31
May
2021

Australia must use the pandemic to get skilled migration right

by Brendan Coates


Published in the Australian Financial Review, May 31st 2021

Before COVID-19, Australia was one of the world’s most open countries for migration. Now, travel restrictions have brought migration to a standstill.

But amid the gloom, there’s a unique opportunity to reset our permanent skilled migration program to favour young, high-skilled workers who bring the biggest economic benefits to Australia. Grattan Institute’s latest report, Rethinking Permanent Skilled Migration After the Pandemic, shows how.

The travel restrictions offer an opportunity to rethink our immigration schemes.

Migration matters. One in four people in Australia aged in their 20s and 30s is a migrant who arrived in Australia since the year 2000. Who we grant permanent visas to has enormous effects on Australia’s community in the long term.

Australia should select permanent skilled migrants for their long-term economic potential. Skilled migrants tend to be younger, higher-skilled, and earn higher incomes than the typical Australian. Skilled migrants generate a fiscal dividend for the Australian community because they pay more in taxes than they receive in public services and benefits over their lifetimes.

Recent federal government decisions have taken Australia in the wrong direction, by shifting the composition of Australia’s permanent skilled migrant intake away from a track record of selecting younger, higher-skilled migrants.

As a result of those decisions, a growing share of permanent skilled visas are allocated to boosting business investment and to the unproven Global Talent program. These changes should be reversed. They have reduced the lifetime fiscal dividend to Australia from each annual intake of permanent skilled migrants by at least $2 billion.

The Business Investment and Innovation Program, which targets migrants to establish businesses or invest in Australia, should be abolished. Few investors are financing projects that would not otherwise occur. Few are providing entrepreneurial acumen that will benefit the Australian community, because they are typically less skilled and speak little English.

BIIP visa-holders bring fewer benefits to Australia than skilled migrants selected through other streams, as they are older and earn lower incomes.

Permanent skilled visas should no longer target short-term shortages at the expense of higher-skilled workers.

The Global Talent program is designed to attract highly skilled professionals to work and live permanently in Australia. Introduced as a pilot of 1000 visas in 2018-19, the program has been expanded rapidly to a planned 11,000 visas in 2020-21.

Attracting global talent is a worthy goal, but the selection mechanisms for the program remain unproven. We know little about who is being selected, and there are doubts the program, which lacks clear and transparent rules, can operate at greater scale. The Global Talent Program should be scaled back and evaluated before any decision is made to expand it.

The number of skilled worker visas – allocated via employer sponsorship and the points test – should be expanded. Migrants selected through these programs are highly skilled, and typically earn higher incomes than Australians of similar ages. But these visas also need a rethink.

Permanent skilled visas should no longer target short-term shortages in low-skilled sectors at the expense of higher-skilled workers who earn higher wages. Australia should grant permanent residency to younger, higher-skilled migrants who are best placed to benefit the Australian community in the long term.

Employers should be able to sponsor workers in all occupations for permanent residency provided they earn above median full-time earnings of $80,000 a year. This would better target visas to people with the most valuable skills, and simplify the sponsorship process for firms and migrants.

Points-tested visas, which assess prospective migrants based on their age, qualifications, skills, and English proficiency, should be independently reviewed to ensure they prioritise younger, higher-skilled workers.

The points test appears increasingly bloated with characteristics that are not well-correlated with migrants’ long-term success. Points should be allocated only for characteristics that suggest an applicant will succeed in Australia.

These reforms would deliver big benefits to the Australian community. Abolishing the BIIP would boost the lifetime fiscal dividend from each year’s migrant cohort by at least $3.7 billion. Reforming employer sponsorship could increase the lifetime fiscal dividend from each annual cohort by at least another $9 billion.

These gains would be invaluable for a government grappling with the long-term budgetary costs of the pandemic and an ageing population

Australia’s debates about migration policy tend to focus too much on the size of the intake, and not enough on who we choose. We should not be grasping for a particular number, either for the migrant intake or for the population of Australia.

The optimal intake in any given year will vary depending on the quality of the pool of prospective applicants, which in turn depends on a range of factors including Australia’s relative attractiveness as a destination for migrants compared with competitor countries.

But the pandemic-related border closures do present Australia with a unique opportunity to rethink permanent skilled migration. Let’s not waste it.