Grattan: Lift skilled visa pay floor to $80,000

The Grattan Institute has released a new report entitled “Rethinking permanent skilled migration after the pandemic”, which calls for fundamental changes to Australia’s permanent skilled migration system, which accounted for around 60% of Australia’s permanent migrants (including the humanitarian intake) before COVID hit in 2019:

Australia’s permanent migrant intake is dominated by ‘skilled’ visas.

The crux of the Grattan’s recommendations are to:

• Rejig the points system to target younger migrants with superior English-language skills;
• Set a minimum income threshold of $80,000 indexed to male weekly earnings;
• Abolish skilled occupation lists (SOL) and labour market testing; and
• Abolish or freeze business, investment and global talent visas.

Below are key extracts from the report articulating Grattan’s proposed reforms:

Skilled worker visas should no longer be targeted at skills shortages at the expense of higher-skill, higher-wage workers. Employer sponsorship should be available for workers in all occupations with an offer of a high-wage job. There should be a shift to assessing income instead of occupations.

The points-test should be subjected to an independent review focused on ways to better select younger, skilled workers. The review should consider abolishing occupation lists for points-tested visas, as well as points allocations for migrant characteristics that do not generate positive labour market outcomes. The review should also consider whether separate points-tested visa streams serving state governments and regional areas should be abolished, since these visa holders have fewer skills and earn lower incomes than those selected via the independent points-test…

These changes would bring big benefits to the Australian community by shifting Australia’s permanent skilled migrant intake further towards younger, higher-skilled migrants with strong English language skills…

Abolishing occupation lists and opening up employer-sponsored visas to all skilled workers, irrespective of occupation, provided they earn at least $80,000 a year, could generate an extra $9.1 billion in personal income tax receipts over migrants’ lifetimes (Figure 4.3)…

This wage threshold should be indexed in line with Male Total Average Weekly Earnings (MTAWE)…

A shift to assessing income instead of occupation would better target permanent skilled migration at higher-wage occupations with valuable skills. It would also simplify the sponsorship process and provide greater certainty for both firms and workers… Firms
would no longer need to fit the sponsored role into a particular listed occupation. A higher wage threshold would also encourage employers to bid up their wage offers to prospective workers…

Inevitably some prospective migrants, and the employers that would hire them, would be disadvantaged by this change. Firms hiring temporary visa holders at below median full-time earnings would not be able to offer their workers permanent residency. Many roles in
the hospitality, retail, and many care work sectors would struggle to qualify for employer sponsorship given the low salaries offered. Fewer employers in regional areas, who tend to pay lower wages, would be able to utilise employer sponsorship to secure workers given the new $80,000 wage threshold…

The broader benefits of these reforms, beyond direct fiscal benefits, are difficult to estimate. But prioritising high-skill, high-wage workers for permanent skilled migration would probably further reduce any prospect that migration will hurt the wages of low-skilled workers. And better targeting permanent skilled migrant visas at high-skill, high-wage workers would be expected to maximise any productivity spillovers from migration to Australian workers, especially via the adoption of new technologies and business practices.

Grattan also wants the points system surrounding secondary skilled visa holders (i.e. partners, spouses or children of primary skilled applicants) to be tightened – a view supported by the Productivity Commission in its 2016 Migrant Intake into Australia report:

Within the skilled-worker streams, about half of visas granted are for ‘secondary applicants’ – partners and dependent children (see Section 7.9.3)…

The number of points allocated to the skills and experience of spouses should be increased. This would shift the allocation of permanent skilled worker visas to include more partners with better skills and more English-language proficiency, qualifications, and job experience. High-skilled primary applicants with comparatively unskilled partners would be discouraged from applying to Australia, and would be less likely to be granted a permanent position if they did so.

Grattan also recommends de-linking international education with permanent residency migration outcomes:

Studying at an Australian higher education institution is worth five points in the points-test. Almost 70 per cent of people who have lodged an application for a skilled independent visa as at February 2021 claim Australian study points.

These points create an explicit link between Australian permanent visa policy and Australian higher education, providing an explicit subsidy for Australian universities. Yet there is little publicly available information about the size of this subsidy, or its cost in terms of poorer migration outcomes.

Grattan’s $80,000 salary threshold too low:

Overall I agree wholeheartedly with Grattan’s skilled migration reforms, although I would like them to go further.

In particular, I believe that an income threshold set at the median full-time income of $80,000 is still too low, even if it is an improvement on the status quo. Given we are dealing with purportedly skilled workers, they should be paid well above the population median full-time wage, which is pulled down by unskilled workers.

My preference would be to set the wage floor at the 75th percentile of median earnings, which was around $90,500 in August 2020, according to the ABS:

The 75th percentile of earnings in Australia was $$90,480 p.a. in 2020.

Doing so would ensure that Australian businesses can only hire foreign workers to fill highly skilled professions, while also eliminating the need for labour market testing or maintaining bogus SOLs.

Grattan counters my call for a higher wage floor with the following:

A higher wage threshold than $80,000 a year would lift the wages of employer-sponsored workers. However doing so would simply shift a greater share of the fixed number of skilled worker visas issued each year into the points-tested streams, where migrants earn lower incomes…

I don’t buy this argument. The skilled migration planning levels are a cap, not a fixed binding figure. If a primary skilled visa holder cannot meet the 75th percentile threshold they don’t get issued with a visa. Simple as that.

In turn, Australia would run a significantly lower skilled immigration program that concentrates on highly-skilled and highly paid migrants only, thereby providing the double-dividend of reducing population pressures (especially in Sydney and Melbourne), while also maximising the productivity and fiscal benefits from skilled migrants.

Why not extend the salary threshold to temporary skilled visas?

My only other gripe with Grattan’s report is that it does not consider temporary skilled shortage (TSS) visas (formerly 457 visas); although Grattan promises to address these in a future report.

As we know, the Temporary Skilled Migration Income Threshold (TSMIT) has been set at the ridiculously low level of $53,900. This TSMIT was $5,900 (10%) below the median income of all Australians in August 2020 ($59,800), which includes unskilled workers (see above table).

Setting such a low TSMIT explicitly incentivises Australian businesses to hire low cost foreign workers instead of local workers, as well as abrogates their need to provide training.

The TSMIT must, therefore, also be increased in line with that proposed for permanent skilled migrants.

Hopefully Grattan with explicitly tackle the TSMIT in its next migration report.

My recommendations on how to improve Australia’s skilled visa system were explained last week.