There seems little doubt that immigration is going to be a big election issue this year. Sensing this, the Government recently moved to tighten the rules while still arguing that a large-scale immigration programme was in New Zealand’s interests. Andrew Little has more recently announced that a Labour-led Government would cut immigration by “20,000 to 30,000 a year” by tightening the rules around student visas, and there can be little doubt that Mr Peters will jump on this bandwagon before too many more weeks have gone by.
In one sense, the controversy is a bit odd – absolutely all New Zealanders are either immigrants themselves or have some ancestors who have arrived in New Zealand within the last 200 years, most within the last 100 years. Forty percent of Aucklanders were born outside the country – and that’s a higher percentage of non-native residents than in any other significant city in the world with the exception only of Toronto and Brussels.
There can’t be much doubt that those who have come to New Zealand since we widened our criteria for immigrants around 1990 have greatly enriched our culture. You’re leading a very cloistered life if you don’t have friends who are Chinese, or South African, or Indian, or British – and if you don’t enjoy the enormous diversity of cuisine now available in Auckland.
As many readers may know, my second wife was Chinese, from Singapore. And she epitomized all of the qualities that make for fine citizens – a strong commitment to family, a strong desire to ensure that our son was well-educated, a strong saving ethic arising from a determination never to be dependent on the state, and so on. New Zealand would be a better place if more native-born New Zealanders were like her.
What about the economic effect? The Government makes a good case that the rapid population growth which results from a high level of immigration has contributed greatly to our currently strong rate of economic growth, and it isn’t hard to see why businesses welcome that – a market growing faster than would otherwise be the case, and a greater range of people to hire.
But it seems to me likely that the very high rate of immigration we have had over the last 25 years or so – under governments led by both National and Labour – has hurt many people. In combination with the tight restrictions imposed by Auckland Council on the availability of residential land, the high rate of immigration has almost certainly benefited those who already owned homes but severely disadvantaged those who didn’t. Of course, the best way of avoiding that adverse outcome would have been to free up the supply of residential land, but in the absence of that there’s not much doubt that the pressure of population caused in part by a high rate of immigration has contributed to Auckland’s quite grossly unaffordable housing.
There is also reasonably compelling evidence from overseas studies that a high rate of immigration, especially of relatively unskilled people, depresses the wages of relatively unskilled native-born citizens. Because many of those coming into New Zealand are relatively unskilled – ostensibly looking to acquire tertiary education at sub-degree level but in reality looking for a back-door way of acquiring residency – it seems very likely that those immigrants will have had a detrimental effect on the incomes of relatively unskilled New Zealanders.
In addition, I have a great deal of sympathy with an argument advanced by Michael Reddell, a former senior economist at the Reserve Bank. He argues that the rapid population growth which has been the result of a high level of immigration has required New Zealand – with our typically Anglo-Saxon low rate of national savings – to devote a high proportion of those savings to what economists call “capital widening”: not more capital per worker, but more capital devoted to houses, roads, schools and hospitals. That has meant too little savings “left over” to provide more capital per worker, so that productivity growth in New Zealand has been consistently disappointing. If true (and I’ve grossly over-simplified his argument), the very high rate of immigration which New Zealand has experienced over more than two decades has increased our total growth but actually worsened growth in real wages. According to this view, it is not surprising that real wages have barely increased in recent years.
He also argues that the gap between our modest savings rate and the need to spend on “capital widening” has required our interest rates to be quite a bit higher than those overseas to achieve internationally comparable inflation rates, with the result that our exchange rate has been consistently somewhat over-valued. The result of that in turn is that we have had too little investment in industries producing for export, or competing with imports, where productivity growth tends to be fastest. So little wonder we’ve had scarcely any growth in real wages in recent years.
So where does this leave me? I believe we do need to scale back the level of non-citizen immigration – at current levels, it is second only to Israel’s level of inwards migration among all developed countries (relative to population), substantially greater than, for example, the inwards migration which has caused so much angst in the United Kingdom, and some three times the size of the “green card” programme in the United States (relative to population).
And astonishingly, neither the Government’s announcement nor Labour’s would actually make any difference to the ongoing level (as distinct from the composition) of non-citizen immigration: both National and Labour appear to accept an immigration programme involving some 45,000 non-residents annually. In other words, both major parties appear to accept the desirability of continuing the very high level of non-citizen immigration that has been a feature of New Zealand policy, under governments led by both major parties, for more than a quarter of a century.
But surely scaling back this programme would result in terrible labour shortages, especially in industries such as construction, hospitality, and aged care? Individual businesses might see it like that – which is why the business sector remains a strong supporter of a very large-scale immigration programme – but in an important sense it is the high level of immigration which itself causes the high demand for workers. Cutting back on the level of immigration would, for example, reduce the need for so many additional houses, thus reducing the need for so many more construction workers.
When I was at the Reserve Bank, we used to see a strong inflow of immigrants as more likely to reduce unemployment than to increase it because when an immigrant first arrives in New Zealand he or she has an immediate need for the assets which make up modern life – a house, furniture, a vehicle, etc. – adding far more to the “demand” side of the equation than to the “supply” side. Cutting back on the level of non-citizen immigration would almost certainly reduce the need for so many construction workers, and indeed workers more generally.
In due course, New Zealand interest rates would trend down to nearer international levels, and our exchange rate would be lower. Those in export sectors would be better off, productivity growth would likely be higher across the economy, and wages of New Zealand residents would improve in real terms. This might very well lead to more New Zealanders choosing to stay – it is sobering to reflect that, even with the strong economic growth of recent years, we still have more New Zealanders leaving for greener pastures than are returning. Cutting back the level of new residence approvals would almost certainly change that.
Copyright © 2024 Don Brash.