Politics Analysis

Treasury's net migration forecast likely overestimated

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Treasury is predicting a record surge in net migration for 2022-23 (Image via Pexels)

Treasury is estimating a historical surge in net migration, but several factors including changes to COVID policy settings make the prediction seem far-fetched. Dr Abul Rizvi reports.

*Also listen to the audio version of this article on Spotify HERE.

AT END APRIL 2023, the Government increased its net migration forecast for 2022-23 to 400,000 — up from its October Budget forecast of 235,000.  

If realised, it will be the highest level of net migration in Australia’s history (see Chart 1) and certainly the biggest blowout from a treasury net migration forecast that I can find.

(Data source: ABS, Migration, Treasury)

While there is now much finger-pointing as to how this could have happened and whose fault it is, the fact net migration has blown out was the result of two simple factors:

  • COVID-era migration policy settings, particularly in relation to students and working holidaymakers; and
  • an extraordinarily hot labour market.

The COVID-era migration policy settings were put in place by the former Coalition Government and retained by the new Labor Government, primarily due to demands from business lobby groups about labour shortages. These COVID-era policy settings will be wound back from July 2023 but the transition out of this will be painful, particularly for overseas students and for businesses that currently employ these students. The alternative is for the students to continue working in contravention of their work rights.

The hot labour market is a function of hugely stimulatory fiscal and monetary policies, both in Australia and around many parts of the world, which are now being wound back.

The fact net migration was blowing out was clear from three things:

  • Record levels of offshore student visa applications, driven by unlimited work rights granted by former Immigration Minister Alex Hawke, fee-free applications and so on. The extraordinary surge in offshore student applications started in early 2022 with Nepal briefly becoming our leading source of offshore student visa applications. Since then, offshore student visa applications have consistently been 20-30 per cent above all-time historic records. The fact many of these applicants were not genuine students was confirmed by the Department of Home Affairs (DHA) publicly reporting extensive fraud in the caseload.
  • Increasingly generous provisions for working holidaymakers which converted that visa from a cultural exchange visa to essentially an unsponsored work visa.
  • An extraordinary excess of visitor arrivals over departures. I wrote about this in November 2022. Visitor visa holders who secure another visa after arrival and remain here for 12 months or more are counted in net migration.

I summarised the blowout in net migration in calendar 2022 in January 2023. We will not know the precise size of that blowout until the ABS publishes its preliminary estimates of net migration for 2022, possibly in July 2023.

Net migration in FY 2022-23

We will not know the actual outcome of net migration for 2022-23 until early 2024 when the ABS issues its preliminary estimate of net migration for the current financial year.

But we can get an indication of net migration from the monthly international movements data that ABS publishes, noting that this counts all movements irrespective of length of stay (see Table 1).

(Date source: ABS Arrivals and Departures)

Table 1 shows that for the nine months to March 2023, there were over 11 million arrivals and over 10 million departures. This level of international movements is still well below pre-pandemic levels. For example, in the nine months from July 2018 to March 2019, total arrivals were well over 16 million and departures were just under 16 million.

Net movement for the period July 2022 to March 2023, however, was 738,070. This is indicative of a high level of net migration for the 12 months to March 2023.

But for this net movement to contribute to net migration, arrivals must have been out of Australia for at least 12 months out of 16 months and then stay in Australia for at least that period. For departures to be counted towards net migration, they must have been in Australia for at least that length of time and then also be away for at least that length of time.

To assess whether Treasury’s revised forecast of net migration for 2022-23 of 400,000 is around the mark, it’s worth looking at the components of net migration (note DHA has far more data on these movements that are not published and would be better placed to work this out).

The relatively low level of net movement of permanent migrants (42,960) for the nine months to March 2023 is not unusual and reflects the fact a large portion of the permanent migration program is drawn from temporary entrants who are already in Australia.

In calendar year 2022, net movement of Australian citizens was an extraordinary negative 530,490. This will have significantly tempered the increase in net migration in 2022 as a portion of this movement, possibly a substantial portion, is likely to have been Australian expatriates who had returned to Australia during the pandemic resuming their careers overseas or young Australians looking for new job opportunities overseas, perhaps as part of a gap year.

For the nine months to March 2023, however, net movement of Australian citizens has been positive 109,000. This will tend to support Treasury’s revised forecast of net migration in 2022-23 of 400,000 although most of this 109,000 will be driven by Australians returning from short-term holidays overseas and thus won’t be counted in net migration.

The large contribution of students to net movements (257,310) reflects the boom in offshore student applications driven by unlimited work rights. A substantial part of this will be counted towards net migration.

