January is a slow news month in Australia, particularly when it comes to economic and business matters. Most business leaders have headed for the beach or overseas to ski down pristine slopes. A few will head to Davos next week to attend the latest World Economic Forum confab.
Seeing a gap in the market, audit and consulting firm KPMG has taken to releasing an annual survey of a small number of senior business figures in early January. Entitled Keeping Us Up at Night, the short report outlines the main factors that are concerning the respondents. Note here that most of KPMG’s clients are big businesses and government departments.
According to the results, top concerns for the next 12 months and the next three to five years are “dealing with cyber risks, and talent issues, including recruitment/retention and upskilling the workforce for a digital world”.
KPMG chief economist Brendan Rynne provided additional commentary to the report, including a plea to the government to refrain from cutting the migrant intake. “We’ve got to be careful that we don’t have a knee-jerk reaction and I think that the government’s response hasn’t been: it’s been considered and positive.”
He noted the “work we’ve done has consistently shown that skilled migration adds positively to the Australian economy and it does that through improvements in productivity.”
Referring to the acute shortage of housing, he added: “I’d actually live with the short-term challenges that we’ve got at the moment. I think ultimately that the market will sort itself out with regard to housing investment and I’d rather do that than turn away skilled migrants who are unlikely to come back later.”
But are any of these assertions consistent with the evidence? And just to be picky, I’m pretty sure Rynne personally is not living with the short-term challenges – for example, lining up to secure high-priced rental accommodation.
Consider the supposed link between skilled migration and higher productivity, leading to broad economic benefits. Notwithstanding Rynne telling us he has work that demonstrates this link, there is little rigorous Australian research to back the claim. Indeed, in terms of recent trends, the evidence is the opposite: the surging rates of migrant intake that occurred in the 2010s and have restarted after the Covid-induced lull have been associated with sluggish productivity growth, much lower than was apparent in the 1990s and early 2000s.
The immediate effect of immigration is to dilute the capital stock, which has a negative effect on productivity. It is only over time that this capital-shallowing effect can be offset by investment. The sad reality is, absent the mining sector, this investment has failed to materialise in Australia.
Throughout this recent period, governments have emphasised skilled migration in relation to the permanent migrant intake. Of the 190,000 permanent annual places, 137,000 or 72 per cent are allocated to the skill stream, with the remaining to the family stream (mainly partner visas). This high percentage of skilled migration has been a pattern for many years.
But the permanent intake is only a proportion of the total migrant intake. According to the latest figures, there were more than 500,000 long-term net migrant arrivals in the year ending in June 2023. The permanent intake is only 40 per cent of the total number of new migrants. In turn, most migrant arrivals are international students who cannot be deemed skilled although they do take unskilled and semi-skilled jobs. To be sure, there are temporary workers among the intake and some of them are highly skilled, but not all.
The number of international student visas granted in 2022-23 was more than 550,000. In addition, there were nearly 200,000 temporary graduate visa holders in June last year, an increase of more than 100 per cent on the June 2022 figure.
It may be tempting to equate graduates with skilled workers, but we know from a range of data sources that the employment of international graduates is much less concentrated in professional and managerial occupation than domestic graduates. According to a survey of graduate outcomes in 2022, 58 per cent of international graduates were employed full time compared with close to 80 per cent of domestic graduates. The median salary of international graduates employed full time was less than 90 per cent of domestic graduates. The reality is, many international graduates are employed in semi-skilled, routine jobs.
Rynne may have a point for specific cases where particular skills are required for certain investments to go ahead or for certain firms to grow. But we are talking about relatively small numbers where the employer-sponsored visa categories deal with these needs. In any case, a better and more sustainable solution is for firms to invest in the training of workers with these specialised skills rather than simply bringing in migrant workers.
As for the housing market adjusting to market forces and providing ample, affordable accommodation for the rapidly growing population driven by immigration, again the evidence doesn’t favour Rynne’s sanguinity. If anything, market forces are working in the opposite direction, with rising interest rates, higher material costs, worker shortages and planning/approval delays leading to far fewer homes being built than are required.
Indeed, there were fewer new apartments built last year than had been the case for more than a decade. The housing situation is not just a short-term challenge. There is a widespread consensus that the federal government’s target of 1.2 million homes to be built across five years will not be met.
As for the government’s response to the surging migrant intake, actions taken thus far have been feeble and small-scale, even though the rate of immigration is unpopular with voters. The hope is that the net overseas migration figure will settle back to levels deemed to be acceptable – about 250,000 a year, which is still high.
But a few regulatory tweaks will not fix the problem, particularly as many on temporary visas are highly capable of gaming the system. Witness the recent uptick in applications for humanitarian visas as an example.
The bottom line is this: the surge in net overseas migration is unsustainable; overwhelmingly, the new migrants are not skilled; and the pressures on the housing market will not ease noticeably until the migrant intake is deliberately and substantially reduced.
Big businesses, universities and property developers will vocally oppose any moves to restrict immigration because it is not in their interests to do so.
It’s also important to acknowledge the effects of large migrant intakes extend well beyond the labour market and housing. They include more congestion, greater demand on facilities such as schools, hospitals and utilities, and the loss of social amenity. The government needs to consider this broader picture and to act with haste to rein in the migrant intake as well as speed up the exit of many temporary migrants.
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