Immigration overflow: the systemic rorting of Australia’s visa system

By Leith van Onselen

The Australian Population Research Institute (APRI) has released an alarming new report entitled “Immigration overflow: why it matters”, which examines the widespread rorting of Australia’s visa system, as well as the crushing impact of Australia’s high permanent immigration program on Sydney and Melbourne.

The major findings from the report, which was authored by Dr Bob Birrell, Ernest Healy and Bob Kinnaird, are provided below:

Major findings

We highlight two issues. The first is the high and increasing numbers of IT professionals being granted 457 visas. They constitute by far the largest occupation group within the 457 program. Most are Indian nationals who are sponsored by Indian IT service companies. They have been successful in winning a major chunk of Australia’s IT consulting work on the basis of these 457 visa holders. They have succeeded in part because they are paying these professionals much lower salaries than the market rate for IT professionals in Australia.

The second issue is that the Australian government has persisted with a record high annual permanent migration intake of around 205,000, despite the weakening of the Australian economy since the end of the resources boom in 2012. This permanent intake is the major source of Australia’s very high rate of population growth. This is having a disastrous impact on Sydney and Melbourne where just over half of the migrants settle…

Any relationship that there was between skills recruited under the pointstested visa subclasses and shortages in the labour market has eroded. As to the qualities of the migrants selected, the selection system bar has been set so low that if any high skilled persons are visaed it is an accident.

It is currently the clearly stated Coalition Government policy to ignore the current state of the labour market when occupations are assessed for listing on the SOL. The SOL acts as smokescreen behind which the government’s real priorities are exercised.

The first of these is the achievement of its population growth targets. The second is to support the overseas student industry, whose recruitment strategies depend on these graduates having a strong chance of obtaining a permanent residence visa on completion of their course. To this end the points test has been crafted so as to ensure that applicants who have graduated from Australian universities are given priority…

The report notes how IT professionals, engineers and accountants (including auditors) are the key professions where foreign worker visas are being issued, despite these industries having significant surplus labour.

The below chart combines the permanent and 457 visa data together and shows the high barriers faced by Australian graduates competing with foreign workers:

The 17,185 IT professionals visaed in 2015-16 (Table 1) indicate the scale of the problem. By contrast, just over 5,000 residents are currently completing undergraduate course in IT each year.

What you will notice from the above table is that trades people – with the exception of cooks – are conspicuously absent from the above table, despite claims that migrant workers are needed to build-out Australia’s booming cities:

There were 60,735 primary applicants visaed under the permanent entry skilled program in 2015-16. Of these, only 6,147 were tradespersons. This group included just 1,658 construction tradespersons. By far the largest group in the trades were chefs, cooks, bakers and pastrycooks, who together comprised 4,155 or 68 per cent of all tradespersons visaed in 2015-16.

The story was similar for the 457 program. In 2015-15, of the 45,395 primary applicants visaed only 7,201 were tradespersons, of whom 1,547 were in construction trade occupations. Their numbers, too, were dwarfed by the 4,751 chefs, cooks and pastrycooks granted 457 visas in 2015-16.

Nevertheless, it is the IT sector where local workers are facing the most stiff competition from foreign workers, especially those from India who are being paid low wages:

As Table 2 shows, some 76 per cent of the 7,542 457 visas issued in the three IT occupations listed were to Indian nationals. The great majority of these were sponsored by Indian IT service companies as intra-company transferees…

Once in Australia their staff are being paid at much lower rates than experienced resident IT professionals and in some cases even new local graduates.

Even more disturbing is the relatively high proportion of these Indian IT professionals (28 per cent) whose 457 visas were approved at the extremely low base salary of $53,900 or less. This is despite the fact that only eight per cent of the 457 visas granted to Indians in the two ICT occupations in 2014-15 were aged less than 25.

The median starting salary for local ICT graduates under the age of 25 is around $54,000. Coincidentally, the 457 minimum salary ‘floor’ is set at $53,900…

As the data in Appendix I show, between 2012-13 when Labor was in office and 2013-14 under the Coalition the proportion of Indian 457 IT professionals approved at the very low base salaries increased dramatically, from eight per cent to 27 per cent…

Clearly, the legislated requirement to pay the 457 market salary rate is not being implemented in the case of the Indian IT service companies (and perhaps other multinationals with Indian branches). The violation is obvious, given that more than one-quarter (28%) of Indian 457s in the two ICT occupations had their visas approved at no more than Australian IT graduate starting salaries…

The report then turns its sights to Australia’s permanent migration program, whose target has been set at a record high level despite the end of the mining boom, and whose influx is choking living standards in Sydney and Melbourne:

The permanent migration intake includes family migrants and the humanitarian program. However, the largest part is made up of migrants visaed under the skilled visa subclasses. The current target for this latter group in 2016-17 is 128,000 (the same level as in 2015-16). This target is even higher than was the case during the investment phase of the resources boom when it reached 125,755 in 2011-12. In addition, there is an annual target of around 61,000 family visas (not including the dependents of skilled migrants) and around 14,000 for humanitarian migrants. The total of around 203,000 is a record high.

The permanent program is the dominant contributor to Australia’s high rate of population growth, though there is also a contribution from net movements in and out of Australia from temporary migrants and Australian residents. The result is that Australia is experiencing the highest rate of population growth in the developed world (apart from Luxembourg).

