With massive worker shortages across the country, migration is expected to feature heavily in the upcoming Jobs and Skills Summit, which brings together employers, unions, and governments to discuss the economic challenges facing Australia. Business groups are demanding the permanent migration intake be lifted to at least 200,000 for the next two years. Parts of the union movement have warned against relying too heavily on temporary migration, pointing to repeated cases of exploitation of migrant workers.
Listen to Kat Clay, Head of Digital Communications, in conversation with Brendan Coates, Economic Policy Program Director, discuss what the migration priorities for the government should be at the summit.
Read the report in discussion.
Transcript
Kat Clay: With massive worker shortages across the country, migration is expected to feature heavily in the upcoming Jobs and Skills Summit, which brings together employers, unions and governments to discuss the economic challenges facing Australia. Business groups are demanding the permanent migration intake be lifted to at least 200, 000 for the next two years.
Parts of the union movement have warned against relying too heavily on temporary migration, pointing to repeated cases of exploitation of migrant workers. I’m Kat Clay, head of digital communications, and with me today is Brendan Coates, economic policy program director. to talk about what the migration priorities for the government should be at the summit.
Welcome, Brendan.
Brendan Coates: Hi, Kat. Thanks for having me.
Kat Clay: So, Brendan, let’s talk about that call for lifting the permanent migration intake. Would this actually help deal with the labour shortages?
Brendan Coates: Not so much, right? So, the permanent intake is currently 160, 000 a year. Of that, about 110, 000 is skilled and the other 50, 000 is private.
is family. So, you know, people who go abroad, meet a spouse and want to bring them back to Australia as a permanent citizen. So, if you increase that skill component, which is what most of the business groups are calling for. That won’t really deal with issues around a tight labour market because migrants both come to Australia and work, but then they go out and spend in the local economy.
So, they spend their incomes at Coles and Woolies and Bunnings buying houses, or at least renting them. And so, they add to both the demand and to the supply of labour. And what we see actually is that more recent migrants actually tend to spend more than they earn. So, they add more to the demand side of the economy.
Then to the supply side. So, on the whole, the short answer is no, like it’s not going to deal with the tight labour market migration. It’s no different to think about a kind of economy with a population of 10 million people or 20 million people. One of them doesn’t necessarily have a title aid market than the other.
It’s just bigger. And that’s what a permanent intake largely doesn’t just makes the population bigger in the long term. Of course, if you’ve got these, these are backlogs, for particular critical skills and you can prioritize those people coming from abroad. to give them visas, then, yes, that can certainly help deal with particular issues in a particularly tight labour market in particular sectors.
You know, if you had a bunch of aged care nurses, you’d probably want to prioritize them or a bunch of doctors, you’d want to prioritize them. But the other thing with the permanent intake is, you know, Australia runs two programs for migration. There’s a temporary one, which is basically grants you the right to come to Australia as a student, a working holiday maker, temporary skilled worker.
And then you have the permanent program, which is what we’re talking about when we’re talking about increasing the intake. And that’s about granting you the right to stay in Australia permanently. And so, if you increase the permanent intake, the other thing is you don’t actually increase Australia’s population in the short term.
What you do is just change the visas of the people that are already here. So, Kat, if you’re here on a temporary visa and we add another 40, 000 permanent visas to the mix, then maybe you get to stay. Now you were going to be here for a while anyway, so the change in the population when you do this is basically zero.
In the long run, it will add to population growth and mean more workers here in Australia because you don’t leave. You know, instead of staying two years, you stay for 40 or stay for basically the rest of your life. And so, in the long run, it’s the permanent program that drives population growth trends.
But in the short run, it doesn’t have any impact. And the third reason why it’s not going to make a huge difference is that a lot of the sectors that are actually struggling with workers at the moment, their sectors that the people who are not here, they’re students and working holidaymakers that aren’t here.
They’re temporary visa holders that went home or didn’t come because of COVID. Permanent migrants don’t tend to work in those sectors because they’re generally pretty low paid. So, you know, the number of students is down 40 percent now. Peak just below 50 percent, the peak of the of COVID border closures.
Working holidaymakers were down 80 percent. They’ve come back a bit. You know, those people will come back to a fair degree on their own, particularly working holidaymakers, maybe less students. Bringing more skilled workers that tend to work in professional services or financial services, isn’t going to do anything to deal with sort of labour shortages in those sectors.
Instead, the reason why we might want a bigger intake, and it’s not to say that a bigger intake is the answer is that there’s a fiscal dividend because they basically pay more in taxes than they draw in services. And so, you know, some work we’ve done suggests if you increase the 160, 000 to 200, 000, then each of those annual intakes over their life in Australia, over the 40, 50, 60 years, they’ll be in Australia.
