How to fix Australia’s ‘failed’ migration system

The federal government recently released their Review of the Migration System. The review has revealed a broken system in dire need of reform. To quote the report, “Australia now has a migration program that fails to attract the most highly skilled migrants and fails to enable business to efficiently access workers.” But how to fix it?

Discussing the report and their policy recommendations are Brendan Coates, Economic Policy Program Director, Tyler Reysenbach, Associate, with host Kat Clay.

Read the Review of the Migration System

Transcript

Kat Clay: Last week, the federal government released their review of the migration system. The review has revealed a broken system in dire need of reform. To quote the report, Australia now has a migration program that fails to attract the most highly skilled migrants and fails to enable business to effectively access workers.

Here to discuss the government report and their policy recommendations are Brendan Coates, Economic Policy Program Director, and Tyler Reysenbach, Associate. Brendan, from the look of the report, the system is not fit for purpose, but what purpose is that? What should be the goal of our migration system in Australia?

Brendan Coates: What the review, the Parkinson Review, acknowledged as we have, that the system hasn’t had a real clear objective for a long time, and that’s led it to And so we’ve seen lots of ad hoc changes that have accumulated and allowed us at latest having system, which isn’t really achieving any plausible objective for the migration program.

So, you know what the, what the government has done, what the review recommended in the government is largely adopted is a system that tries to get focused more on the long term, try to focus more on getting the skills that we need for the long term. To maximize the well being of the Australian community from the migration program, particularly skilled migration and a bit less of a focus on temporary migration and short term skill shortages.

So they’ve kind of outlined very briefly 5 objectives. One is to build Australia’s prosperity by improving productivity. You know, meeting labor force needs and supporting experts, making sure that you have a fair labor markets. That’s about making sure we don’t have exploitation, building a community of Australians.

So that’s acknowledging that migrants come to Australia and they contribute and engage in the community far beyond sort of just the economic realm, protecting Australia’s interest in the world and providing a fast, efficient and fair system. The last of these is actually really important for achieving those other objectives because we won’t be able to attract those skilled migrants we really need.

if we’re not, if the system isn’t simple to use for employers, simple to use for prospective migrants, you know, those that are highly skilled will choose to go elsewhere because frankly, they’ve got other options and we’re in a race for talent. And if we want to get those highly skilled people to Australia, we need to make it as easy as possible.

Kat Clay: Tyler, as a result of the report, the government has announced some immediate changes to the temporary skilled migration income threshold, which if you, I mean, if you’ve been listening to the podcast for a while, might sound familiar, we have discussed it previously and you both previously recommended what’s called a Goldilocks threshold of 70, 000, which has actually just been picked up by government.

Why did you choose this amount and could you go through the changes for me, please?

Tyler Reysenbach: I might start with explaining for those that haven’t been following along avidly what the TISMIT actually is. So the TISMIT is the threshold by which skilled migrants have to earn above that threshold to come to Australia under skilled programs.

So that applies both for temporary Migration as well as permanent skilled migration. And the reason we picked the Tismit of 70, 000 is because it’s not too high and it’s not too low. So if you set the Tismit too high, you stop young, talented, skilled professionals who are starting out their career from coming to Australia and contributing.

But if you set it too low. The program no longer becomes about skills and it becomes a de facto, low skilled work visa. So, where it was previously, it was at 53, 900, which is far too low. About 90 percent of Australians earn more than that. I think no one would say that that’s a skilled program. 70, 000 works really well because it’s about the average earnings of someone who’s 25 to 35.

So that puts it well in kind of the level of skilled people. While also kind of giving young people an opportunity to come to Australia.

Brendan Coates: Yeah, it’s also just worth being really clear that we’re talking about sponsored migration here. So this is obviously where employers are sponsoring people to come to Australia, which is one part of the skilled migration program.

