Skilled migrants contribute greatly to Australia’s prosperity, shaping our diverse society, making us more productive, and boosting Australians’ earnings and government’s budgets. Points-tested visas account for almost two thirds of all permanent skilled visas issued by Australia over the past decade.
These visas allocate points to potential migrants based on characteristics such as their age, proficiency in English, education and work experience. Following current trends, 800, 000 people will be granted permanent residency through points-tested visas over the next decade. But points-tested visas aren’t working as well as they should.
In this podcast, Brendan Coates, Trent Wiltshire, and Natasha Bradshaw discuss their new report, It all adds up: Reforming points-tested visas. They explain how reforming the points test and abolishing state and regional points-tested visa programs could yield big economic benefits for Australia.
Transcript
Natasha Bradshaw: Skilled migrants contribute greatly to Australia’s prosperity, shaping our diverse society, making us more productive, and boosting Australians’ earnings and government’s budgets. Points-tested visas account for almost two thirds of all permanent skilled visas issued by Australia over the past decade.
These visas allocate points to potential migrants based on characteristics such as their age, proficiency in English, education and work experience. Following current trends, 800, 000 people will be granted permanent residency through points-tested visas over the next decade. But points-tested visas aren’t working as well as they should.
Grattan’s latest report, It all adds up: Reforming points-tested visas, shows how simple changes to points-tested visas will reap a massive economic benefit for Australia. My name is Natasha Bradshaw. I’m a senior associate at Grattan and one of the co-authors of our new report. With me and my colleagues, Brendan Coates and Trent Wiltshire, to talk about how to reform Australia’s points-tested visas.
So Trent, set the scene for me. What are points-tested visas?
Trent Wiltshire: So there are three visas that make up our points-tested skilled migration cohort. First is the skilled independent visa, and that’s where applicants select allocated points according to things such as age, English language skills, education and work experience that you spoke about in your intro. Then they’re ranked by their overall points.
So to get one of these visas you need to score at least 65 points out of a max of 130. And you have to be qualified in an occupation on the medium and long term skilled occupation list, which notionally targets skill shortages. There’s also two other visas that use the points test system. That’s the skilled nominated 190 visa, which we sort of call the state points visa and the skilled work regional provisional visa, which we referred to as the regional points visa.
So these two visas also use the points test, but importantly, they need a nomination from a state or territory government to be eligible for the visa, as well as have an occupation on a broad occupation list. So, as you mentioned, these visas make up a large portion of our skilled migration program.
And, you know, really importantly, reforming points-tested visas is one of the federal government’s key priorities as part of its migration strategy, which came out in December last year. And as we’ll talk about today, you know, there’s a really, we think there’s some massive economic benefits that can come from reforming these visas.
Natasha Bradshaw: Brendan, our skilled migration program is already delivering large benefits to Australia. Why do points-tested visas need to be reformed?
Brendan Coates: The points-tested visa is the workhorse of the skilled migration program is who you mentioned the introduction. So we’re talking about 800, 000 visas that are likely to be issued over the last over the next decade. And, you know, a core sort of theme of Grattan’s work on migration over the last couple of years has been that like, well, there’s lots of debates about the size of the intake, making sure that we’re selecting the best or the most skilled migrants that we can through this skilled migration program offers enormous benefits to Australia.
And it already is. So, you know, if we’re thinking about the benefits Australia gets from skilled migration, you know, we’re seeing a boost to productivity of local workers. There’s some good work by the OECD on Australia that shows that it boosts the pay of local workers by basically making them more productive because we’re bringing in new skills, we’re bringing in new knowledge, adopting new technologies, and that experience comes from abroad.
And also it’s a big boost to Australian government budgets. So each skilled visa holder, we estimate based on Treasury work that it’s about 250, 000 dollars over their lifetimes in Australia is the boost that they’re making to federal and state governments combined over their lifetimes because they pay more in tax than they receive in government services and benefits.
And so that translates to about 34 billion dollars for each annual intake. So the system’s working pretty well, but it can obviously work better. What we’ve seen is that while we’re pretty good at selecting skilled migrants, we can actually do better. So the points test, it’s not working quite as well as it should.