They’ll provide a fiscal dividend. To the budget, Commonwealth and state of about 7 billion and so that’s each intake provides 7 billion over their lifetime. You add that up over 20 intakes. That’s a lot of money.
Kat Clay: So, Brendan, I mean, what should the government focus on when it comes to migration at the skills summit?
Brendan Coates: You know, all of our work has all been about the fact that migrants, particularly permanent migrants, if they come to Australia, they are here for the rest of their lives and migration’s really big. So, one in four people aged in their twenties and thirties today is a recent migrant. So, who you have come to Australia as a permanent migrant has enduring effects on, The composition of the skills in the workforce for decades.
So, we worry more about the composition of the intake, rather than the size. Because the size of the intake has costs as well. If you increase the intake, then there’s pressure on housing, there’s pressure on infrastructure and environmental resources. If you improve the composition of the existing intake of 160, 000 people, then it’s almost a free lunch.
You know, there aren’t costs here because you’re not imposing costs on housing and infrastructure for the rest of the community. You’re just improving the incomes and therefore the prospect that they’ll provide a fiscal dividend to Australians, the prospect they’ll increase productivity and innovation spillovers to the local community.
ultimately improving the incomes of Australians if you change the composition. And so, what our previous work has shown is the big things you need to do. The number one thing, the easiest thing that Jim Chalmers and Anthony Albanese can do at the skill summit is abolish the business investment and innovation program.
So, the BIP has nine and a half thousand places in it a year. It is notionally there to help investors provide the capital to Australian businesses and to bring in people to Australia as migrants, as permanent migrants who have, you know, entrepreneurial capacity can run businesses and sort of share know how with Australians.
But what we find is that most of the visa holders are older, they tend to be fairly poorly educated, high school or vet diplomas, half of them don’t speak strong English, and they’re over the age of 45. And so, you add to that the fact that just over half of them are in paid work, and that includes managing any business that they own, then it’s a pretty poor deal.
So, the really obvious thing to do is just to kill the BIP, to basically abolish that program. and put those nine and a half thousand visas, you know, it’s 10 percent of the skilled intake each year and put them into more skilled worker visas. Fiscal story isn’t everything, but it’s the thing that we can most readily measure.
So, on the fiscal side, each business investment visa holder, each visa holder costs the Australian taxpayer 120, 000 more. in services than what they provide in taxes over their lifetime in Australia. The average skilled worker provides a fiscal dividend of positive 200, 000. So, you simply replace one for the other and you’re talking about a fiscal dividend from each annual intake that rises by 3 billion.
And of course, if skilled workers, the kind of people that come here with master’s degrees, PhDs, you know, bachelor’s degrees and substantial work experience, the kind of people that come under our employer sponsored program or our points tested programs, the other parts of the school migration program.
You know, they’re more likely to start businesses anyway. That’s what the research tends to show because they’ve got skills and experience. Whereas what we’re finding with the business investment visa holders is they tend to be coming here running businesses that have an annual turnover, at least 750, 000, which in a lot of cases turns out to be fish and chip shops or tobacconists and sort of retail businesses where there’s not a lot of innovation.
So, if you’re going to get more innovation anyway, Killing the BIP, replacing with more skilled visas would be the right place to go. And then the other one would be scaling back the Global Talent Program. So, we’ve talked about this before, Kat. It was designed to get the best of the best to Australia.
It started off quite small and expanded incredibly quickly to the point where it’s supposed to have eight and a half thousand places in this country. financial year for the migrant intake. The new government has already scaled it back to say they’re not going to take onshore applicants. And most people, even though it was a visa about attracting the best and best to Australia, most of them were actually coming from people who are visas, visa holders that are already onshore on another temporary visa, basically scaling that right back.
And then also giving more skilled worker visas that gives businesses that are crying. If they, if there are particular skills you want to target, we can do that with those visa holders. Those extra visas without increasing the total size of the intake. Now a government may decide it wants to increase the total size of the intake.
That may be a legitimate thing to do, but if you’re going to do that, you definitely want to make sure you also deal with issues like housing. We know that more Permanent migrants to Australia in the long term will mean, you know, high rents and that will hurt lower income Australians, unless we also do something to compensate them.
Kat Clay: Just talking about your previous report, because a lot of this research comes from your report on fixing permanent skilled migration. In that report, you made a number of recommendations on how to improve the selection of skilled worker visas. What are the issues here and what changes can be made to the existing permanent and temporary skilled worker visas?
And I think you’ve covered a little bit about reforming the BIP and or getting rid of it. but what can we do to be improving these temporary skilled worker visas?
