Liam Dann: Is immigration the biggest policy U-turn in NZ history?

Prime Minister Chris Hipkins. Photo / Mark Mitchell

OPINION:

Nothing highlights the extent to which new Prime Minister Chris Hipkins has reversed Jacinda Ardern-era policy like the incredible turnaround in migration numbers.

After months of concern that Labour’s tough immigration rules were squeezing the economy, the policy has been relaxed to the point that, suddenly, migration is smashing records.

The net migration gain of 11,700 in February this year was the second highest for any month ever, (behind February 2020 which had a net migration gain of 14,600 ... and was completely distorted by the onset of Covid-19), according to the latest Stats NZ data.

The February result was driven by a record number of arrivals on work visas, Stats NZ said.

It took our provisional annual net migration gain to 52,000 - made up of a net loss of 17,300 New Zealand citizens, which was more than offset by a net gain of 69,300 non-New Zealand citizens.

That’s getting back to John Key-era migration gains - when the nation was gaining around 60,000 people a year.

But wait, there’s more!

The annual gain of 52,000 actually understates recent strength, Westpac senior economist Michael Gordon has pointed out.

If our net migration rate across the past four months was annualised we’d be looking at a net migration gain of around 100,000 for the year - an unprecedented number.

Bearing in mind that the Government only really began carving exemptions to its migration policy last year, there’s no reason to assume the monthly rate won’t continue at something like these high levels (even allowing for the possibility of some sort of quirk in the February figures).

We could be about to blow the numbers from last decade’s migration boom out of the water.

It is hard to think of a bigger policy turnaround, by the same political regime, in living memory.

These big arrival numbers ought to silence some of the concerns business groups have had about government immigration policy.

I have certainly shared those concerns about the timing and implementation of the policy.

To recap, in the 2017 election campaign, both NZ First and Labour made capital out of the stress elevated immigration levels were putting on the economy.

Labour wanted numbers cut by 20–30,000 a year. NZ First targeted a net migration figure of just 10,000.

Moves to cut immigration were slow, then Covid hit and everything went a bit haywire anyway - we had record arrivals as Kiwis flocked home, followed by completely closed borders.

The Government forged on with policies designed to limit low-skilled migrant numbers, with a view to driving up local productivity and wages.

There was some solid economics underpinning the argument.

Studies have shown that a steady supply of cheap, low-skilled labour is a disincentive for businesses to invest in the kind of new technology that boosts productivity.

And New Zealand does have a productivity problem.

But the timing - in the middle of an inflation crisis and a global labour shortage - was not good.

Business groups have lobbied hard, making the point that labour shortages are restricting economic growth and driving up wage inflation without any productivity gains - exactly the thing the new immigration policy sought to reverse.

The Government appears to have listened and has incrementally dialled back the policy.

But the strength and speed of the turnaround have been astounding.

A lot of commentary from business leaders and critics of the Government has bemoaned the fact that New Zealand has lost ground in the international race to attract immigrants.

The net migration gain of 11,700 in February 2023 was the second highest for any month ever. Photo / Alex Burton

We’ve been told we’re no longer the preferred choice, with the likes of Australia and Canada now leading the pack.

But that argument may have been overblown.

In fact, according to the OECD, New Zealand is currently the most desirable destination for highly educated migrant workers

The OECD has just launched its Indicators of Talent Attractiveness (ITA) index, which it says is “the first comprehensive tool to capture the strengths and weaknesses of OECD countries regarding their capacity to attract and retain different types of talented migrants”.

New Zealand tops the list for “high-educated workers”. We come in fifth for attracting entrepreneurs and fare less well (15th) for attracting start-up founders.

Still, it’s a heartening reminder that New Zealand still has plenty of power to attract immigrants.

High migration is of course a double-edged sword.

We’re going to have to move fast to ensure we don’t strike the same kind of infrastructure and housing issues we had back in the middle of the last decade.

You can run high immigration to boost economic performance but you can’t ignore the costs involved in having a large population.

More migrants should make life easier for employers in the coming months, but as well as helping to ease labour force pressure they add demand to the economy.

In other words, they pull both the supply and demand levers on inflation and the net outcome isn’t clear.

On balance, the net inflation effect is likely to be broadly neutral for the economy as a whole, Westpac’s Gordon has said, though the effects might differ across sectors.

One thing we can be sure of, the sudden surge in migrant numbers added another fascinating variable to an already complex economic experiment as we seek to find some economic balance in the post-pandemic era.