Turnbull lies, Abbott rips, Dutton cuts immigration

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By Leith van Onselen

After Immigration Minister Peter Dutton contradicted Prime Minister Malcolm Turnbull on Wednesday, confirming that he did in fact discuss reducing Australia’s immigration intake with senior colleagues, former Prime Minister Tony Abbott has lined up to kick Turnbull. From The New Daily:

“Why on earth the Prime Minister himself and other senior ministers have got their knickers in a twist to deny that Peter Dutton raised this issue has got me beat,” he said.

“About the only thing the Commonwealth government can do to take the downward pressure off wages, the upward pressure off housing prices and unclog our roads – given infrastructure takes a long time to build – is to scale back the rate of immigration.

“So you’d think that a sensible government would have been happy to discuss the rate of immigration.”

Mr Abbott said Mr Turnbull was behaving like a “clever barrister” and his denials could hurt the government.

“He’s made the government look tricky, and that’s not what the government should appear to be, particularly when there’s nothing wrong with having a discussion about bringing the immigration numbers down.”

Tony Abbott is spot on. Malcolm Turnbull is committing electoral suicide by avoiding the immigration issue and maintaining a non-humanitarian migrant intake (190,000) that is nearly triple the turn-of-the-century level (70,000):

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Reducing immigration is a no-brainer policy for the Coalition. Not only is it sound policy to do so, given the severe indigestion being experienced in the major cities and falling real wages (let alone damage to the natural environment), but there are also several political advantages for the Coalition, namely:

  • It would wedge Labor on housing affordability making negative gearing cuts more scary for voters now and pushing house prices down further when the reform is introduced.
  • It would wedge Labor on wages and help counter its inequality agenda.
  • It would wedge Labor on national security and further expose the scandal around Labor links to the Chinese Communist Party.
  • It would mitigate One Nation, which currently owns the lower immigration debate among conservative voters.
  • If Labor does win the next election, it would force it to raise the permanent migrant intake back up, which would be very unpopular among voters.

While cutting immigration may not win the Coalition the next election, it would limit the electoral damage and set them up for a swift return to office as Labor’s open borders extremists turn radioactive with falling living standards.

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Abbott’s point about immigration reducing wages growth is also important, and has been made by MB repeatedly. CBA senior economist, Gareth Aird, also explained these dynamics beautifully earlier this week:

…strong growth in labour market supply has reduced the capacity of workers to negotiate pay rises.

How? As we have discussed before, Australia has adopted a policy decision to run a very high immigration program by OECD standards (charts 6 and 7). It has continued down this policy path despite several years where labour market slack has been elevated (that is, there has been plenty of Australian’s looking for work in some capacity). From a wages perspective, immigration augments the supply of labour beyond what would have naturally occurred. That intensifies the competition for existing jobs while of course also adding to the demand for labour. The bigger the supply side shock, the more that the competition for existing jobs intensifies. This puts downward pressure on wages initially, but its effect should only be temporary. However, if the supply side shock continues when slack is elevated the temporary impact may not prove to be so short lived.

In many ways, this is the result of running a high immigration program when there is plenty of slack in the labour market based on the notion of skills shortages. In 2016/17, the “Skill Stream” accounted for 67% of the total migration programme outcome. From the perspective of an employee, working in an industry that has a skills shortage means that the labour market in that profession should be tight. In industries with skills shortages, bargaining power between the employee and employer should move more favourably in the direction of the employee and higher wages should be forthcoming. But in Australia’s case at the moment there is no evidence of widespread skills shortages based on the broad-based weakness in wages growth. The relatively high intake of skilled workers looks to be a pre-emptive strike on the expectation that there will be skills shortages in the future. It does not appear to be a policy response to the evidence of skills shortages. This has implications for wages and the NAIRU.

If “skills shortages” are not able to manifest themselves because employees are consistently able to hire from abroad, then employees have had a reduction in their bargaining power that is independent of the level of slack in the local labour market. Essentially talent is not scarce because firms can hire from a global pool of labour. The downward pressure that this applies on wages growth is amplified if a worker from abroad is able and willing to work at a lower rate of pay than local residents. Given the attractiveness of Australia as a destination to live and work relative to so many other places it is reasonable to assume that this occurs to some extent. The upshot means that employee bargaining power is lowered at the margin…

In a nutshell, the strong 400,000 increase in jobs over the past year:

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Has been broadly offset by a commensurate increase in population growth:

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Meaning labour underutilisation remains elevated:

And wages growth remains weak:

This basic economics is ignored by Malcolm Turnbull even while his ministers are playing very strange games. Via The Australian today:

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The Australian has confirmed that the government is expected to achieve a similar reduction without the need for a formal cut to the annual 190,000 cap, ­because of the rule change.

It is understood the department is anticipating the number could come in as low as 160,000, which would be the lowest intake since 2007-08.

“The fact is that the figure is going to come down this year in terms of the permanent places anyway,” Mr Dutton told radio 2GB yesterday. “It was down about, from memory, 7000 or so last year and obviously we’re not to the end of this financial year yet, but my expectation is that it’ll be down. It’s down, in part, in that area because we have tightened the screws if you like.

If so it is welcome progress though not nearly enough. I will monitor in the data the veracity of the claim.

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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.