Brendan Coates: Sure, Kat. So, the BIP is a free lunch, you know, getting rid of it is basically costless, gives us a really big benefit and it’s just a no brainer for a new government.
The global talent scaling it back, I think makes a lot of sense. And, you know, we haven’t done a proper evaluation. You should do that before you ever think about giving it back. To the size it is currently, but then you have the rest of the skilled migration program, which is about 80, 000 visas split across employer sponsored visas, where basically employer has to sponsor you.
There’s about 30, 000 places for those, although it is a demand driven system. It’s based on how many. Employers want to sponsor workers that meet the conditions of the visa. Then you’ve got the points tested visas. There’s the independent points tests, which tend to work best, which is just a straight up points test.
Then you have the state nominated ones where the state also has to put in a nomination. And then you have the regional ones where you’ve got to work in regional Australia, which tend to have the worst outcomes of all of those. The really simple thing to do. And I think it’s a really important rethinking of how we frame or think about the benefits of skilled migration is, at the moment, a lot of the system is set up on the idea that there’s shortages that we need to solve.
Now shortages exist in the wild, I can see them, you know, anyone who’s tried to get a tradie at the moment can tell you that it’s, there’s probably a shortage of tradies. The challenge is, when we try to define what a, what a shortage is, we don’t really have the data to do it. So, the way the government currently does it, they have these occupation lists that are, that are of, of occupations that are in shortage or in high demand.
And they form the basis of you have to be sponsored or apply for either for the sponsored program or the points tested programs, you can’t get a visa unless you’re going to work or have skills in their occupation that’s on one of these lists. Now, for one, it is kind of really strange to think that the objective of a permanent program where you’re here for 40 years should be about meeting some short-term skill shortage that might only last two years.
Like, what you really should be doing is targeting people who are going to have max, have the highest long term earning potential in Australia because they’re going to earn more, they’re going to provide a bigger fiscal dividend, but also that’s going to correlate with their ability to teach local Australian workers and transfer skills and boost innovation and productivity, which is what we want.
And so what we think should happen and what we push for in the previous report is for employer sponsored visas, We should drop the occupation lists and allow anyone to be sponsored, assuming that the wage they earn, which is currently set really low, it’s currently 53, 900 is the, the, the wage threshold.
It should be at least 80, probably 85 now, which is basically median full-time earnings. And then you open it up to all occupations. You also have to pay that worker at least what you would pay an equivalent Australian worker. So that’s the thing called the Australian market salary rate. So, you still have to pay them what you pay as locals, but it means that you’re targeting people that have got high wages, which if the firm is willing to offer them a high wage, it’s they’ve got better information that the person’s going to be good.
Now, this is a big change and I’d be surprised if it itself came out of the skill summit, although I’d be delighted, the better path to take is to start with, okay, well, let’s trial it. Let’s set a really high wage threshold. So, 120, 000 a year, you know, one and a half times median full time earnings.
Okay, if you’re earning at least that, you don’t need to be on an occupation list. You don’t need to do labour market testing because labour market testing doesn’t work. All it says is you’ve got to advertise the job for four months before you can sort of offer it to a skilled migrant, but there’s no way for the government to police that.
situations where someone is doing that in a disingenuous way. It just ends up being a tax on the employer trying to try to sponsor a worker. So, the number one thing would have a higher wage threshold of 120, 000 a year, no, no occupation lists, trial it for that cohort, see how well it works. It’s going to work really well for say the tech sector.
It’s going to work really well for mining for high skill professional services. And then once that’s worked, we can see how it went. And then we can maybe move the wage threshold down to 80 grand and get rid of the occupation lists. Entirely the same with points tested visas. You know, we probably should be moving to a world where we review the points tests.
Cause it’s got a whole bunch of things in there. You get points for things that don’t make a lot of sense, like starting at a regional university or doing a professional year. It means you get more points for starting at a regional uni than for studying at Melbourne or Sydney uni though. unis have much higher ATAR requirements than others.
So, entry requirements at a high school. You’d probably say they’re a better-quality university on average, yet we’re actually punishing students that went to the better universities. It’s all about trying to get the highest skilled, highest wage workers in. Now, for the temporary system, and I appreciate Pat for your listeners, talking about migration’s hard, it’s just complicated.
If you’re thinking about temporary visas, the main one is there’s the employer sponsored temporary visa, the temporary skill shortage visa. We would do the same thing with the permanent employer sponsored visa, except have a lower wage threshold of 70, 000 in the long run. And maybe in the short term, you set a wage threshold of 100, 000.
