Treasury’s IGR immigration analysis doesn’t add up

Dr Judith Sloan was the Commissioner in charge of the Productivity Commission’s 2006 review into the Economic Impacts of Migration and Population Growth. Therefore, she speaks with authority on the subject.

Today Dr Sloan has torn apart the false claim in Treasury’s Intergenerational Report (IGR) that increasing immigration is good for the nation’s finances.

This is because Treasury’s own figures show that skilled primary applicants are the only group of migrants that provides a net positive fiscal impact, and they comprise a relatively small proportion of the overall intake. Other categories of migrants, such as family and humanitarian migrants, typically constitute a lifetime fiscal drain:

According to its figures, the only group of migrants that provides a net positive fiscal impact are skilled primary applicants. The other categories have negative effects, ranging from small to very large. (The key chart is 2.10.) Take skilled secondary applicants who accompany skilled primary applicants. We know they are less likely to participate in the labour force and have higher rates of unemployment than the skilled primary applicants. We also know their rates of participation are lower and their rates of unemployment are higher than Australian-born persons. When it comes to family and humanitarian migrants, the gaps are even wider, with these migrants having much lower participation and higher unemployment rates than Australian-born persons.

The magnitude of the fiscal drain of family and humanitarian migrants is alarming. The lifetime fiscal impact (which includes income tax, indirect taxes, education and healthcare, transfer payments and other expenditure) of family migrants is estimated at minus $137,000 a migrant, and for humanitarian entrants it’s minus $367,000 a migrant…

Aside from the obvious benefit of knowing the net fiscal gains/losses of different types of visa holders, the figures also show why Treasury is wrong in promoting more immigration as a fiscal solution. The arithmetic doesn’t work. There are too few skilled primary applicants to make up for the fiscal losses associated with migrants who come in under other visa categories.

Take the most recent (permanent) migration program planning levels of 160,000. The skill total is 79,600, but only 55 per cent of this number would be primary applicants. In other words, only 27 per cent of the permanent intake will make a positive fiscal impact, on the Treasury’s figures. The others will cause a fiscal drain and, in total, there will be an adverse fiscal loss because of the composition of the migrant intake. Incidentally, the permanent planning levels don’t include the humanitarian intake, which is set at 13,750 a year. Including these visa holders significantly adds to the adverse fiscal impact…

In any case, there’s something deeply unethical about attempting to lure the cream of the crop among workers from developing countries…

As former Productivity Commission chairman Gary Banks has said, “What is clear is that immigration policy is too important to be devised primarily on fiscal grounds or in relative seclusion.”

Well said. The skilled migrant stream only accounts for around 60% of Australia’s permanent migrant intake (including the humanitarian intake). And only around half of the skilled stream are primary skilled migrants, with the rest being migrating family members. All categories of migrants are paid less than the general population, with the only exception being primary skilled migrants. This is shown clearly by the Continuous Survey of Australian Migrants (extract shown below):

Migrants are paid less than the general population.

This means that the overwhelming majority of permanent migrants – around 70% – actually drain the federal budget.

But it gets even worse. The IGR deliberately ignored the costs imposed on state budgets from providing the many goods and services required to sustain bigger populations (e.g. infrastructure, education and social services):

The OLGA [OverLapping Generations model of the Australian economy] and FIONA [Fiscal Impact of New Australians] results presented in this report do not capture the broader economic, social or environmental effects of migration such as technology spillovers or congestion. The FIONA results presented here do not capture the fiscal impacts of migration on state or local governments.

Sadly, the Treasury never takes proper account of the costs of big migration – either financial or non-financial – since these are borne primarily by the states and residents at large.

This explains why the IGR bangs on incessantly about the rise in healthcare and pension costs from population ageing, but completely ignores the gigantic cost of infrastructure required to house an additional projected 13.1 million people over the next 40 years – the equivalent of adding another Sydney, Melbourne and Brisbane to Australia’s existing population. These infrastructure costs are borne by the state governments and residents (via user charges), so can be dismissed altogether by Treasury.

I bet if the federal government was required to internalise the cost of immigration by paying the states $100,000 per permanent migrant that settles in their jurisdiction, so that the states can adequately fund the extra infrastructure and services required, then Treasury would no longer tout the ‘fiscal benefits’ of immigration.

Making the federal government share the benefits and costs of immigration would be a surefire way of reducing the intake back to sensible and sustainable levels.