Sky-high net international migration has been a key driver of economic growth in the New Zealand economy over recent years.  Even though per-capita economic growth has been lacklustre, the additional demand caused by this migrant influx has propelled New Zealand’s headline GDP growth rate to levels that are the envy of other developed nations.  Against this backdrop, it was interesting to see the government recently announce policies that ultimately make it more difficult to migrate to New Zealand.

There were three main features of the recently announced immigration policy tweaks:

At face value, these tweaks represent a tightening of migration settings.  However, in practice the actual effect on the number of migrants coming into New Zealand is going to be very marginal, with broader macroeconomic conditions remaining a more important driver than anything else.

Government data also shows that the planning range for residency approvals is not a hard ceiling, and as its name suggests is merely an approximate figure used for planning purposes when allocating resources to each residency category.  Over the two years to June 2016 there were around 110,400 people granted residency, about 10% above the planning range.

The other two tweaks are more designed to address the productivity of those people coming into the country.  Residency approvals will be more closely targeted towards groups of people that are going to add more to New Zealand’s ability to produce goods and services than the demand pressures they place on the local economy.

But addressing productivity in this way is far from an exact science.  Clearly closing the door to parents removes a group of people that are unlikely to contribute much to the labour force, but does raising the points needed to be a skilled migrant count out people that could make valuable contributions to our society?

Under current settings, where 140 points are needed, even a person who is in their 30s, with ten years’ experience and a Bachelor’s degree in an area of absolute skills shortages, wouldn’t reach the threshold.  To reach the 160 points needed under the revised policy settings, people will need to add to that list a Master’s degree, a partner with good qualifications, already have had work experience in New Zealand, or have a job offer in an area of skills shortages.

The points needed to apply for skilled residency already represented a high bar before the change, even in areas of skills shortages, particularly for jobs that don’t require a particularly elevated level of tertiary education. This policy shift is going to be worrying for some industries, such as the hospitality sector, where businesses are crying out for experienced chefs to cope with significant growth in tourism.  The addition of more stringent English language requirements will further compound these issues.

It is likely that businesses will increasingly employee people who are in the country for fixed periods of time on work visas.  This phenomenon happens already in many industries, but will become even more of a factor moving ahead.  Employers in this situation will then have the added worry of additional churn in their workforce if migration settings make it difficult for their employees to roll over their work visas or stay for indefinite periods.

As described above, we see the changes to immigration policy for residency approvals as having more of an effect on the composition of migrants coming in, rather than a big effect on the absolute number of migrants.

Our most recent economic forecasts show that migration is around peak levels for this business cycle and that international inbound migration flows will fall from current levels of almost 125,000 to 106,000 by 2020.  In net terms (inbound migration less outflows), migration will fall from about 69,000 to 30,000 over the same period.

The key drivers of this easing will be a cooling of economic growth in New Zealand, which will cause a slight increase to the number of people leaving New Zealand and result in fewer people wanting to migrate here in the first place.  Nevertheless, at these levels net migration would still be relatively high compared to history and above its decade-long average of 20,000.