownership revealed as much when it noted that “recent rule changes have made it easier for students to remain in Australia after graduation, including by becoming permanent residents”, and then forecast a huge increase in net migration from international students, particularly into Melbourne and Sydney:

It is unlikely that Australia’s education exports would be anywhere near as high if the carrot of permanent migration was not attached. That is, if Australia’s universities had to compete solely on quality, they probably wouldn’t be able to stand on their own two feet.

Moreover, the system surrounding so-called skilled and student visas has clearly been corrupted, with widespread rorting and fraud revealed by the recent joint ABC-Fairfax investigation (see Australia’s hidden people smuggling scandal), leading to claims the system has been overtaken by “crooks and criminals”.

Viewed in this light, shifting to a fee-based migration system is not a major change, and is arguably more direct and transparent than the current opaque backdoor student/skilled migration program, which is being rorted.

Third, the non-humanitarian migration has not been adequately targeted at improving the capacity of the economy by, for example, by targeting areas of genuine skills shortages or expanding skills.

For example, many 457 visas have been granted to professions that are not consider to be particularly “skilled”, in short supply, or critical to the economy, such as cooks/chefs, cafe/restaurant staff, and call centre/customer service (see below tables).

Other occupations, like accountants and GPs, are already in massive oversupply, and yet 457 visas continue to flood the market.

Moreover, according to the Department of Employment’s latest skills shortages report, skills shortages “remain low by historical standards”. There is also a huge surplus of underutilised labour, thus undermining the rationale behind the large-scale importation of foreign workers.

In light of these issues, the first best option would be to significant curb Australia’s immigration program (outside the humanitarian intake), since it is a recipe for lower living standards.

However, if the current non-humanitarian migrant intake level is to persist, then why not charge prospective economic migrants a fee to internalise their costs on infrastructure, the environment and the community?

To their credit, the PC has offered some sensible alternatives to lift the quality of migrants and internalise some of their costs. These include dramatically lifting the price charged for parental visas, curbing “business innovation” visas, targeting migration at genuine skills shortages, improving English proficiency, and tightening skills requirements on spousal visas.

Let’s hope the Government acts on the PC’s recommendations.

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