You know, there are other parts as well, like points tested visas, through which people come to Australia, and particularly international students. So that TISM at that wage threshold, and it’s been funny watching journalists. Over the course of the last six months, actually learn a lot about a migration program because it’s been so much more coverage, but it is, it is really only focused on, on sponsored visas.

There’s no wage threshold for people who are coming through other pathways for school migration.

Kat Clay: Yeah, that’s really helpful to clarify that because it’s very easy to become confused when it comes to the migration program, because there are so many different types of visas. Tyler, one of the first things I thought when I was reading these recommendations and the immediate changes to the 70, 000 threshold, what happens to workers who are suddenly ineligible for TISMIT?

Will there be further worker shortages in certain industries?

Tyler Reysenbach: It’s a tough one because government has announced that the TISMIT will now rise to 70, 000 as of 1 July, which we kind of thought. Was probably a bit too quick. We’ve recommended previously to have a staged phase in period. That being said, it has been stagnating for a very long time.

So we understand governments like want to work quickly. There are questions about how that will work in terms of transitioning. I can imagine a lot of people will just try and get in before one July to reapply for their visa, if they are going to fall below that TISMET. That being said, I mean, that’s.

Some industries will be affected. I mean, most notably will be hospo. they kind of the majority of people who are earning below 70, 000 work in hospitality. so we might see some labor market tightening in that area, but that being said, a lot of the worker shortages in hospitality were caused by the lack of students and, you know.

There’s been heaps of coverage recently talking about how student numbers have become roaring back. I think between those two countervailing things that, that will work. I think it’s also really important to remember that this is about skilled migration. If we are facing worker shortages in those areas, it’s not necessarily going to be skilled workers, which means if employers want to raise wages and hire locals, that should be easy enough to do.

There shouldn’t be, you know, very many Training barriers or occupational requirements to, to fill those gaps.

Kat Clay: Brendan we’ve previously recommended also getting rid of restrictions on which jobs are eligible for temporary sponsorship and the government’s aiming to improve these systems. But what I’m thinking, won’t this result in the same problem of outdated lists that don’t keep up with the new jobs?

Brendan Coates: Yes. So one thing that the government hasn’t adopted is they haven’t adopted our recommendation to abolish the skills, occupation list completely and instead move to a world where we just rely on wages as a signal of whether someone is skilled when we’re thinking about sponsorship, employer sponsorship, whether for the temporary program or for the permanent program, as we’ve discussed previously.

So what they’re instead going to do is they’re going to have these three tiers. They’re going to have a tier of high skilled migrants. through a specialized pathway where they, where there may not be something like an occupation is. that’s a big step forward, but it’s not clear about what wage threshold that would cut in that and whether there’d be other restrictions like it might be restricted to like it workers to support, you know, if Atlassian wants to get more stuff in Sydney, then there’s going to be this middle cohort of, of temporary sponsored workers who were something like occupation lists is still going to be put in place and the government’s going to use Jobs and Skills Australia to try to work out what should be, the occupations that are on that list or if occupations are going to be replaced with something else, what that alternative system is going to be, and the challenge there is that, you know, the government and the review are very clear that it’s really hard to determine what jobs are in shortage or what skills are needed.

Because those Ansco occupation lists are like driving along, looking in the rearview mirror, you’re looking at what the labor force looked like a decade ago, because that’s how long it takes to update these things because you need very detailed data. And it just means that you don’t have, you know, a lot of the jobs like data scientists wasn’t on these lists for a long time.

And the sort of jobs in emerging industries, which are going to be so critical to Australia’s prosperity going forward, whether it be IT startups or in the Transition to a clean energy economy, you know, those jobs may not actually exist in that framework, which makes it really hard to recruit people, and it’s not clear exactly how just giving it to Jobs and Skills.

Australia may take some of the politics out of it may get rid of the sort of stakeholder lobbying that we think is sitting behind of the construction of those occupation was today that determined who’s eligible for sponsorship. but, you know, Jobs and Skills Australia can’t invent data that doesn’t exist.