You know, it doesn’t sufficiently reward the most skilled applicants. So we’re only offering points-tested visas to a subset of skilled occupations. So only those that are skilled in certain occupations can apply.
That’s shutting us off from a lot of talent. It’s also distorting the study and career choices of many temporary visa holders that are already in Australia, and so it contributes to this problem of leaving people in limbo.
And so what we’re trying to do is select those migrants that are going to make the largest economic contribution to Australia. There are other programs, the humanitarian program, the family program that have other objectives. But this skilled migration program is certainly about trying to maximize the benefits to the Australian community from selecting the most skilled cohort that we can.
And some of the work that we’ve done and well, let’s be frank, Tash, that you’ve done shows that you know, we’ve now got this access to this incredible data set through PLIDA the person level integrated data asset that shows basically links migration records over 20 years with incomes from the tax records, we can tie that in with the census.
And we’re essentially trying to optimize who are those migrants that are going to make the biggest contribution to Australia in terms of their lifetime earnings. And what we see is that things like the skill level in which they work in educational qualifications, the English language proficiency, whether they previously had a job in Australia that paid a high wage, are all really strong predictors of long-term outcomes.
And the current points test is not currently optimising or rewarding those characteristics. So, we’re not selecting the most skilled cohort. Instead, we’re offering points for things like studying it in Australian education institution, which doesn’t tend to lead to higher earnings. On average, those that study in Australia do worse about 10 percent worse than those that have the same qualifications and experience from abroad. It doesn’t mean that universities in Australia are not as good, but it means that we’re offering a less high bar for local students to secure permanent residency compared to those from abroad. We’re offering points for studying in a regional area where there’s not a lot of evidence that that is going to boost lifetime earnings. We’re offering points for a professional year.
And so, you tile that together and it means that we’re doing, we’re while we’re not doing a bad job of selecting the most skilled migrants, we’re not doing as good a job as we can. And as the sort of the title of the report sort of sets out, if we do even marginally better, it has huge long-term outcomes.
Natasha Bradshaw: So how can we do better? Trent, what changes do we recommend?
Trent Wiltshire: So, taking the great analysis that, you’ve done, that Brendan mentioned before on you know, what drives, long term earnings. We recommend an overhaul of the points test. You know, it’s, I say overhaul, but actually probably tweaking a few things and then some more significant changes.
So, our proposed new test has a maximum of 500 points up from the current test, which has a maximum of 130 points. To be eligible for the points-tested visa a person needs to have at least a certificate three qualification from an Australian education institution or a high-level degree from Australia or from abroad. We want to raise the bar a bit as well to get a points-tested visa.
We say the minimum points required to qualify should be 300 points, which is 60 percent of the total points available, which is up from 50 percent currently. So, raising the bar a bit to be eligible. Some of the specific changes we want to make include more points to applicants with higher degrees, particularly PhDs. Those with excellent English language skills and those with skilled spouses. We also suggest tweaking how we offer points for age. So, we think the points offered for age should be more granular.
That’s sort of in big blocks. It means an older person gets fairly similar points to a fair bit younger person, or we know that the younger person is the longer they’ll be in the workforce and generate a larger fiscal dividend. We suggest offering a max of a hundred points for those age 21 to 29, and then to scale down from there. We also think we should offer points for just the first two years of high skilled employment experience rather than, as is currently the case, offering more points for the longer time you work in a job. So that means someone working in potentially a lower paying job for a long time will get more points than someone in a, in a high paying job for a short period of time. So, I would say if you work in a high skilled job for two years, you can get points. We also think we should offer points for high paying Australian work experience. So that’s shown to be a really critical thing that predicts long term success. So, we suggest a maximum of 90 points for people earning 120, 000 per year, 30 points for people earning over $70, 000 and scale it up from there. Another important change is that we should make points-tested visas available to applicants across all skill level one, two or three occupations. Rather than the narrow set of occupations that is currently the case for the independent points visa, opening up availability to more high skilled jobs.
