The top issue facing the economy: What is the Government's immigration plan?
- SOL New Zealand Immigration
- Jan 10, 2024
- 4 min read
Glenn McConnell05:00, Jan 09 2024
For the economy and future of Aotearoa, immigration is shaping up as the issue to watch in 2024.
The Government’s advisors at the Treasury, banking and private economists have all set their sights on migration data after an unprecedented influx of people over the last year. In the year to October 2023, net migration levels reached almost 130,000 people.
At the same time, there are also real human rights concerns about the exploitation of lower-skilled migrants who have moved to Aotearoa. Throughout 2023, there were numerous reports of exploitation and inhumane living, including docked wages, immigration scams, and dangerous overcrowding with dozens of workers sharing the same bedrooms.
For the economy, the effects of such a rapid population boost – which jumped from a net migration rate of just 64 people the year prior – would not be fully understood for months or even a year, said ANZ chief economist Sharon Zollner.
Why it matters
High net migration would impact the other big economic issue, inflation, as well as the cost of housing, economic productivity, the country’s infrastructure deficit, and the overall health of the economy as measured by GDP. The impacts could be positive or negative; it was difficult to know for sure.
In her Half Year Economic and Fiscal Update, Treasury boss Caroline McLiesh named immigration as the driving force behind New Zealand’s economic growth.
“Growth this year and next is driven almost entirely by population growth,” she said.
Other economists, including Zollner, say it is one of the top issues for the year ahead.
Last year’s sharp migration increase came about as New Zealand faced a huge skills shortage, with very low unemployment. When the borders were effectively closed, a number of sectors faced worker shortages, hampering productivity. For workers, this skills shortage wasn’t all bad news – it pushed up wages.
As Zollner noted, while New Zealand has been dealing with high inflation, many workers maintained their buying power thanks to wage growth locked in during the shortage.
But high net migration would lessen wage pressure.
“It is taking the heat out of wages, which is a good thing if you’re trying to bring inflation down. It’s not so good if you’re a worker, obviously. But from where the Reserve Bank sits, it’s very helpful,” Zollner said.
A major caveat on the helpfulness of high net migration for inflation, however, was the effect it would have on housing.
“Rents have a hefty weighting on the consumer price index, with an enormous amount of people renting and putting a huge chunk of their income on rent. Many migrants will not be in a position to buy a house, either because they legally can’t or because they can’t afford it. But they will need somewhere to live,” Zollner said.
Treasury was forecasting an increase to house prices of 5.3% by June, a massive jump from its pre-election forecast of 1.6%. This jump was in part due to unexpectedly high net migration, it said.
The Government’s role
In the Government’s 100-day plan, there was no mention of migration or immigration.
Immigration Minister Erica Stanford declined an opportunity, before Parliament finished in December, to be interviewed for this article.
In its coalition agreements with ACT and NZ First, the Government committed to changing the Accredited Employer Work Visa – which had been blamed for some the migrant exploitation seen last year.
NZ First secured a promise that Immigration NZ would crack down on those “found responsible for the abuse of migrant workers”, as well as tightening up criteria “to ensure migrants are filling genuine workforce needs”. There had been concern that Immigration NZ was not properly vetting paperwork, to verify if migrants were filling approved roles.
ACT secured promises to approve visas for more seasonal workers, make it easier for parents of immigrants to relocate, and to remove the median wage requirement from the Skilled Migrant category visas.
Throughout 2022 and 2023, the Labour Government executed a number of immigration policy changes in a bid to “refocus” settings to attract high income, highly skilled immigrants. These settings faced criticism at times for being overly complicated and difficult to manage, while the Immigration system faced criticism for being too lax.
What next?
It’s unclear to what extent and for how long high net migration can be sustained.
Many commentators believe the major boost seen in 2023, which was tens of thousands of people higher than every year for the past two decades, was an anomaly.
Treasury said there was “considerable uncertainty” about how the population would grow in the year ahead.
If the previous Government’s settings did work, and New Zealand’s population had grown with thousands of highly skilled workers, then Zollner said productivity could increase and overall that would be good news for the economy.
“But it’s very unclear. The labour market tends to lag the economic cycle by six months. We’ve just found out in the GDP data that the economy is a lot weaker than we all knew. So, will these people all turn around and leave again,” Zollner said.
“You could imagine a scenario where the net migration actually turns. It could turn very aggressively and actually go negative.”
If net migration continued to grow or remained stable at high levels, then the Government faced another big challenge: Building a country to fit everyone. Housing availability, then transport, schools and eventually hospitals would need to improve.
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