As the new minister decides on a Government Policy Statement on Immigration, the Reserve Bank reveals there are now two job vacancies for every unemployed person. There’s only one way to fill them.

Professor Clive Granger loved walking on the Port Hills, overlooking Banks Peninsula. He applied for residency so he could settle in Christchurch. That’s where he was when, in 2003, Sir Clive was named a recipient of the Nobel Prize for his contribution to work that helped to revolutionise economic forecasting.

According to Sense Partners economist Dr Kirdan Lees, a student at the University of Canterbury at the time, New Zealand’s refusal to grant a working visa to one of this generation’s greatest economic minds was an example of how poorly equipped officials are to determine the country’s immigration needs.

Granger died in 2009 but, to this day, the University of Canterbury uses his name in its sales pitch to international staff and students. There’s a certain irony in that, when he himself wasn’t allowed to stay here.

“Immigration said, sorry, you’re too old, according to the points-based system,” Lees recalls. “It shows how government can’t really get these kind of policy settings right, in the way that businesses and universities are incentivised to respond to what they see in front of them.”

Now, this Government is preparing to respond to a Productivity Commission inquiry encouraging more rapid but more carefully planned immigration. It is likely to look favourably on the recommendation that it draft a Government Policy Statement, outlining the population forecasts and the infrastructure strategies necessary to respond. Previous such statements like the one on transport are seen to have provided stakeholders greater transparency and certainty in their planning.

That begs the question: how many migrants of what description does New Zealand want?

“If you opened up settings, then my view would be firms and households would increase population growth by another three, four million over 10 years.”
– Kirdan Lees, Sense Partners

The Productivity Commission report and last week’s Reserve Bank monetary policy statement warn that workforce shortages are a major handbrake on economic growth and a contributor to inflation; both say more immigration would help address those.

But they stop short of setting a target – perhaps understandably. Twenty years ago, National’s immigration spokesperson Marie Hasler was politically derided for proposing to increase New Zealand’s population to five million. Today, Stats NZ estimates the population at 5,127,131 and counting!

Wellington City Council candidate Inoke Afeaki faced a robust response after telling Newsroom that this country needs to get to the 20 or 30 million population mark, to see the scale and money that stops its most talented young people chasing more lucrative overseas opportunities.

► Immigration doubles down on short-term workers
► Politicians back calls for tweaked immigration settings
► Govt slides in immigration changes for employers

There are few willing to go out on that limb. New Reserve Bank chief economist Paul Conway says it’s more a social question than an economic one. “Do we want to have a big country or not?” he asks. “We can make a New Zealand of any size work, and my own personal preference is, I like a bit of space.

“In my work, I don’t advocate for a big New Zealand as being the solution to all our economic issues,” he tells Newsroom. “I think the population growth we had pre-Covid was too strong, because it wasn’t coordinated with investment and infrastructure and housing policy.”

Kirdan Lees is loath to contemplate politicians and bureaucrats setting targets, but he does take a bolder stance on the number the market will determine – if New Zealand removes restrictions to rebuild its economy, similarly to Australia and Canada. 

“If you opened up settings, then my view would be firms and households would increase population growth by another three, four million over 10 years.”

Labour shortages are the biggest constraint on production

Although underlying demand has remained resilient, output is being held back by widespread labour shortages, according to the Quarterly Survey of Business Opinion. Source: NZIER/Reserve Bank

Over the weekend, Immigration Minister Michael Wood announced sweeping changes to the settings for short-term migrants, with the doubling of the working holiday scheme capacity. The move will see 12,000 extra workers able to enter the country and fill gap sectors like tourism.

Sectors affected by international shortages like meat processing, construction, seafood, seasonal snow and adventure tourism and carers will be given exemptions to median wage requirements and visa extensions in order to keep up capacity.

However, as Newsroom reports today, the changes have raised concerns around whether Immigration NZ is sticking to its formerly announced goal of the immigration rebalance – which purported to shift the economy away from an over-reliance on short-term, low-waged migrant labour, towards longer-term migration planning.

That goal was recommended by the Productivity Commission in May, after a months-long investigation into the relationship between productivity and the country’s current immigration setting.

The commission finds that immigration doesn’t threaten to displace New Zealanders from their jobs. However it also warns that public infrastructure has not kept up with population growth. The estimated value of New Zealand’s “infrastructure gap” – the value of what New Zealand should have built but has not – sits at an estimated $104 billion. That’s why the commission argues strongly for better planning through a Government Policy Statement on Immigration.