The large increase in net student movements correlates with an increase in the stock of students in Australia from 357,919 at end June 2022 to 582,758 at end March 2023. Part of the increased stock of students will be due to a dramatic increase in onshore student visa grants in November and December 2022. But it will be offset by a significant increase in students moving to a temporary graduate visa (the stock of which increased from 98,633 at end June 2022 to 183,175 at end March 2023) and to the special COVID visa stream established by the Coalition Government. There may now be more than 50,000 former students on this special COVID visa.

The skilled temporary entry contribution of 35,280 to net movements in the nine months to March 2023 is surprisingly low given the strength of the labour market. The increase in the stock of skilled temporary entrants in 2022-23 to date from 94,573 to 124,693 confirms the relatively slow growth in this category.

Growth in the stock of skilled temporary entrants will have been restrained by the number of these visa holders securing onshore permanent residence but topped up by students and temporary graduates securing skilled temporary entry visas.

The temporary work category contribution of 90,280 reflects a rapid increase in working holidaymaker arrivals. The stock of working holidaymakers in Australia increased from 40,912 at end June 2022 to 136,621 at end March 2023. That trend is likely to continue whilst the special COVID rules for working holidaymakers introduced by the Coalition Government remain in place and the labour market remains strong. Note, the Parkinson Review has recommended a tightening of the working holiday maker policy.

A weaker labour market in 2023-24 may result in a larger than usual portion of the working holiday makers not seeking a second working holiday maker visa. That would reduce the portion of 90,280 working holiday makers who contributed to net movements in the nine months to March 2023 from being counted in net migration.

The visitor contribution to net movements for the nine months to March 2023 of 207,050 is the big uncertainty. During 2022, the excess of visitor arrivals over departures was an astonishing 546,940 (see Chart 2).

(Date source: ABS Arrivals and Departures)

In 2018 and 2019 there was a surprising increase in the excess of visitor arrivals to departures (153,070 and 140,030 respectively) and was associated with a very large visitor contribution to net migration of 60,800 in 2018 and 100,280 in 2019. But this net movement of visitors was dwarfed in 2022.

For the nine months to March 2023, the excess of visitor arrivals over departures has fallen but to a still significant 207,850. If a large portion of these net visitor arrivals converts to net migration in 2022-23, Treasury’s revised forecast of net migration of 400,000 in 2022-23 may well be realised. If only a small portion converts to net migration, then net migration may fall well short of 400,000.

Another factor will be that in most years, the June quarter is often a net outflow quarter. For example, the June quarter of 2018 was negative 355,770; the June quarter of 2019 was negative 437,610; the June quarter of 2020, when international borders were closed, was negative 71,260; the June quarter of 2021 was negative 1,410; and the June quarter of 2022 was negative 192,580.

If June 2023 registers another large negative net movement, I suspect net migration in 2022-23 will not reach 400,000 but may be closer to 350,000.

What of 2023-24 and beyond?

Treasury has forecast net migration in 2023-24 will fall to 315,000. A decline in net migration in 2023-24 compared to 2022-23 is just about a certainty.

That will be driven by a combination of:

  • a substantially weaker labour market as is now being forecast by the International Monetary Fund (IMF) and the Reserve Bank of Australia (RBA) and is likely to be confirmed by Treasury in the forthcoming May Budget. That would lead to a rise in departures of temporary entrants unable to retain a job as well as new migrants unable to survive without access to social support;
  • progressive removal of COVID-era migration policy settings such as a return to restricted student work rights. From July 2023, many students will need to either work illegally or leave. Some may start to leave in the June quarter of 2023. It is highly unlikely the offshore student application rate during 2022 and to date in 2023 will be sustained in 2023-24, especially if the policy tightening recommended by the Parkinson Review is implemented. Note some universities and DHA have already started tightening offshore student policy;
  • other policy tightening such as the increase in minimum salary for skilled temporary entrants from July 2023 and greater scrutiny of visitor visa applications; and
  • a possible increase in immigration compliance activity which had declined very significantly since around 2015 and may be implemented as a result of the Nixon Review (which has not yet been publicly released).

While many of the details of policy tightening have not yet been revealed, it seems Treasury may have overestimated net migration in 2023-24. I suspect net migration in 2023-24 may not reach 300,000 and could be substantially lower if the labour market is significantly weaker and the recommended policy tightening is implemented quickly.

For the years beyond 2023-24, Treasury is likely to forecast net migration will fall further. But what will that forecast be and how will Treasury determine that? Hopefully, that forecast will be based more on policy analysis than simply an average of a selected period in the past.

*This article is also available on audio here:

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.

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