Why Treasury’s net migration forecast for 2023-24 blew out

With Treasury's net migration forecast being vastly inaccurate, Dr Abul Rizvi analyses how and why the department missed the mark in its assessment.

THE AUSTRALIAN Bureau of Statistics (ABS) has now confirmed what we have known for almost 18 months — that Treasury’s forecast for net migration in 2023-24 was either a department desperately trying to please the Government by exaggerating how quickly net migration would fall, or one that has little understanding of how net migration works.

In the 2023-24 Budget, Treasury forecast net migration in 2023-24 to fall to 315,000. That would have been an extraordinary one-year decline in net migration of over 220,000 from the 2022-23 outcome of 535,520. In the Mid-Year Economic and Fiscal Outlook (MYEFO), Treasury increased its 2023-24 net migration forecast to 395,000.

That was after Treasury had access to four months of net permanent and long-term (NPLT) movement data for 2023-24 that showed that net migration was falling only very slowly, if at all. It is possible Treasury did not want to give the Government a net migration forecast with a ‘4’ in front of it, but it would have known there was no chance net migration in 2023-24 would get near even its revised forecast of 395,000.

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As it turns out, net migration in 2023-24 was 445,640. That was 50,000 more than Treasury’s revised MYEFO forecast and over 130,000 more than its net migration forecast in the 2023-24 Budget. Such poor forecasting does nothing to help Government decision-making, not just in areas such as immigration and international education but more widely. If the Government had been provided with more robust forecasts, it is likely the policy response would have been both quicker and more effective.

Surely it is time to return responsibility for net migration forecasting to the Immigration function where it naturally belongs and end the Frydenberg experiment of putting this in Treasury. That would put responsibility for forecasting and delivery in the same agency.

In evidence to a Senate Committee in October 2024, Treasury provided a breakdown of its net migration forecast for 2023-24 of 395,000 (see Table 1). That enables us to see where things went right and wrong.

(Data source: Treasury evidence to Senate in October 2024, note rounding affects some additions)

Table 2 provides a more detailed breakdown of net migration outcomes for 2022-23 and 2023-24 as the ABS provides more details.

Students

Treasury actually overestimated student arrivals by around 8,000 while its estimate of student departures was about right. Thus its forecast of student net migration was too high by around 8,000.

Other temporary

Treasury’s forecast for “other temporary” combines skilled temporary entrants, visitors, working holidaymakers and other temporary entrants. Its combined forecast for these underestimated the outcome by around 30,000.

This is likely to have been largely due to the strong labour market and inadequate measures to tighten a range of other temporary entry visa categories, particularly working holidaymakers, visitors extending stay (a stronger measure was taken from 1 July 2024) and also inadequate tightening of the temporary graduate visa and the Pacific Australia Labour Mobility (P.A.L.M.) visa.

The current policy settings for working holidaymakers, temporary graduates and the P.A.L.M. visa have increased the structural level of net migration in a relatively balanced labour market.

Permanent migrants

As these rarely fluctuate very greatly, Treasury’s forecast for permanent migrants was very close at around 70,000.

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NZ citizens

Treasury underestimated the contribution of New Zealand citizens by around 7,000, mainly due to an underestimate of arrivals. The large exodus of NZ citizens headed to Australia was being reported extensively by NZ’s national statistical agency.

This was predominantly a function of Australia’s relatively stronger labour market and Australia’s policy change from 1 July 2023 to allow NZ citizens a direct pathway to Australian citizenship.

At 36,970, the net long-term movement of NZ citizens to Australia in 2023-24 was the highest since 2011-12 when Australia’s labour market recovered from the Global Financial Crisis much more quickly than NZ. This change has permanently increased the structural level of Australia’s net migration in a relatively balanced labour market.

Australian citizens

Treasury estimated a very high net exodus of Australian citizens at negative 35,000. The strength of Australia’s labour market appears to have limited this to negative 24,210.

Net migration in 2024-25

Treasury forecast net migration in 2024-25 at 260,000 in the 2024-25 Budget. That would mean an extraordinary decline in net migration over 185,000. That is highly unlikely given the strength of Australia’s labour and the limited measures Australia has taken to tighten policy on arrivals and increase departures.

On my calculations, a net migration forecast in 2024-25 of 350,000 would be closer to the mark, especially given the very slow decline in NPLT to October 2024.

It is highly likely Treasury will significantly increase its forecast for net migration in the 2024-25 MYEFO.

Dr Abul Rizvi is an Independent Australia columnist and a former Deputy Secretary of the Department of Immigration. You can follow Abul on Twitter @RizviAbul.