Julian Wood, who headed the commission’s investigation, tells Newsroom migration is a way to grow the population, and the policy statement would be a “really powerful tool” for giving predictability.

“It sets the rules of the game that allows businesses to plan and allows migrants themselves to plan,” he says. “If you’re a migrant, and you’re wanting to shift, and the rules keep changing, that just creates a lot of uncertainty. You say, actually, am I going to be welcomed in New Zealand? I’m not quite sure.

“If you see a Canadian government that’s doubling down, and New Zealand vacillates back and forth, you’re more likely to go to Canada.”

So a Government Policy Statement would provide certainty not only for businesses, but also for migrants, he argues. “There’s been overwhelming support from business and community leaders, and academics.”

Can Govt determine immigration needs?

That overwhelming support is disputable. We put the proposal to BusinessNZ chief executive Kirk Hope.

His organisation, which claims to represent thousands of businesses the length of the country, supports immigration settings that are predictable and plan for the long-term. “However,” says Hope, “it is unclear a Government Policy Statement is the right mechanism to achieve this. Immigration is highly influenced by a lot of variables such as the attractiveness of New Zealand compared to other countries, the rates of outflow from New Zealand and economic conditions.”

The organisation does support the Productivity Commission’s recommendations to have better quality labour market data to be able to inform policies across education, immigration and welfare settings, he emphasises, and sharper co-ordination and coherency across Government policy to be able to plan, invest and build the necessary infrastructure.

“Migrants will always and necessarily make up part of our labour market. But in the current environment where immigration is more expensive and time consuming than under previous settings, and the global war for talent has resulted in a very competitive international environment, New Zealand businesses are looking to source skills from the New Zealand labour market where that is possible.”

Hope argues a co-ordinated “global attraction strategy” is needed to attract the international talent New Zealand desperately needs in these unprecedented times. “There are severe skill shortages across all industries and regions at the moment. Companies want access to the skills and labour necessary to drive productivity and growth, and with better immigration and labour market data, we should be able to connect across Government to plan better for population increases.”

Essentially, Hope is on the same page as Lees. New Zealand needs to know immigration will grow its population over the next five, 10 or 20 years. But while government agencies and businesses can plan to respond to population increases, it’s unwise for government to think it can control those numbers. Ultimately, businesses need greater freedom to respond to market pressures – to recruit overseas when necessary.

Lees argues: “To say that we need to target a particular growth rate, so we know what infrastructure to put in place, is not really the best way to look at it. Migration is not only inward migration, it’s also outward migration. So to say that if we have a GPS, we magically know how many people are going to be in the country – that just misdiagnoses the issue.

“People will make their own decisions, for what’s in the best interests of their families. We can’t stop New Zealanders leaving.”

Is bigger better?

Clearly, reasonable economists will differ on the extent to which accelerating New Zealand’s population growth through immigration will aid the country’s GDP and more critically, its productivity.

Lees argues for reasonably liberal immigration policies that would allow in most people with a job offer. In many respects a skilled migrant is more valuable than a skilled New Zealander, he posits. We don’t have to pay for their education, and they’re less likely to get in trouble with police.

“And right now, when we have a big debt overhang from Covid, one of the best ways to deal with that problem is actually to share it. The more workers we have in the country, the less the debt burden that each person has to carry.”

On the other hand David Skilling, the director of economic consultancy Landfall Strategy Group, argues that often small advanced economies perform better overall than large economies.

Sadly, New Zealand is a bit of an outlier to this rule of thumb, says Paul Conway at the Reserve Bank.

“It’s very hard to sort of put a number on whether or not increased migration would mitigate the sort of excess demand in the economy, because yes, migrants bring some sort of supply capacity with them that gets expressed through the labour market. But they also bring demand for just about everything, including houses and infrastructure, which is something we haven’t been particularly effective at providing them with in the past.

“So I don’t see migration as a magic bullet that would suddenly transform this economy and lower inflation.”

He suggests increased immigration can be part of the solution to New Zealand’s workforce shortage and productivity crisis. But he also points to other fixes, like the rapid adoption of technology such as cloud computing and advanced digital analytics, or greater collaboration between companies.

“To be honest, I think it’s a social decision if we want to have a big country or not, rather than an economic one. There are plenty of successful small economies around the place. New Zealand’s unique in that it’s both small and distant, as opposed to Israel and some of the smaller European countries.

“I think that size and distance have been a real handbrake on New Zealand’s economic performance over our history – but I also think that technology is moving in such a way that our economic geography is less of a constraint.”

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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