So, we can get a wider pool of high skilled people from overseas to come and work in Australia. We actually want to make an Australian attractive destination for the most highly skilled people. So, we suggest that people scoring 400 points or more should be guaranteed an invitation to apply for a visa.
So that’s currently about the top 5 percent of applicants. That means that, you know, the really most talented people around the world think, oh, you know, I can come to Australia and I’ll score that many points. I’m guaranteed an invitation to apply. There are additional checks after that, but it’s, you know, fairly sure that they will be able to get a visa.
And a couple of the small ones, occupation ceilings should be abolished. Currently they limit the number of, people working ticket occupations that can come here and also ministerial directions should be infrequent or very rare. So, these are directions from the minister about who should be prioritized for a visa.
Natasha Bradshaw: Brendan, what would these changes mean for Australia and for migrants?
Brendan Coates: There’s a series of reforms, you know, some of it is getting into the weeds about very precise changes to how we select migrants who we rank first, highest in terms of who we give those, those visas to. But the net result of that is that you will see more skilled migrants on average being granted those visas each year, and that leads to a more skilled migrant cohort. It leads to a more skilled Australia.
Those migrants will earn higher incomes and are more likely to thrive in Australia. And the benefit of that is a really big, enormous boost to the well-being of the Australian community. And that takes a couple of forms. The main ways in which migrants, the more skilled intake is going to boost the wellbeing of the Australian community is it’s going to boost those productivity spillovers, like there’s good evidence that the more skilled the migrant intake is, the more skilled those migrants working alongside Australians, then the bigger the productivity boost, the bigger those knowledge and innovation spillovers to local workers and the more they will earn.
The other really big one is that it will provide a further substantial boost to Australian government budgets, which at the moment, you know, they’re dealing with the overhang of the COVID pandemic and the spending that we did to sustain the economy, sustain people’s incomes through that period.
And the fact that we’ve got an aging population in the long term. And so, by basically recalibrating who gets points, tested visas, you know, we’ll be generating a boost to federal and state government budgets for that 84 billion in today’s dollars over the next 30 years. So that’s a huge boost.
Like that’s, you know, on par with say things like reforming the capital gains tax discount or negative gearing. They’re substantial tax measures that make up a big part of the public debate. And it doesn’t require us to do anything more than just tweak how the points test operates today. It also supports migrants to earn higher incomes because you’re, you’re selecting migrants to come to Australia that are more likely to be skilled and therefore more likely to earn higher incomes.
And because as Trent said, you know, one of the things that we want to avoid is a situation where the permanent visa system encourages migrants to jump through certain hoops in the prospect of hopefully getting permanent residency when those are not choices they would otherwise make themselves as part of their own careers. So, reducing the points for work experience means that there’s less of an incentive for migrants to stay in limbo in Australia, seeking a permanent visa by getting more points for experience. By opening the range of occupations up it’s more likely to skilled migrant if they say they’ve studied here wants to become a permanent resident. They can actually choose the course that they want to build the skills in the in the career that they want to have. And by aligning those things, migrants are more likely to thrive in Australia long term.
And you know, that’s in everyone’s interests.
Natasha Bradshaw: So, the changes we’ve talked about so far are mainly focused on the skilled independent visa. But what about the other visas that rely on the points test, the state and regional visas? Can you explain what these are?
Trent Wiltshire: So, the state and regional visas are a really big part of the skilled migration program. So, in the 24, 25 planned permanent intake, they’ll account for around half of all skilled visas. And this is up from around 30 percent in the years pre COVID and just 4 percent in the 1990s. So, a really big part of the system and probably underappreciated a bit.
For the state and regional visas, there’s a few differences. You need to score at least 65 points to be eligible and have an occupation on a skilled occupation list. These occupation lists are a bit broader for the state and regional visas. And really important is that the regional visa is actually a provisional visa, and it requires a person to live outside Sydney, Melbourne and Brisbane for the first three years.
