Following the strongest immigration-fueled population growth in the nation’s history (see next chart), the efficacy of New Zealand’s immigration system has become a hot political issue.
Back in June, the New Zealand Treasury 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.
This was followed by calls from the the Reserve Bank of New Zealand (RBNZ) to reduce the immigration intake, warning that New Zealand does not have the “absorbitive capacity” and questioning “whether migration policy is securing the number and composition of skills intended”.
Then in August, former RBNZ special adviser, Mike Reddell, argued that New Zealand’s high immigration program had crowded-out (through higher interest rates and a high average real exchange rate) other productive investment, lowering incomes and living standards in the process.
Even New Zealand’s major banks have questioned whether New Zealand’s immigration settings are appropriate.
Last month, Bank of New Zealand’s head of research, Stephen Toplis, called for a comprehensive “population-demographic policy” to target immigration towards improving living standards. In a similar vein, ANZ’s chief economist in New Zealand, Cameron Bagrie, last week questioned whether New Zealand’s high immigration policy has the “right mix” and is delivering better standards of living for the existing population.
These growing concerns from experts and within the community have prompted New Zealand’s opposition parties to demand that the immigration intake be 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, whereas Labour opposition leader, Andrew Little, has vowed to place a cap on immigration levels.
For now, the National Government remains firmly supportive of New Zealand’s existing high immigration program. Appearing on Radio New Zealand yesterday, Prime Minister John Key claimed that immigrant workers are needed in low skilled jobs because Kiwis lacked work ethic:
Mr Key admitted high immigration was putting a strain on the country’s infrastructure, but the government would continue to bring in large numbers to fill jobs.
He said this was partly because many employers could not get New Zealanders to work due to problems with drugs or work ethic…
He said geographic location was a major factor in matching unemployed people up with available jobs, and filling a position like a hairdresser in Queenstown could require a migrant to fill the role.
But he conceded that the high immigration rates put pressure on the country’s infrastructure.
“Therefore you need to spend more money on the basic services, whether it’s education or policing or whatever it might be, a bigger population drives that.
“The counter-argument is that it creates economic activity, migrants usually add quite a lot of value to our country, not just in terms of what they bring culturally, they generally add to the overall economic wealth of the country.”
The assumption that New Zealand’s immigration program is adding “to the overall economic wealth of the country” is highly debatable.
As noted by ANZ last week, three of the top four occupations of principal skilled migrants approved for residency are chefs, retail managers and café/restaurant managers:
And it is a “broadly similar story” when looking at temporary visa approvals:
This has led ANZ to conclude that there is “a mismatch between the skills of those coming in and what is actually needed”. Accordingly, growth in real GDP per capita has been “lacklustre” so New Zealand is “not seeing ‘value creation’ right now from this population boom”.
For similar reasons, Kerry McDonald – a company director, chairman and advisor – recently warned that New Zealand is running a ponzi economy based on quantitative drivers of growth, such a low quality immigration and housing – rather than quality drivers of growth:
The high rate of immigration is a national disaster. It is lowering the present and future living standards of New Zealanders…
Unless immigrants increase New Zealand’s exports and foreign exchange earnings and savings per capita, or bring particularly valuable skills to the economy, they simply impose substantial additional costs on and reduce the living standards of New Zealand residents.
Having a job, even in an export industry or tourism, is not enough, and many immigrants lack the particular, high level of skill and productivity to add the necessary value…
The regions are critical in the economy, and for our living standards. They produce a high proportion of exports and are the main tourist destinations. But, they are struggling because the NZD is too strong, they are less valued politically and their competitiveness and quality of life is being undermined, mainly by poor policy which doesn’t recognise their paramount role in the economy.
Auckland is increasingly a millstone around New Zealand’s neck: “its economy is inwardly focussed, driven by consumption, real estate and domestic services”; “measured internationally it’s performance is poor…
Its population growth is increasing the negatives: more spending on infrastructure and government services; more agricultural land for housing; a less attractive living environment for existing residents; more demand for urban water use at the expense of more productive uses; greater population pressure on the environment generally; and an increasing dependence on the rest of New Zealand to subsidise it’s weak export performance – which reduces the living standards of everyone else.
The scale argument (bigger is better) is a typically wrongheaded quantity not quality political argument…
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.
But unlike Australia, New Zealanders 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”.
