Immigration: The numbers game

By WARREN GAMBLE and GEOFF CUMMING

If you could reduce immigration to a simple economic balance sheet, it is likely that the people we bring into New Zealand would be in credit.

Leaving aside the cultural and social impact of a more diverse population, in cold, hard cash, immigrants tend to put in more than they take out - at least in terms of how much they pay the Government in taxes compared with what the Government spends on them in health, education and benefits.

One of the few New Zealand studies on the subject, from independent economic group Berl, found that migrants contributed between $4.5 and $5 billion in income tax, GST and other taxes to Government coffers in 1998. In the same financial year the Government spent $3.4 billion on migrants' health, education, superannuation and benefits.

The study defined migrants as all people born overseas, including students and temporary workers.

Berl is updating the study using last year's census, with results expected early next year, but its conclusions are unlikely to be much different.

They are in line with overseas studies, which have found that host countries benefit, although not hugely, from migration.

In Britain, a Home Office study estimated that the foreign-born population paid about 10 per cent more to the Government than it received.

American studies show that the benefits to host countries are higher the longer migrants are in the country. The better they adjust to their new environment, the more they contribute.

The National Research Council in America found that first-generation migrants imposed a net average financial cost of US$3000 ($6050), but the second generation yielded a US$80,000 ($161,200) financial gain.

In a series of articles on immigration last month the Economist magazine argued the potential economic benefits to the world of liberalising migration dwarfed those from removing trade barriers.

But just as trade liberalisation has attracted many opponents, migration has the potential to create many more, because it goes to the emotional issues surrounding a country's identity.

International studies generally agree there are more immigration pluses than minuses, particularly for developed countries such as New Zealand, whose fertility rates have dropped below the level needed to replace the population. New Zealand also suffers a net drain of its own citizens, making working-age skilled migrants even more valuable.

The benefits are not the "economic voodooism" New Zealand First leader Winston Peters charges his opponents with, saying they are misrepresenting the gains of immigration, nor do they present immigration as a silver bullet for growth.

Berl senior economist Ganesh Nana, who co-authored the 1999 study, says it was confined to the impact on the Government's books rather than the economy in general. It did not look at migrants' impact on local councils, or their effect on the workforce - whether they created jobs or took jobs away from domestic workers.

Nana was also involved in a 1988 Victoria University study, named after the "Joanna" computer model it used, that considered immigration's wider economic impact.

It found the economy would grow and unemployment would fall if the Government encouraged a net inflow of 15,000 settlers a year. (New Zealand had a net gain of about 10,000 a year during the steady economic growth of the 1990s.)

The Joanna study backed Australian research rejecting the orthodox view that immigration worsened the balance of payments, inflation and unemployment, which had guided successive governments since the 1973 oil shocks.

So how does immigration boost host economies?

"The bottom line is it's numbers of people," says Nana. "It's the labour force. When economists talk about potential capacity and the ability to create wealth it depends on the amount of people we have got and the skills we have.

"Migrants can contribute to both - not only to the labour pool but to the quality of that talent."

Of the 40,000 net gain in migrants, about 8000-10,000 enter the labour force.

"That's a sizeable proportion - perhaps half to 1 per cent of the labour force. We would hope they are at least as productive as ordinary New Zealanders - because they are skilled migrants - and that adds half to 1 per cent to GDP [gross domestic product, the total value of a country's goods and services].

"It's not a small contribution."

The short-term impact of immigration is on the demand side, for houses, education and services, says Nana.

In June, Infometrics economist Gareth Kiernan argued the Government's failure to control its immigration target was threatening the Reserve Bank's control of inflation.

He said rapid population growth fuelled by an influx of immigrants 8300 above the Government's 45,000 annual target was soaking up spare capacity in areas such as housing, schooling, health services and roading. In response to such inflationary pressures the Reserve Bank had raised interest rates in the first half of this year.

Shortly after, the Government announced an increase in the points migrants need to enter under the general skills category.

Kiernan says the introduction of a tougher English test will cut immigration further, allowing the Reserve Bank to take a more relaxed view.

James Newell, from Monitoring and Evaluation Research Associates and the vice-president of the Population Association, says a higher population adds to GDP. It means we have a larger market, which is good for business, but it does not necessarily translate into individuals being better off.

High immigration has benefited property owners, but made it more difficult for buyers to get into the market, and if land prices continue to soar it could harm rural New Zealand, he says.

"If you want to sustain agriculture you can't allow the price of land to overtake the value of agriculture, which is very important to New Zealand."

But Nana views immigration's inflationary pressures as a short-term effect.

"I like to think we are sophisticated enough to use immigration as an opportunity. It's incumbent on us to make the best of the opportunity, otherwise we're going to flounder around 20th on the OECD ladder for a very long time."

Dr Jacques Poot, from Victoria University's school of economics and finance, now on research study in Japan, says because of New Zealand's net drain of citizens overseas and dropping fertility rates, the real question should be: what would happen if we stopped immigration?

"We would end up with a country that has a population loss. The domestic market would gradually shrink and that can have long-run negative consequences, because there will be less investment and a more depressed outlook for the domestic economy."

Making better use of immigration is part of the Government's review of policies that it says were too narrowly focused on numbers during the 1990s.

The tougher English tests for general skills and investor categories were criticised as a kneejerk response to Peters' populist campaign to "staunch the flood of migrants".

But the Minister of Immigration, Lianne Dalziel, says the changes are part of a systematic review of immigration over the past three years.

She was appalled by the evaluation of the 1999 business immigration policy, which found that 98 per cent of investor migrants put their money (a minimum of $1 million) in the bank for two years to meet the criteria and then withdrew it. Some had borrowed the money overseas and repaid it once their residency was confirmed.

The review also found a significant number of investors were absent for those two years, indicating no desire to take up residence.

"This exposes New Zealand to being used to avoid things like international student fees, thereby creating costs to our economy with little benefit," she says.

The long-term business visa, also established in 1999 and designed to attract entrepreneurs, was instead attracting people to buy small businesses, such as dairies. Officials are now working on ways to make business applicants invest in infrastructure or venture capital.

Immigration consultants say the stricter tests will cost New Zealand billions, but the Australian Government welcomed the moves, saying tighter requirements for skilled migration would produce economic gains.

The Immigration Service's briefing papers to the Government in August said even immigrants from English-speaking backgrounds took five to 10 years to achieve employment rates and incomes equivalent to those of comparable New Zealanders.

"For migrants who integrated less readily - typically those with lower education or less skill with English - average convergence times were in the range of 25-40 years," the service said.

Ian Pool, professor of demography at Waikato University, argues for a wider view of immigration's economic benefits.

"I think in New Zealand we have taken a nasty, accountants' view of the economy: we need to see a monetary return. It is a very, very narrow view. What about ethnic diversity? They [immigrants] make us a much more interesting place.

"In addition to that we have been, over a long period of time going right back to almost the first settlement, very fortunate in our migrants. They have really contributed enormously to our human capital."

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Herald feature: Immigration