And say, if you’re earning at least 100, 000, you don’t have to go through Labor market testing and have an occupation that’s on the occupation lists because the basic problem with the occupation lists for temporary visas is we’re not what no longer worried about someone being here for 40 years or only giving them a temporary visa.
But what we are worried about is that we can’t actually identify temporary skill shortages in real time. We don’t have the data, even if you did have the data, which would be rising wages plus some measure of vacancies. The problem is, you know, wages can rise for all sorts of reasons in an economy and a lot of the time wages, wages will rise because there’s extra demand for the product.
That doesn’t mean there’s a shortage, but that’s what our current system would pick up at the moment when we survey firms. The question is, are they starting to find workers at the existing wage? because obviously there’s lots of businesses that are going to struggle to find workers at the existing wage because their wages actually need to rise to just keep up with where the labour market’s gone in a market economy.
Kat Clay: Yeah, I mean, I still remember the report where Stephen Duckett was talking about aged care workers and that fast food workers are often paid more than aged care workers. So, I mean, in a sector like aged care that’s struggling to find workers. I mean, should we be using migration to ease these shortages?
But also, I mean, they’re not going to meet that kind of high wage cap if you change the system. So, what are we going to do about that?
Brendan Coates: Well, that’s right. So, there’s no doubt aged care is a sector that’s growing. Population aging means we’re just going to see more people need aged care in coming decades.
And as Stephen’s work pointed out, you know, that’s going to need a lot of additional workforce. The problem is that, as you point out Kat, the wages in aged care are not great, particularly, particularly for the lower wage, lower skilled jobs. You know, the jobs of being the personal care attendant. They’re being paid less than MACAs or Bunnings, but the work is clearly harder.
Like, if most people are asked to choose, they would probably choose working at Bunnings than working in aged care. The reason why the wages are so low is because government pays for the bulk of aged care. You’d pay, what it pays the providers isn’t enough for them to lift wages. So, it’s really an administrative shortage caused by government funding.
Now the Fair Work Commission’s hearing a case to raise the wages of a lot of aged care workers by up to 25%. We estimate that’ll probably cost somewhere between three and three and a half billion dollars if that full 25 percent wage rise is agreed to and it’s passed through to all workers including some of those above the award because not everyone pays the award rate.
So, if the award goes up and you previously 10 percent above the award, if your wage also rises. by the same amount, by that 25%, then the cost will be somewhere between three and a half, three and three and a half billion dollars. But even then, that’ll take a while to work through. And so, in the interim, we’ve got some workforce challenges.
So, you know, the question is, do we use migration to deal with age care workforce shortages in the short term while we deal with the long-term solution? Because the long-term solution has clearly got to be wages have got to be higher because otherwise you won’t get people working in the sector. and the people who work in the sector won’t probably be there for the long haul.
And none of that’s good for the quality of care, which is clearly another priority out of the Royal Commission. It’s worth thinking then about, okay, who are the people and, you know, how do they interact with the migration system? So, you know, age care nurses. They’re already eligible for, you know, sponsorship under the temporary and permanent systems programs.
So, they’re already on the lists. the challenge there is just attracting nurses in that situation. The bigger issue is attracting sufficient staff for those low wage jobs. Now they’re not earning even 54, 000 a year now, let alone say 70, 000, which is where we want the temporary skill shortage. Visa to go.
I think we need to tread really carefully here because those lower wage workers, the ones that are not here right now, a number of them were here on temporary visas as students or working holidaymakers, but the bulk of people who actually work as migrants in aged care and 25 percent of people working in aged care are migrants.
The bulk of them are actually permanent visa holders that came here as the spouses of permanent skilled migrants, or just as the spouses of the citizens. So, if we’re thinking in the long term, how are we going to use aged care? I think you’ve got to be very careful because if you have more lower wage, temporary migration in particular, then you risk increasing exploitation.
You actually increase the risk of suppressing the wages of the Australians working in that sector. And I think most people would agree one of the objectives needs to be to raise the wages of what is a very gendered workforce, particularly at the bottom end. There’s also an issue if you increase, if you allowed people to come in on the temporary visas, the steel shortage visa for low, those low wage jobs by adding those occupations to the list.
One is they, they still wouldn’t hit the wage threshold of 54, 000 if you could exempt them. But the problem is then you have temporary changes like that habit, habit of becoming permanent. And we’re just adding to the number of people here in Australia as economic migrants on temporary visas without a pathway to permanent residency.
without great support where the risk is that they end up being exploited. And I think we’ve got to be really careful about that. So, if we are going to offer anything, I think it probably should be a separate aged care or essential care worker visa. It should be very time limited. The visa is only offered by government for a few years while they’re sorting out the aged care workforce issues.