Like if they don’t have the information they need very granular data on Wages, vacancies, you know, this kind of information, it’s going to be really hard to work out what should be on that list and what should there’s also this question about what it’s going to do to sort of low skilled jobs that are off the list.

There’s sort of a fall below that 70, 000 threshold. It’s worth remembering that a lot of the sort of where we think there are big shortages in the economy, whether it be childcare, aged care, you know, the person that gets my granddaddy in bed every morning. You know, those jobs are not eligible for temporary sponsorship today, you know, they earn far below the existing wage threshold of 54, 000 a year, and they also are not even on those occupation lists right now, so that’s not where we expect to see a lot of impact because, you know, it’s worth remembering there are only something like Tyler may correct me, 100, 000 temporary sponsored workers in Australia today, you know, in a workforce of, you know, many more than 10 million.

That’s a pretty small number of workers and if we’re only knocking out a third of those people who earn less than 70, 000 today, the impact of the labour market actually will be fairly small.

Kat Clay: Just to follow up there, Brendan, I mean, is that because the system is too hard to navigate? If they make the system easier, do you think that those migration numbers would increase?

Brendan Coates: They’d increase somewhat, certainly, but It’s just a relatively small part of our migration program because there are costs, as you say, as you sort of outlined, there’s sort of, there are impediments to sponsoring workers and if it made it easier, potentially you would get more. And so our, our hope would be if you raise the wage threshold, but make it easier, we’d maybe get the same number of sponsored workers we get today, but they’re just.

It’s just a small part of our program compared to the fact that we have a large permanent program. We have a large family reunion program. We have many people here as students. we have many people here as working holiday makers on those pathways. There are just genuinely more people flowing through those pathways because people come to Australia for a whole bunch of different reasons.

And temporary sponsorship is actually just a small part of where migrants. So

Tyler Reysenbach: I mean, I guess on the question of low skilled workers and aged care workers in particular, the government has committed to a new tripartite forum to try and kind of outline a way forward for areas of critical shortages in low skilled work.

The idea being is that, you know, there, there will be a need where wages can’t adjust to attract workers to increase our temporary migration in that space. I think Gratton’s have previously spoken about that. There are significant risks. People that are lower skilled are more likely to be exploited. we risk entrenching a guest worker society if we’re only, you know, if we’re bringing people here with no prospect of permanent residency at the end of it.

And so it’ll be really interesting to see what government. Does in this space. I think we would kind of echo our previous cautions that you should really only be doing this in cases where wages can’t adjust. There is no market for market mechanism to bring and attract more people into this area. And so I think something like aged care, so governments already, they’ve announced this morning in the budget, we’re recording this on a Thursday, that they’ve budgeted for like a 15, they’ve committed to the increase, the 15 percent increase for aged care workers, and it will cost something insane, like 11 billion.

In that case, there might be a need for temporary migration to come in and help fill some of those aged care worker gaps. Because of the government funding, wages can’t adjust as they should to attract more people into the work, into the workforce. One thing that we caution is like, you shouldn’t be opening this to agriculture.

You shouldn’t be opening this to like hospitality. In that case, we’d really want to see wages increase if people can’t seem to find workers.

Brendan Coates: Yeah, in the long term, the only way we’re going to solve that aged care workforce issues, childcare workforce issues, if we raise those wages, but even as we raise those wages, it’s going to take some time.

You know, I want someone to get my granddad out of bed every morning in his nursing home. That person earns, you know, a relatively low wage. That rage wage should increase. But even if we raise the wages by 25 percent tomorrow, it’s going to take some time before the sort of workforces there, particularly because the government at the same time is also increasing staffing levels and standards in aged care.

And so I think they’re very conscious of the need. To, make sure that that doesn’t lead to the closure of aged care homes and migration is one of the ways to solve it. It’s just really hard and really risky to have lots more, many more low skilled migrants come to Australia because they’re very high risk of being exploited unless we can solve those issues.

