Productivity Commission: Pre-COVID immigration unsustainable

Earlier this year, the New Zealand Government tasked the Productivity Commission (PC)  with undertaking a system-wide review of the nation’s immigration program, with particular focus on the “impact of immigration on the labour market, housing and associated infrastructure, and the natural environment”.

The goal of the inquiry is to “enable New Zealand to strategically optimise its immigration settings” so that it maximises community wellbeing and living standards.

Around the same time, the New Zealand PC also released a report, entitled “New Zealand firms: Reaching for the frontier”, which explicitly noted that successive governments have enabled high levels of immigration without targeting this to close the skills gap of New Zealand workers. This mass immigration program has, in turn, resulted in high levels of labour force participation but poor productivity and low wages, while also disincentivising firms from undertaking productivity-enhancing investment.

Accordingly, the PC advised the government to wean New Zealand firms off their heavy reliance on migrant workers:

Despite large inflows of migrants to New Zealand over the last 10 years, skilled labour shortages continue. This suggests an ongoing mismatch between the supply of labour and the needs of firms…

The Government should commission a review of migration policy. The review should consider the optimal level and mix of permanent and temporary migrants to support innovation and productivity…The review should also look to reduce inflows of low-skilled and temporary migrant workers over time…

New Zealand businesses are typically capital-shallow (ie, workers have limited equipment and other capital goods to work with). Capital shallowness holds down labour productivity…

The ready availability of labour at modest or low wages (eg, through immigration policies that allow high levels of low-skill migration) has not helped either, because it has reduced firms’ incentives to invest in labour-saving and productivity-enhancing equipment…

Yesterday, the New Zealand PC released its preliminary findings and recommendations from its immigration inquiry, which warns that pre-COVID rates of immigration into New Zealand are unsustainable. From Interest.co.nz:

The pre-Covid rates of immigration into New Zealand appear to be unsustainable, the Productivity Commission says.

It bases this conclusion on “the inability or unwillingness to build the infrastructure needed to support and settle people in the community”…

Commission chair Ganesh Nana said… “New Zealand has struggled for a long time to absorb and accommodate more people well. Infrastructure and housing supply has not kept up with population growth, creating pressures that affect the wellbeing of both migrants and New Zealanders”.

“To ensure immigration contributes to the productivity and wellbeing of New Zealanders, governments need to build the assets and infrastructure needed to support a growing population, in preparation for the number of new residents, ahead of time”.

The very same criticisms can be levelled at Australia, where 15 years of extreme immigration pre-COVID ran well ahead of Australia’s absorptive capacity, according to Infrastructure Australia:

“Infrastructure delivery is struggling to keep pace with rapid population growth and change. Our largest cities are ‘playing catch up’ in delivering infrastructure to support population growth… Our infrastructure funding mechanisms have not kept pace with growth… Communities are increasingly disappointed by their experience of growth…”

“Construction of new infrastructure is often more expensive, due to the need to tunnel under existing structures or purchase land at higher costs. The small scale, incremental nature of growth in established areas can also lead to an over-reliance on existing infrastructure, which can result in congestion and overcrowding”.

Infrastructure Victoria this year came up with similar conclusions.

Even this year’s Intergenerational Report (IGR) warned that Australia’s immigration intake needs to be at a level that is “at or below the capacity” of destination cities to absorb them, and requires “careful planning by all levels of government”:

The economic and social pressures and capacity constraints that result from an inward flow of migrants also need to be managed carefully. Migration should be kept at or below the capacity of the destination city or region to absorb new migrants, taking into account impacts on incumbent populations…

Governments at all levels need to ensure that planning and infrastructure provision keep pace with current and future migration rates and ensure that migrants have access to essential services – such as public transport, support services and housing – and can meaningfully integrate into society.

This requires transparency, consistent decision making and careful planning by all levels of government.

Nevertheless, the IGR ignored its own warning and projected that Australia’s population will grow by a whopping 13.1 million people (~50%) over the next 40 years to 38.8 million people, off the back of 235,000 annual net overseas migration. This is the equivalent to adding another Sydney, Melbourne plus Brisbane to Australia’s existing population.

