Treasury's estimate of net overseas migration numbers lacks detail, meaning future economic growth remains uncertain, writes Dr Abul Rizvi.
IN ITS DECEMBER 2020 Population Statement, Treasury’s new Centre for Population has reduced the Government’s long-run net overseas migration (NOM) assumption from around 268,000 per annum in the pre-Election 2019 Budget to 235,000 per annum. While more plausible, this remains heroic.
The 235,000 per annum NOM assumption is central to Treasury’s population projections which will likely be used in the Treasurer’s Intergenerational Report due out with the May 2021 Budget. Given significant slowing in productivity growth over recent years as well as slower growth in hours worked – both linked to our ageing population – a high NOM assumption is arithmetically essential to justify a return to high levels of economic growth and the budget surpluses the Treasurer will demand.
To put Treasury’s new long-run NOM assumption of 235,000 per annum into context, there were only three financial years in the last ten when NOM was greater than 235,000. In 2016-17, it was 262,490; in 2017-18, it was 238,200 and in 2018-19, it was 239,600.
Those outcomes make Treasury’s 235,000 per annum assumption appear plausible. But don’t be misled; Treasury’s assumption is largely based on hopes and prayers and very little actual analysis of the drivers of NOM.
After the 1990-91 recession, it took over 10 years for NOM to return to pre-recession levels, largely due to persistently high levels of unemployment: something Treasury appears to ignore.
Treasury says that its long-run NOM assumption of 235,000 people per year:
'... reflects the contributions of four distinct migration groupings that cover all arrivals and departures through time'.
- The contribution of the Government’s planning levels of the permanent and humanitarian migration programs to immigrant arrivals, which accounts for all permanent migrant arrivals — whether they arrive in Australia as a permanent or as a temporary migrant who transitions to a permanent resident;
- The flows of arriving and departing temporary migrants who reside in Australia for several years but never transition to permanent residents;
- The flows of departing and returning Australia citizens; and
- The number of permanent residents who subsequently emigrate.
It goes on to say that:
... the long-run net overseas migration assumption is the summation of those components — the planning levels, temporary flows, along with Australian and permanent resident emigrants — to be 235,000.
With government planning levels accounting for the largest component to the long-run assumption, it is highly sensitive to any future decisions by the Australian Government to increase or decrease the planning levels for the migration program.
The Treasury NOM assumption is heavily based on its view Government will return the permanent migration program to 190,000 per annum from 2023-24. Such an increase would also help drive up the temporary migration of people looking for a pathway to permanent residence.
But there has been no announcement by the Government of any such intention and there is unlikely to be any such announcement before the next Election. If Scott Morrison did so, he would need to explain how congestion has been "busted" since that was his rationale for reducing the program to 160,000 per annum and also that the labour market from 2023-24 will be sufficiently strong to absorb such an increase.
Even if the Government did return the permanent migration program to 190,000 per annum, history shows us that in a weak labour market, that does not guarantee a high NOM.
In 2013-14 and 2014-15, NOM was 187,780 and 184,030 respectively. Those were both years in which the permanent migration program was delivered at 190,000 and unemployment was around 6%. It is also relevant that the wait for access to social security by newly arrived migrants had not at that time been increased to four years as it is now.
Thus it is highly likely Treasury will be relying on a surge in temporary migration to deliver its long-run NOM assumption. Despite its newfound commitment to transparency and accountability, Treasury provides no details on which components of temporary migration will surge sufficiently to deliver long run NOM of 235,000 per annum.
Treasury seems disinterested in digging that deeply. In response to Question on Notice 20-000115 from the Member for Bruce, Julian Hill, Treasury studiously avoided giving any details of how it arrived at its long run NOM assumption in terms of the contribution of temporary residents.
Asked about its estimate of the number of temporary residents in Australia by the end of the decade based on its new long-run assumption of NOM, Treasury said that it:
“... does not forecast the number of temporary visa holders in Australia or the change in that number due to overseas migration as it is not needed for economic forecasts.”