So, it’s part of a quid pro quo. We’re going to sort out the skills, the training and the wages, but in the short term, we might allow some migration through the door. But in the long term, I don’t think you want large numbers of temporary migrants coming through the door for these visas. Now, the other, the argument from say the parts of the union movement would be, we should give them permanent residency.
And that would certainly make them more secure. But the, the car, the cohort you’re talking about here, our personal care attendants with, you know, vet qualifications at best. They’re a long way down the list of people you’d want to give a permanent visa to. And so, for giving permanent visas to them, as opposed to a software engineer earning 70 or 80 grand.
There’s a big cost to the Australian community in the long run, a shadow tax if you will, because of the fiscal, just the fiscal dividend alone that other person would provide to the Australian community that this person won’t, you know, if you’d probably be better off bringing in the person that’s going to earn a lot more and using the tax take that we get from them to fund higher wages for local Australians to do these jobs.
Kat Clay: So, Brendan, you’ve outlined a number of recommendations here. Some are obviously easier than others to implement. What are the challenges facing the federal government in reforming the migration system in the ways you’ve proposed here? How could some of these challenges be overcome?
Brendan Coates: That’s a great question, Kat.
So, I’d say, you know, for some of these things, like we’re picking up big bills off the sidewalk. We’re picking up the free lunch because there’s just been You know, not a great deal of focus on migration in Australia and skilled migration in Australia in the last few years. So, the business investment and innovation program, it’s very well known that that program does not work.
And so, it’s just a case of actually killing it. Now, the only stakeholders that really lose from that. you know, there are some of the investment banks that package up those visas with the ability to invest some money in to meet the, some of these visas have an investment requirement. So, you know, you have to invest 5 million in New South Wales, treasury bonds, and some investment banks help set that up.
And apart from that, there’s very little costs. So, I’d expect, and I would hope that that one will go pretty quickly. The global talent, I think is a similar one, in the sense, I don’t think there’s a huge constituency pushing for it to stay. The one benefit of global talent is it doesn’t have to be. You don’t have to be an occupation list, so it’s probably been more flexible and easier.
But, you know, if we do the other things that we’re thinking about with skilled migration, particularly that higher wage visa for the skilled occupations, that would be a way of replacing global talent with something that’s going to work better. The trickiest thing is probably the, the, the broader challenges about raising the wage threshold and changing and getting rid of the occupation lists.
I think there’s a sense in Australia that we’re, we’re hardwired to think of migration as filling skill shortages. And I genuinely think that is just the wrong way to think about most of our migration system. Even most of our skilled migration system. It is not largely about dealing with skill shortages.
It’s about bringing in valuable high skilled workers who frankly, we don’t have to pay for them to be trained. And they come to Australia, and they bring their skills, and they contribute to the welfare of the Australian community by living their lives, working and just being part of the community. Where things are probably harder.
is, is these issues around the fact that over time, our system has, has sort of trickled down into particularly the temporary skill shortage visa. We’re now bringing in many more relatively lower wage, lower skilled workers, like a lot of something like 20 percent of visa holders on that TSS visa, you know, they’re only earning 55 grand.
And so, if you raise the wage threshold, then you are knocking out people who were, for whom industries have built some of their businesses around. So, if you think 30 years ago in Australia, horticultural work. was not done by migrants. It was done by Australian students, backpackers from within Australia, going around Australia.
Now we’re using international backpackers, chefs and cooks. We now, hospitality relies so much more on them now than they used to. It’s hard once you’ve actually set up a set of businesses that operate on a visa model that requires Those particular workers to come in, it’s very painful when you get rid, if you get rid of that, but it’s probably what we should do.
And so there will be some adjustment costs. And finally, I think with aged care, you know, I think the temptation will be for government to probably do less on the wages front because it’s a fiscal cost to the government, even though the higher wages are actually paid to Australians. And instead, there’ll be a temptation to perhaps rely a little bit more on migration.
Because that makes it easier in the short term, but I think it generates some potentially long-term costs that we should be really cognizant of.
Kat Clay: Thank you so much, Brendan. Migration can sometimes be a complex issue, but I appreciate that there are a lot of changes that can be made at a federal level, and some of them are relatively straightforward to implement.
So, we’ll look forward to see what comes out of the conference in the following weeks. If you’d like to talk to us more on social media, we’re on Twitter at Grattan Inst and all other social media channels at Grattan Institute. If you’d like to support our work or if you’ve enjoyed this podcast, please donate at grattan.edu.au forward slash donate. As always, please take care and thanks so much for listening.
Brendan Coates
Kat Clay
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