Australia's projected population growth

In the 20 years before COVID hit, Australia’s population increased by 6.5 million people – exactly half the level projected by the IGR, with Sydney and Melbourne each adding around 1.6 million and 1.8 million people respectively over that time.

Thus, if Australia’s population was to follow the IGR’s projected trajectory, we would effectively twice repeat the population growth experienced over 2000 to 2020, with Sydney and Melbourne each growing by another 3.2 million and 3.6 million people respectively over the next 40 years!

Does anybody honestly believe that having Sydney and Melbourne add another 3.2 million and 3.6 million people over just 40 years would be “at or below the capacity” of these cities “to absorb new migrants”? Or that such strong population growth would be “managed carefully” with “planning and infrastructure provision keep[ing] pace with current and future migration rates” and “consistent decision making and careful planning by all levels of government”?

The mass immigration program of 2000 to 2020 was managed appallingly and crush loaded everything in sight, resulting in widespread infrastructure bottlenecks across Australia’s major cities and reduced liveability.

Repeating the experience twice over again, as projected by the IGR, and expecting better results this time around is obviously delusional and the very definition of insanity.

The Morrison Government should (but won’t) initiate a similar review by our Productivity Commission, rather than kowtowing to its business lobbyist mates and declaring open immigration war on Australians.

Unconventional Economist
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Comments

  1. pfh007.comMEMBER

    All very sensible but Australia’s key metropolitan industries are debt peddling secured by real estate and those industries cannot prosper without a steady supply of new consumers for new housing and fresh debt products. Their deflationary cheap labour is just a bonus as it allows the RBA to keep debt peddler product lines cheaper and more attractive to new contestants.

    So unless you serious about putting the debt peddler industry back under control (re-regulating credit) or ending their stranglehold on the monetary system (monopoly on RBA accounts) talking about limiting immigration is a waste of time as doing so WILL wreck our Ponzi economy.

    It would be easier to convince a great white to become vegetarian.

    • Arthur Schopenhauer

      They could reinstate a capital gains on the PPoR and an inheritance tax, while simultaneously reducing capital gains on productive industries.

      It would have to be a carefully crafted policy, so I guess there is almost no chance. There was some chance with Turnbull, as he did try to update some of the antiquated tax law around start ups and share options.

      There are huge opportunities around solar powered manufacturing and the electrification of everything at the moment, but they are hard to realize when so much of Australia’s capital is poured into RE, encouraged and enabled by the cretins in power.

      The return from SV of an outstanding communicator like Saul Griffiths, is encouraging. Cannon- Brookes is putting his money where his mouth is and even Twiggy can see a giant pot of gold worth pursuing.

      Our politicians lack imagination and ambition. Let’s vote in others, and put Labor and the LNP last this election.

      • These are good ideas – but since they reduce rentier perks for the common man, they will never happen, and any party that goes to an election with these ideas will lose (perhaps until younger, more idealistic people dominate the voter base?)

      • Display NameMEMBER

        I am not expecting real reform until we have a real recession. Too many spoils to be divided. Once the sugar is off the table the focus is on surviving.

        • Arthur Schopenhauer

          My hope is the likes of Twiggy have enough heft to influence change. (Who would have thought that 3 years ago?!)

          But you are right, there is so much money about promoting more of the same.

      • pfh007.comMEMBER

        Arthur

        A capital gains tax on the principle place of residence is politically impossible and even an inheritance tax with a high threshold is probably impossible as well.

        Reducing taxation on productive investment is a good idea but who is going to bother to make a productive investment when the returns and risk from making speculative punts are so good.

        The first step must be to build a way of allocating capital and expanding the money supply as required via an alternative pathway rather than debt into housing speculation.

        The difficulty is how to do that when the banking lobby and their pet economists insist that fiscal policy is the work of the devil and riddled with political pork.

        This is why I argue that the solution is to allow access to RBA accounts to non-banks and the public and allow the RBA balance sheet to grow. Doing that expands the money supply that is not bank credit. Currently less than 5% of the money supply is not bank credit.

        Increasing the RBA balance sheet and re-introduce reserve ratios for the private banks and slowly engineer a rebalancing of the money supply so that RBA deposits are the core of the money supply.

        Why is this important?

        It is much much harder for banks to hold the economy hostage when their credit and their credit approval decisions form a much smaller proportion of the money supply.

