As most of us are winding down to Christmas, policy makers in Canberra are busy toiling away on the biggest review of Australia’s migration system in decades.

The review, tasked by Home Affairs Minister Clare O’Neil, is to hand down its report before next year’s federal budget.

The stakes couldn’t be higher.

A migration system that better selects skilled migrants could help solve some of Australia’s biggest challenges.

It could lift our sluggish rate of productivity growth, close our bulging budget deficit, and help source the skills we need to deal with cyber threats and transition to a net-zero economy.

Problems with the system

Australia’s migration system is suffering after more than a decade of neglect.

It has become too complex. Long delays in granting skilled visas makes Australia less attractive to migrants with sought-after skills.

Exploitation of low-paid temporary migrants abounds, which erodes public confidence in migration more generally. Unless things change, we risk squandering many of the benefits that skilled migration offers.

The review should start by rethinking why we have a skilled migration program in the first place.

Our permanent skilled migration program should target younger, higher-skilled migrants who will most benefit Australia in the long term; it should not be used to address skills shortages.

Permanent migrants who arrive aged in their 20s and 30s will keep working for up to 40 years. Whereas most skills shortages, where they exist, only last a couple of years.

Australia’s overall migrant intake is also not as skilled as you might think.

Over the past decade, only a quarter of permanent visas went to migrants selected for their skills.

Another one in three went to skilled migrants’ immediate families, and the rest were allocated via the family and humanitarian streams.

Australia offers only a limited number of skilled visas each year, so it is crucial to select highly skilled migrants when we grant them.

Recognise jobs, not occupations

The first step is to make permanent employer sponsorship available for any worker earning more than $85,000 a year, rather than our current approach of restricting sponsorship to workers earning above $53,900 a year in occupations deemed to be in shortage.

The policy should change because jobs, and the wages they offer, are a better guide to migrants’ skills than occupations they work in, where pay can differ markedly.

Targeting high-wage jobs, not occupations, would also simplify and speed up the sponsorship process and offer clearer pathways to permanent residency for temporary sponsored workers and recent graduates.

Grattan Institute modelling shows that targeting higher-wage workers could boost Australian government budgets by $125 billion (in today’s dollars) over the next 30 years.

The second step is more straightforward.

The Business Innovation and Investment program, which selects older and less-skilled migrants with weaker English skills, should be abolished, saving the budget $34 billion over the next three decades.

Employers should also be able to sponsor workers for temporary visas in any occupation earning above $70,000 a year.

Targeting higher-wage migrants would address most skills shortages, reduce exploitation of low-paid migrant workers, and simplify sponsorship for employers.

Labour-market testing should be abolished, and visas made portable so that sponsored workers can more easily switch employers if they are mistreated.

Tough trade-offs

But other changes are harder and involve tougher trade-offs.

For instance, the review should recommend against increasing the number of less-skilled migrants in Australia.

Increasing the number of less-skilled migrants threatens to undercut the wages of low-paid Australians and further increase exploitation.

It could also erode public trust in our migration program, especially given widespread concerns that Australia is already creating an underclass of ‘permanently temporary’ migrants with no pathway to permanent residency.

We are likely to need extra less-skilled migrants to meet our care economy workforce needs in the short term. But given the risks, it is a poor long-term solution.

Increasing the number of less-skilled migrants in the care economy would undercut the wages of their existing highly feminised and low-paid workforces.

These migrant workers would also be vulnerable to exploitation.

Giving these workers permanent visas would reduce these risks. But without improvements to the pay and conditions of these jobs, less-skilled migrant workers might choose to leave the care sector anyway.

And there would also be large long-term costs to government budgets if care economy visas meant fewer visas were available to high-skilled workers.

In the long term, workforce shortages in the care sector can only be fixed by higher wages that better reflect what these jobs demand of workers.

Establishing a review of the migration system was the easy part for Clare O’Neil – deciding what to do in response will be harder.

But if we get this right, Australians will be enjoying the enormous benefits a well-designed migration program offers this country for many Christmases to come.

Trent Wiltshire

Economic Prosperity Deputy Program Director
Trent Wiltshire is the Deputy Program Director of Grattan Institute’s Economic Prosperity program. He previously worked at the Victorian Department of Treasury and Finance, as Domain Group’s economist, and at the Reserve Bank of Australia

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