So quite unusual in that we offer a permanent visa, but actually has restrictions on where someone can live. So, these state and regional visas you know, used to support population growth in smaller states and regional areas because the visas tend to be over allocated to smaller states and territories particularly Tasmania and South Australia.
So, state governments have control over who they nominate for these visas, and they typically use them to support regional areas as well as support local universities and trying to fill essential worker roles, particularly in the healthcare sector.
Brendan Coates: And just to add to that, I think the really critical point here is they’re not using rank choice selection, right? We’re basically selecting visa, visa holders at the state level where that state nomination for either the state points or the regional visa, as long as they’ve hit that minimum threshold of 65 points and they get the extra points for a nomination from a state or territory government, it means that then they automatically get the visa.
So, we’re not ranking those people who are most likely to be skilled and therefore in our view, most likely to make the largest economic contribution to Australia by earning high incomes. Once you get that state nomination, you’re essentially in provided you meet basic checks.
And it means that those visa holders they accrue fewer points on the points test than those that are coming through the skilled independent stream in particular. So, you know, nearly basically half of all regional points visa holders have 65 points or less after you strip out the fact that there are 15 points on offer for a state or territory nomination for that visa itself.
Trent Wiltshire: So, it’s a really important point. Those bonus points you get from for nomination by state and territory government are really important. So, the 15 points for the regional visa, that’s equivalent to the points for eight or more years of overseas work experience or holding a bachelor’s degree. So, it really boosts someone up and applicants for the state visa get five bonus points.
Natasha Bradshaw: So, do these state and regional visas also need to be overhauled?
Trent Wiltshire: Yeah, they do. So, we’ve got a pretty sort of blunt recommendation on this one. We actually think the state and the reason visa should be abolished. And instead, the federal government should allocate more visas to the skilled independent visa, which under our reforms be would be selected under the new points test we just spoke about earlier.
So, the key reason for this recommendation is that state and particularly regional visa holders typically earn less than other permanent skilled migrants. So, the typical regional points visa holder earns 28 percent less each year and state points visa holders 7 percent less than migrants selected by the skilled independent program.
So, you know, big differential, particularly for those regional points, visa holders.
Our work also shows that the earnings of regional points visa holders likely to grow more slowly over time and state and regional visa holders are more likely working in a lower skilled job than independent points visa holders. So why do they earn less? I just spoke just about, the bonus points that, these visa holders can get. And that means like someone with lower education, or worse English language skills actually can get the visa because they’ve got these bonus points from state or territory nomination.
Our work shows that state and regional visa holders typically score fewer points on average. Another important factor is for the regional visa is for the requirement for the migrant to live outside of Sydney, Melbourne and Brisbane for at least three years.
key thing there is it limits what job a migrant can take. If you can’t move to where you potentially want to move or where your skills could be put to use the best. So, one in five regional points, visa holders not working their nominated occupation said that where they lived stopped them from getting a good job.
So that’s around 20 percent and that’s compared to just two or 3 percent of people on an employer sponsored or independent points visa. We really think that’s a critical reason. There’s also really good evidence that scarring or not being able to utilize your skills and experience early in your career have a really big long-term impact.
And that’s shown by slower earnings growth among regional visa holders. The provisional visa also creates other barriers. So, employers tend to have a stigma against provisional visas. And these visas also have other barriers like finding it hard to get a home loan not eligible for some social security payments. So, it all stacks up and contributes to lower earnings.
And it’s not just for the primary visa holder, it’s for spouses as well. So, our research shows that spouses of regional visa holders have fewer job options and so tend to work in lower skilled jobs and earn less.
So overall we think abolishing state and regional visas creates big economic benefits. Migrants’ earnings will be higher if they’ve got independent places and have freedom to move where they want to. So, on top of the fiscal boost that Brendan spoke about earlier, we think abolishing state and regional visas will provide a further 87 billion boost to government budgets over the next 30 years in today’s dollars.
Natasha Bradshaw: But Brendan, does this mean we won’t get any migrants moving to smaller states or to regional areas?