        The best bit is that to get this project underway requires nothing more than a policy that the RBA will allow non-banks and the general public to operate deposit accounts at the RBA that pay no interest.

        Who is going to try to argue that the banks should continue to have a monopoly on operating RBA accounts?

        Initial interest is likely to be limited and that will allow the RBA to build up the infrastructure and iron out the bugs.

        The next stage is to wind down and remove the public guarantee of unsecured investments (aka deposits) at the private banks.

        That will encourage people to move some of their deposits to a super secure but zero interest RBA.

        Banks will be forced to work hard to attract investments as not only will they have to compete with the super secure RBA deposit accounts but also all the non-banks who are now able to conduct their businesses using a RBA deposit account and all the non-bank investment managers who will be rushing to attract investors who are tired of getting 0% for their unsecured bank investments..

        Unwinding the ponzi economy we have now is not simple and the politics are difficult and requires a fundamental reform to the way we run our monetary system to reduce the privileges of the private banks and introduce a truck load of competition into the capital allocation space.

        • Display NameMEMBER

          I like your approach as I understand it, and I am not particularly knowledgeable on how the back end of the banking system works, but suspect the chances of any of the structural issues of the Ponzi economy getting addressed are next to zero. Too many vested interests with too much to lose. Hence my comment that real reform is likely a recession away. Would be nice to think we can get a minority govt where the balance of power is held by moderate independents. I am not particularly optimistic on the front,

          Small point but the Financial Claims Scheme administered by APRA does not directly guarantee deposits. The guarantee as I understand it needs to be activated by the minister as a response to a restructuring of an ADI. The scheme is not funded well enough to cover all of the big four and none of the big four will be allowed to fail, they are owned mostly in the US and UK. Any systemic event, particularly in Australia which doubled down on debt during the GFC, will likely need bank bailouts. The big four loan books are ~65-70% residential mortgages. Way, way ahead of other OECD countries. If it does happen it will be a life changing event for many people.

          I believe the RBNZ mentions that bank deposits are unsecured loans to the bank and as such any restructuring of a bank may treat the funds of depositors like any other creditor. Cents in the dollar or shares in a restructured entity…

          • pfh007.comMEMBER

            DN,

            A bigger problem is that the rent seeking bank lobby has done a great job of convincing just about everyone that having a parasite at the centre of the public monetary system is natural and any alternative is impossible.

            I doubt a bust will change that. What might is an example from overseas. Some country that bites the bullet and opens up access to central bank accounts to the public and non-banks. Crypto currencies are encouraging people to think about money and that is putting pressure on central banks. Central Bank Digital Currencies are fine but at the moment they are being used by the status quo to avoid the real discussion which is ending the banking monopoly on central bank accounts.

            “Small point but the Financial Claims Scheme administered by APRA does not directly guarantee deposits. ”

            Yes – it is a somewhat flakey guarantee but I think it essentially flags that the government will ensure that sick banks will be bailed out……or forced into shotgun marriages.

            It will make a huge difference to how we approach the bank industry if those who are risk averse or those who are concerned about the banking sector have the option of maintaining some deposits at the risk free RBA. RBA deposits will then become the risk free (apart from inflation) asset of choice in the monetary system and available to everyone. It will then become much more reasonable to cut the banks free of public protection on the basis that if anyone wishes to investment in them by making “deposits” do so at their own risk.

            People might then look a bit more closely at what banks are doing and who they are extending credit to and for what purposes.

  2. Murdoch press, ironically the only major media to cover the TAPRI immigration survey, is also the only media that conceivably has the clout to take on the crucial LibLab Election 2022 platform – Immigration War On Australians. Only in my dreams.

    Costello NineFax will strongly support the Immigration War, pushing hard against the interests of ordinary voters. While ABC and Guardian will carefully sit on their hands. Q: Do we think they lie to us? A: We don’t think, we know.

    • Totes BeWokeMEMBER

      Only with very very high immigration, can infrastructure be built, and future pensions and Medicare be afforded. So, yes, far more immigration is the answer.

      You know it makes sense.

    • Totes BeWokeMEMBER

      Dr Donuts. lol. I haven’t been here for a while and haven’t seen that one. Wish I made it up.