Tyler Reysenbach: And I think we also risk reinforcing gender, the gender pay gap, because these are predominantly female dominated industries. And so if you’re bringing migrants in, you are going to put a little bit of downward pressure on the people. in those industries already.

Kat Clay: Turning now to permanent skilled migration, the government hasn’t made immediate changes, but has instead committed to do further work in this area.

Why is there a delay here and what do you think those changes could look like?

Brendan Coates: It’s interesting that so much of the focus of Claire O’Neill’s speech when she responded to the Parkinson Review at the Press Club, focused on those immediate announcements. So changes to 000, which I should point out. She, she gave a shout out in a speech to the calling at the Goldilocks level as a wage threshold, which actually comes from some work that Tyler did, for an op ed that we did, last year or so early this year.

And so, you know, shout out to Tyler for getting into the minister’s speech. The really interesting question here is that permanent migration is so much more important. So there’s a lot of focus on temporary migration that captures the airwaves, but the permanent visa system and how we design that is way more important in the long term, but it just gets so much less attention.

And, you know, the events of the last week are a testament to that. So what the government is committed to do is to look at improving the way That we select skilled migrants through the various pathways. The reason they haven’t gone quicker is, you know, to be honest, the Parkinson review only had like four or five months.

In order to actually try to reassess the entire visa system, I can speak from personal experience working on migration at Grattan. It takes longer than that to answer all of these questions. And so there’s things that the government’s committed to now, and there’s things where the review is set out a reform direction that the government’s going to then.

Work towards over the next few months, noting as well that a big part of this is trying to bring the business community, the unions along with them. And so a lot of this is the result of negotiated outcomes. I bet there was a lot of closed door discussions about the Tisma before they landed on 70, 000.

So where they’re looking to go most importantly, they’re going to look at changing how points tested visas are offered. So the points test, you know, we’ve talked about before, you basically apply for a permanent skilled visa. The government assesses your, your long term potential contribution to Australia on the basis of how old you are, you know, what experience you have, what qualifications you have.

And the idea is to pick people that are going to make the best long term contribution to Australia. Now, the trouble is that at the moment, we have the points test is bloated. It includes things like professional year. You get extra points for studying in regional areas when, you know, I think it’s pretty clear that studying in a regional area compared to studying at a major university in the city is probably not a good predictor that you’re going to earn more and contribute more to the community in the long term.

And so what the government is planning to do is to recalibrate that points test. They’re looking to give spouses greater weight because, you know, if I come to Australia with my partner, we’re taking two spots in a limited number of permanent school visas available. You want to make sure that You should be doing more to account for the skills of the spouse.

We obviously can’t and shouldn’t account for the skills of kids. You know, my six year old is not going to have a bachelor’s degree. Although, you know, he does seem pretty cluey. They’re looking to do that very detailed work over the course of the next few months to work out how the points tested visa should change.

And if you do that well, the payoff is enormous. Like it’ll be, the fiscal payoff alone will be tens of billions of dollars. To Commonwealth and state budgets over the next three decades and it will dwarf any potential change changes or improvement in Australian’s well being from the temporary program.

Kat Clay: Brendan one of the ones, you know, we love to talk about the podcast, the Business Innovation Investment Program. Do you expect future change on this?

Brendan Coates: So the review pointed out that the program is not working very well. The government has said they want to consider that down the track as part of. other changes they’re looking to make to permanent skilled visas.

We’ve gone on about this for a long time. The business investment innovation program doesn’t work very well because it tracks older, less skilled migrants that, you know, don’t earn anywhere near as much. And every visa you give through that program is a visa that you’re not giving to a younger skilled worker.

You know, makes a much larger contribution to Australia in the long term. I expect a couple of things to come from here. One is we’ll get the planning levels for the for the permanent migration program for next financial year in the budget, which will be on next Tuesday night, and so I expect that we’ll see a further decline in the number of visas offered through that program and potentially also through the global talent program.