The main impact of these migration movements has been felt in Sydney and Melbourne. This is because there has been a recent surge in the proportion of migrants locating in Sydney and Melbourne. Just over 50 per cent are currently doing so. As a consequence Melbourne’s population is growing by 90,000 to 100,000 a year and Sydney’s population by 80,000 to 90,000 a year.

The consequences for Sydney and Melbourne are serious. As we have documented elsewhere,9 some 64 per cent of the growth in households in Sydney and 54 per cent in Melbourne is due to net overseas migration. These migrant households are vying with residents, investors and upgraders for scarce family friendly housing (mainly detached houses). This, along with tax inducements to investors and record low interest rates, has led to huge increases in housing prices. Younger resident households and migrant households themselves are being priced out of the market. Congestion and competition for access to scarce public facilities, including hospitals, is also getting worse.

Given these consequences, why is the Australian Government and the Labor Opposition supporting the current permanent migration program? As we will see later, both parties do this because of the impetus that population growth gives to overall economic growth (rather than per capita growth, which both parties ignore).

But if this were the only justification, migration advocates would have a tough time sustaining their case at a time when job markets are weak. In our view, the permanent entry program has escaped scrutiny because advocates have created the illusion that it is delivering skills that will aid the economy’s transition to a more knowledge intensive economy.

The report notes how the biggest sources of skilled permanent migrants – engineers, accountants and IT professionals – are also the areas with the biggest surplus of workers:

Thus, the overall immigration system is destroying career prospects for local graduates in these (and other) areas:

Why is this happening? It is partly because in making its decisions the government has to deal with lobbying against removal from the [skilled occupations list] SOL by powerful interests including the professional bodies, like the ACS for computing and the CPA for accounting. This is because of the revenue they earn from assessing the credentials of applicants.

For the government, however, the migration program has two main priorities, both of which trump any concern about the interests of recent Australian graduates. The first of these is the maintenance of high migration and the second, to promote the international student industry…

If the skilled program were adjusted to reflect the realities of the Australian labour market, it would have to be reduced. This is not an option for the big end of town or for the government. Immigration is needed to sustain desired levels of aggregate economic growth. With the recent decline in the minerals resources boom, there has been increasing emphasis on bolstering growth in the nonresource economy. The Australian Treasury now routinely relies upon the expectation of high population growth as a means of propping up targets for GDP growth.

So does the Reserve Bank. Philip Lowe, now the Governor, explains why. In an address to business economists in November 2014 Lowe told his audience that population growth is the key to offsetting Australia’s current difficult economic setting. He notes that over the past decade Australia has had almost the fastest rate of population growth amongst OECD countries. If we continue this policy, he says, it will drive Australia’s economic growth since migrants ‘will require somewhere to live, to work and to play’.

Finally, the report suggests areas of reform to both the temporary and permanent visa systems:

We start with the 457 program. The government is allowing open-ended recruitment of skilled migrants on 457 visas with no labour market testing required for most professional and managerial occupations. The decision to sponsor is left to employers… This extraordinary outcome is occurring at a time when there is an oversupply of resident graduates…

The ideal solution is to prohibit 457 recruitment or intra-company transfers where there is an oversupply of Australian residents with the skills in question… Occupations that are currently in oversupply would not be eligible for sponsorship…

If critical ICT and other professional occupations cannot be culled from the 457-eligible list for reasons of Australia’s ‘international trade obligations’, then 457 sponsors must have a legal obligation to apply a rigorous labour market testing system. This can be done by a Legislative Instrument issued by the Immigration Minister.

The second essential 457 reform is that the 457 minimum salary ‘floor’ (or TSMIT) for ICT occupations should be increased from the current standard minimum ($53,900 pa) to $75,000 per year in 2016 and indexed annually in line with wage movements for ICT professionals in Australia.23 This ‘price signal’ combined with other measures would force ICT employers to consider providing career entry pathways for Australian graduates. In the process, it would do more to encourage ICT enrolments than any fancy marketing exercise…

The permanent program

Most skilled migrants are entering under the points-tested visa subclasses. They are supposed to be highly skilled people. A few may be, but not because the recruitment system prioritises their selection.

The main function of the points-test system is to deliver the number of migrants needed to meet the government’s population growth targets and to support the overseas student industry. The result is that the system facilitates the selection of recent overseas student graduates from Australian institutions with no industry experience at all…

Promotion of the overseas student industry is a good thing. However, it should be done by helping universities improve the quality of their teaching and the university experience and not to have to rely on access to permanent residence and post-study work visas to attract overseas students. They need more funding to accomplish this goal. The recent trend to reduce the real value of government funding for domestic students has forced universities to maximise their recruitment of overseas students.

Australia’s current migration policies are delivering large numbers of professionals of dubious relevance to Australia’s skill needs. These outcomes are making it even harder for local graduates and other jobseekers to find work. Also the permanent program is a major source of the population growth Australia’s major metropolises are facing. Young Australians are being hit both ways. They have to endure tough job markets and face the prospect of being unable to afford family friendly housing in these metropolises.

The solution is to reduce the skilled program. This would be accomplished if the SOL was restored to its earlier role, as described above, and applied to the points-tested visa subclasses as well as to the 457 program.

So there you have it. Australia’s immigration system is one giant rort that is robbing young Australians of a future, as well as lowering the living standards of incumbent residents in our major cities.

The whole system requires a complete overhaul, most notably by cutting business access to 457 visas and dramatically reducing Australia’s permanent immigration program to the sensible and sustainable level of 70,000 people per year.

Full report here.