Either Treasury’s new Centre for Population does not understand the significant role of temporary migration in driving Australia’s population directions or it does not wish to get involved in a highly controversial policy issue. There are currently a little less than two million temporary residents in Australia — down from around 2.3 million at the end of 2019 following Scott Morrison’s message they should go home.
They impact Australia’s population directions in three significant ways:
- Because of their higher turnover, over time this large cohort "ages" differently to Australian citizens and permanent residents;
- Because of their temporary nature, this large cohort would also have a different fertility rate to Australian citizens and permanent residents; and
- Temporary migrants converting to permanent residence represent well over 50% of the migration program — in 2019-20 they represented almost 70%.
The size and composition of the temporary resident cohort and how it changes over time is crucial to forecasting Australia’s population directions and long-run NOM. Policy changes affecting temporary resident numbers are a major driver of NOM.
For example, in 2018-19 around 47% of NOM was due to the net movement of overseas students. In September 2019, Home Affairs significantly tightened student visa policy that led to a dramatic increase in offshore student visa refusals and a decline in offshore student visa grants.
While universities and state governments are clamouring for a rapid return to growth in overseas students after the pandemic, there are real doubts whether Home Affairs will reverse its September 2019 student visa policy changes. In a weak labour market, a rapid increase in overseas students who have not had their financial capacity to study in Australia checked by Home Affairs would risk further growth in the number of students who are either destitute or subject to severe exploitation.
And in a further indication, Home Affairs is looking to tighten policy in this space, it recently announced secondary temporary graduate visa holders would no longer be able to apply for another temporary graduate visa as a primary applicant.
This will make it harder for temporary graduates to remain in Australia for a sufficient length of time to acquire the requisite skilled work experience to apply for further stay in Australia. It will increase the rate at which temporary graduates are forced to depart Australia.
Since 2018-19, there has also been a steady decline in offshore student visa applications from China, Australia’s largest source of overseas students. Given Australia’s diplomatic tensions with China, this decline is likely to continue.
Finally, the Government has made it clear to universities that they had become too reliant on overseas students. That was partly its rationale for denying them JobKeeper and the Government being so relaxed about the loss of around 17,000 university jobs due to the decline in overseas students coming to Australia during the pandemic.
Against that background, can Treasury really assume a long-term return to the very large contributions of overseas students to NOM that took place from 2014-15 to 2018-19?
The only other part of NOM that had been growing in recent years were people arriving on visitor visas and then applying for a long-term visa onshore. In 2018-19, visitors contributed an extraordinary 22% of NOM.
One of the major drivers of this would have been partners of Australians who in frustration with lengthening processing times for partner applications chose to enter Australia on visitor visas and then apply for a partner visa.
Now that Home Affairs has recognised its past practice of restricting partner visa places was indeed unlawful, it has allocated a record 72,000 partner visa places in the 2020-21 migration program. If this policy is continued, the partner backlog of around 100,000 people will have been cleared within the next two years. That would lead to a long-term fall in the visitor contribution to NOM.
The growth in visitor contribution to NOM would also have been driven by Australia’s fifth and by far largest wave of asylum seekers. Over recent years, people on visitor visas applying for asylum has averaged around 25,000 per annum (over 10% of NOM). This had all the characteristics of a labour trafficking scam.
The COVID-19 travel restrictions have brought that scam to a halt although the asylum seekers who arrived prior to that remain in Australia slowly winding their way through the asylum system (they are counted as part of Australia’s resident population). But to what degree is Treasury’s long-term NOM assumption inadvertently reliant on a resumption of that scam?
Well prior to the pandemic, offshore visa grants to working holidaymakers and temporary skilled migrants had been in steady decline. Due to a combination of policy tightening, a weak labour market and extensive reports of exploitation, the contribution of these two groups to NOM is also likely to remain low.
Against this background, it is not surprising Treasury refuses to provide any details of which components of NOM it expects will grow to deliver its long-term NOM assumption of 235,000 per annum.
But is that really consistent with its newfound commitment to transparency and accountability or just a way to help the Treasurer justify an unrealistic assumption of economic growth in his 2021 Intergenerational Report?
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