And then down the track, we hope to see the government abolish that program entirely, the business innovation investment program, because it’s not contributing. It’s not doing a great job for Australia, but that’s one that the government still has some difficult calls to make down the track. And we hope to see those announcements over the course of the next few months.

Tyler Reysenbach: Yeah. One of the particular challenging parts is that there’s 30, 000 people who’ve already applied for the program. And so they now have to make a choice about, do they just not issue those visas or do they, do they say, Hey, Putting a stop from here on.

Kat Clay: Tyler, I mean the government has signalled that it wants to tackle the issue of a growing number of permanently temporary migrants here on temporary visas, especially by offering clearer pathways to permanent residency.

How exactly will the government do that?

Tyler Reysenbach: Yes. I mean, it’s a really, really tricky question. They announced that they’re going to give everyone on the short term TSS visa a pathway to permanency. So what that means is that if you’re on the medium term TSS visa, so you work in certain occupations that are on the medium occupation list, medium term occupation list, you were able to apply for employer sponsored Permanent visa after four years, that was never the case if you were on the short term occupation list.

So they’ve now opened that up to people on the short term occupation list that doesn’t actually solve the problem because at the moment, there’s only 1. 9 million temporary migrants in Australia and there’s only 195 permanent places. So just offering people a pathway to permanency, it doesn’t guarantee that they’re going to get it.

And at the end of the day, the numbers don’t stack up. We’ve seen a bit of signaling, you know, O’Neill speech that, you know, Not everyone who wants to say we’ll be able to, which I think is the first step in making those really tough choices, but the government still has a bit of work to do in, in kind of really grappling with what that means, the review gave a little bit of guidance, talking about prioritizing, you know, If you’re on a temporary visa and the points test potentially, or, having separate pathways or, you know, facilitating transitions for students.

But at the end of the day, it’s just a mathematical question. If we have that many temporary migrants, we can’t offer everyone a permanent visa. And so I think a really tough thing for government to do in the next couple of years is to. Say, we’re not giving you false hope. If we don’t think there’s a pathway to permanency here, you can’t stay.

And that involves some really tough conversations to have with migrants who would like to stay. and it’s also not clear how to kind of make those calls. So still a little bit of work to be done. I’d also just add one last thing, which is they’ve also created permanency for Kiwis. So in Australia, every Kiwi can come immediately.

and just the grant to the visa. On, on arrival, but there’s no pathway to permanency. You can’t apply for PR if you’re on the special category visa. so giving that, pathway now means that we’ll, we’re treating Kiwis the same way as Australians get treated when they moved to New Zealand. But it’s not clear how that fits into the planning caps or anything like that.

So that, that will be one very simple thing that will.

Kat Clay: The last thing I want to ask you about, I mean, the federal opposition has accused the government of running a big Australia agenda by stealth. And for those who don’t recall, under Kevin Rudd’s leadership, Labor previously committed to a big Australia policy to increase the population to 36 million by 2050.

Is the government running a big Australia policy here?

Brendan Coates: Thanks, Kat. I think this is going to be a big focus of the political debate in the next few months. And so it’s probably worth just briefly explaining how migration adds to the population in Australia and sort of what’s driving the record flows we’re seeing recently.

So at the moment, you know, what’s driving this is that net overseas migration, which is a measure of how many people are long term residents in Australia. you’ve got to 12 and the last 16 months. You know, this year where the Treasury is forecasting that net overseas migration for the financial year we’re currently in is going to total 400, 000 people, which is the largest number on record.

So, that’s very big. and it’s historically more like 250, 000 and it’s going to be 350, 000, 15, 000, 315, 000 next financial year. So, so, so why do we have these record flows of migrants coming into the country or boost increase in the, in the population? Well, part of it, a large part of it is just the catch up from COVID.

We closed the borders and so many temporary migrants went home, including many students and the, and people who started studying their degrees with Australian universities did so remotely. Now, the borders reopened as, as we’ve managed to vaccinate the Australian community and COVID is less of a risk than it was.