Brendan Coates: Look, it’s a good question, and it’s, I think, at the heart of the concern about why these visas exist in the first place is we’re supporting regional communities. We’re helping fill you know, skill shortages in regional areas. But I think what the data actually shows is that when we’re talking about, the particular regional visas here, the points visa for regional points as well as the state nominated visa, those visa holders, those that arrived in Australia in the last say 15 years, make up a really small share of the workforce in regional Australia. Like if you’re looking across in a regional area, you know, it’s a decimal point. It’s point 1. 2 percent of the workforce. If you’re looking at even outer regional remote areas, it’s a bit bigger, but it’s still, you know, no more than about 1 percent of the workforce.
And when we look at who actually works as recent migrants or as current temporary visa holders in regional areas, it tends to be a lot of the other visas. It’s a large number of temporary sponsored workers, working holiday makers, those that come to Australia via the skilled independent visa. Those that come to Australia are via employer sponsorship and secure permanent residency that way.
So, it’s not a huge share of regional workforces overall and therefore we don’t think that this change by abolishing those specific programs will actually lead to a big change in population in regional Australia. In fact, what we see as well is that half of all regional visa holders actually end up living in major cities.
That’s because under that visa, you can live in Perth or Adelaide. And you know, unsurprising people who are skilled, who have come through tertiary qualifications will choose a place where they’re best likely to be able to use their skills. And just as importantly, that their spouse will be able to use their skills because that’s where we see the really big costs is that the spouses do particularly poorly. They struggle to find work in their area of expertise because the labour markets are just a lot thinner. Also, when we’re thinking of regional visas in particular, a lot of regional visa holders don’t stay in the region. So, you know, a 2022 study found that about 50 percent of migrants who settled in outer regional, remote or very remote areas had left within five years. Our own work at Grattan has shown that of those that were in a regional area in 2011 about a quarter had moved to the major city by 2016. And so even in fact, when you know, we offer points for people who go to a regional area to study in Australian higher education institution, you know, only 20% of those who received a regional points visa actually had claimed those points, many more of them were actually applying, even if you’d studied in regional Australia would be eligible, were applying for visas that would allow them to move away from regional areas towards the city.
Now, this is not to say that, you know, regional development objectives are not something government should pursue at all. I think Grattan’s historically been pretty careful about being clear that our objective is to support people rather than places. But what our work shows is that using visa policy, particularly permanent visas to push people to the regions that may not otherwise choose to go there.
It’s just a really expensive regional development policy because you’re constraining someone’s career by putting them in a place that they may not otherwise choose. They struggle to find the work in the professions they want. And we know from a whole literature in labour economics that if you, you know, face big constraints on what you can do early in your career, that has big scarring effects.
And I think there’s good reasons to expect that’s the case here as well.
Natasha Bradshaw: And Trent, what will these changes mean for essential workers such as those in healthcare?
Trent Wiltshire: So, I think this is probably the area of concern among stakeholders in addition to what our changes might mean for regional areas. So, we know the healthcare industry is facing difficulty attracting staff across a lot of occupations. That’s sort of been the case since COVID. We want to make sure that’s not going to become worse with any of our changes. So, most state and territory governments do identify the healthcare sector as a priority industry when selecting for their state and regional visas. So, among recent permanent migrants around one in four state and regional points visa holders work in the healthcare and social assistance industry.
So, it’s a big industry, but it is sort of they governments do put more emphasis on getting migrants into those areas. But the workforce is huge. So, it’s actually state and regional points visa holders actually make up a tiny share of the current workforce, around 1 percent of all working health professionals. Temporary visa holders make up a much larger share.
So that’s the sort of the current state, but what will the changes to the points test mean? So, you know, we did some modelling to see what would it look like under people who have previously applied for points-tested visas. What would happen under our new proposal to change the points test and get rid of the state and regional visas.
We actually found that our changes may see an increase in the share of skilled health professionals selected for permanent points visas. That’s because our change of the points test, you know, reward better English language skills, higher skilled work experience as well as high paid work experience.
And that’s what, you know, educated health professionals have, you know, they’ve got those skills. So that will do well on the points test and get selected. But we also think state and territory governments, rather than relying on the state and regional business to select these workers, instead they should make use of employer sponsorships.