And so a lot of those students, working holiday makers, others are coming back to Australia and that’s what’s driving the record flows. And at the same time, because we don’t have many, as many second and third year uni students that are coming close to the end of their degrees, fewer people are leaving.

and so, you know, normally we get this big increase in net overseas migration. We’re getting it right now because of a very particular set of factors. Now, part of it as well is that decisions of the former government, such as extending work rights or uncapping work rights for international students, have also accelerated the pace of students coming to Australia.

We saw record numbers of, students applying to come to Australia from places like Nepal. where, you know, there is a, an issue where, with some countries, people come to Australia to study, but then they’ll actually, they’re really here to work. The opposition has accused the government of running a big Australian policy on the basis of the record numbers of these inflows.

A large share of that is just naturally arising from the catch up from COVID. The population will still be. You know, 600, 000 smaller based on some, some estimates out today than what it would have otherwise been with COVID over the course of the next decade. So we’ve still got a smaller population Australia because of COVID.

It’s just we’re getting rapid catch up of from where we were. The government though has done some things. that will increase the resident population of Australia. You mentioned the pathways for Kiwis to stay permanently. That will increase Australia’s resident population. They boosted the number of permanent visa holders from 160 to 195, 000.

That doesn’t affect the population straight away because most permanent visas are issued to people already here. But in the long term, if that’s continued, it will boost Australia’s population. And the one that people aren’t talking about that will have a fairly big impact is we’ve extended the period of those graduate visas.

So when you finish your international studies. As in just a student, you then can stay in Australia and work and historically could work for, you know, two or three years, depending upon what you studied. Now it’s sort of four, five, six years, and that’s going to increase the number of people who are in Australia for longer.

Tyler Reysenbach: Although it’s worth clarifying as well, you have to have studied a particular area that is deemed to be in shortage. so it’s not universally all students now get this extension.

Brendan Coates: Yeah, that’s a great point, Tyler. So as is always the case with migration, there are always caveats. And so the net effect of that is that the population potentially could end up being bigger.

Now, the government is emphasizing that by cutting, by raising the TISMA to 70, 000, they will reduce the number of temporary visa holders that are here. So there’s a number that’s out ahead of the budget, saying that the government’s decisions will reduce the number of low paid migrants entering the country by up to 31, 000 a year.

So that, you know, that’s an effect, but it’s offset by these other decisions that have been made by governments from both sides of politics over the course of the last couple of years. So I think we’re going to see a big debate about this going forward because it has huge, it has big implications for the rental market.

Vacancy rates are at historic lows and migrants do add to demand for Australian housing. And in the short term, we can’t easily build more. And then they are adding to the fact that vacancy rates low and rents are rising. That said, it’s really hard to cut back. Parts of the migration program easily. A lot of this is just the flow of automatic decision.

The flow of migrants are rising from the existing settings. There haven’t been policy changes. And so if you were going to try to cut back the numbers. in response to this, you know, are you going to put a higher bar on international students? The government said they’re keen to do that in some way. So maybe shut down some poor quality providers of courses.

The international students coming in, you could restrict the number of working holiday makers. The reality is we’ve just got a really tight housing market for a couple of years because of the response to COVID. Migrants left, they’ve now come back. Australians are demanding more housing and that’s what’s leading to these concerns about a big Australia.

Kat Clay: Thank you so much, Brendan and Tyler. Migration is such a complicated issue, but as we’ve said podcast, if we get the settings right, it can have huge economic dividends for the country. Next week, we have a very exciting budget podcast. It’s our annual event with Danielle Wood on the podcast, discussing all things budget breakdown.

So you don’t want to miss that. Do hit subscribe on your favorite podcasting app or on YouTube. If you’re watching this in video format. This migration research wouldn’t be possible without the funding from the Scanlon Foundation, for which we’re really grateful. If you do want to further support our work, support this podcast, and our research, which is available for free online, please head to grattan.edu.au/donate. As always, please do take care, and thanks so much for listening.