So, if employers need to find workers and they can’t find them in Australia, they can go out and sponsor them directly. State health departments in particular, the big bureaucracies, they can do this more. So, we think that should be another way that state and territory agencies meet their workforce needs, which they don’t really do currently.
One way that this could be encouraged is for the federal government to waive sponsoring fees for state government employers. So, it is a significant cost. So, waiving those fees will probably shift state government employers to do that more.
Natasha Bradshaw: Abolishing state and regional visas sounds like it has a lot of benefits, but it wouldn’t be a vote winner for the federal government. Are there any alternatives?
Brendan Coates: Well, that’s very defeatist, Tash. It is certainly the case that it’s probably a harder sell in the current political environment where the states you know, or a major you know, a stakeholder for the federal government sustaining support for the migration program.
And one of the roles that the state and the regional visa programs plays, they give the state’s stake in what’s going on.
The current system is one where we don’t use rank choice selection. We give all these extra bonus points that lowers the bar for migrants that are being selected for the state and regional programs, while other more skilled migrants miss out on a visa entirely. So, there are ways in which we can move towards our recommended reform, even if those state and regional visas are retained. The best option, if that were to be retained would be to move to a world where you actually use rank choice selection.
So instead of a nomination guaranteeing that applicant a visa, you would instead move to a world where maybe you just tip the scales by basically retaining points for if states and territories nominate someone that it tips the scales towards allowing that person pushing them up they’re more likely to be selected, but they’re still being selected on their merits vis a vis. those others in the pool. And you would get a strong, a more skilled intake that way. If we think that we still need state governments to retain that nomination as a guarantee of a visa, then we could instead have that nomination be a guarantee of the visa but abolish those points that are currently on offer for 15 points for being nominated for a regional visa.
Or five points for being nominated by a state or territory government for a state’s points visa. And that again, it would still allow the states to be confident if they nominate someone they’re going to be selected, but it would lift the minimum bar for, who the states can nominate for those visas and therefore make sure that we end up with a more skilled intake overall.
The fact as well that we’re raising the minimum points that you need to qualify for a visa from 50 to 60 percent of the points on offer should help, as will recalibrating those points to be the points that actually predict long term earnings in Australia. The other thing that we do recommend is keep hold of the there’s a separate regional employer sponsored program that does require people to work in a for a sponsor in a regional area.
That program has better outcomes than the regional points program. We recommend keeping that for now and doing a review. I think my message to anyone from a state government bureaucracy that’s listening to this podcast is, look, there’s clearly value for the state government that the state derives from being able to select people.
What we are seeing is that it also is very costly to state governments because of that you know, 170 billion fiscal dividend over 30 years, a pretty sizable portion of that will probably accrue to state governments themselves via higher taxes because people are earning more that would help fix state government budgets.
So, while it might seem easy to select someone and nominate someone for a visa today, if we’re selecting less skilled migrants, it’s state governments that end up hurting themselves in the long run because they reduce the benefits that they derive and that their citizens derive from skilled migration because we’re selecting less skilled migrants overall.
Trent Wiltshire: So, I think when we spoke to a lot of the states. We did a lot of stakeholder engagement during this report process. And quite a few of the states actually open to the abolition of the regional visa because the states actually find it hard to fill spots because it’s unpopular among, potential migrants who see the restrictions on the visa, you know, they will typically only apply for that visa as a last resort after applying for a state or an independent points visa.
So no, I think states would potentially be open to it. And then if states wanted to use some of the visas that are allocated, say if the state visa was kept, they could allocate some of that to sort of regional development priorities if they wanted to. But I think a carrot rather than a stick approach is better in terms of encouraging people to live in the regions.
Natasha Bradshaw: Thanks Trent and Brendan. And thanks for listening. We would like to acknowledge the funding of the Scanlon foundation that has made Grattan’s migration work possible over the past three years. If you are interested in further supporting Grattan’s work before the end of the financial year, please head to the Grattan website to donate, grattan.edu.au.