By Bernard Hickey
This week's budget was notable for its carefully telegraphed surpluses and the relatively moderate election sweeteners included within its slightly looser fiscal outlook.
The Government can credibly argue it is not pushing down too hard on the accelerator of the economy, which means the Reserve Bank won't have to tap any harder on the interest rate brake as we swerve into the inflationary corner over the next year.
But buried in the mountain of Treasury papers this year was an elephant of a forecast that could shift both the political and economic landscape of the budget and the country if it happened.
Treasury likes to paint both an upside scenario and a downside scenario into its forecasts to keep economy watchers on their toes. This week's upside scenario that suggested annual net migration could surge to 41,500 by the end of this year was a doozy.
That's the equivalent of almost 1% of New Zealand's population and just under the May 2003 record high of 42,500.
The Treasury's central forecast was that annual net migration would rise to 38,000 in the September quarter of this year from 31,900 in the March quarter and nil net migration as recently as beginning of 2012.
So the Treasury's forecast is only for an extra 3,500 people more over the next six to nine months than is its central forecast. But the impact is massive.
Treasury forecast private consumption growth would spurt to 5.3% from its main forecast of 4.2%.
The extra migration would drive employment up and unemployment down to almost 4% by 2018.
That sounds fantastic, but there's a down side.
"With the economy already growing faster than potential, the further boost to domestic demand sees any spare capacity in the economy used up more quickly than in the main forecast," Treasury said.
That is code for inflationary pressure and higher interest rates.
It forecast short term interest rates would jump by a full one percentage point more than already forecast to almost 6% by early 2016.
That would see floating mortgage rates hit 9% and the current account deficit would jump to 6.8% from 6.3%.
There is good news for the Government's budget though, as all the extra income created by the extra workers would increase taxes from wages, GST and profits.
Higher interest rates also help the government through higher taxes on term deposits.
All this would increase the budget surplus for 2014/15 by almost NZ$1 billion. All this feeds into a growing political and economic debate around migration.
It used to be seen as an un-alloyed positive for the economy that boosted economic activity, entrepreneurial vigor and social diversity.
But there are economic downsides too, including increased pressure on resources when the economy is running hot and a surge in house prices.
This is, of course, mostly an Auckland story and is set to become an election issue. Labour has already raised the idea of limits on migration to help the Reserve Bank control interest rates and house price inflation.
New Zealand First Leader Winston Peters has a wider objection that he looks set to wave about with bells on in the months leading up to September 20. The irony and the opportunity will not be lost on Mr Peters.
The last time net migration was this high was around the July 2002 election, when New Zealand First campaigned hard against migration and got over 10% of the vote and 13 seats in Parliament.
There may be an elephant in the forecast, but there's now a frisky old war horse hot on the trail to September 20.
41 Comments
That struck me as an extremely dodgy conclusion too. Maybe back when dinosaurs walked the earth and we had manufacturing, and industry that needed arange of skilled workers that could be the case. Now that the whole economy runs on debt, wishful thinking, and minimum-wage/minimum staff retail and service, I doubt it. Maybe they're all supposed to be real estate agents and door-to-door phone package salespeople.
You really do have to wonder at some of the nonsense trotted out by Treasury. Not only do they predict enough new jobs to reduce our current unemployment rate by 2% but also find work for all these new immigrants on top of our natural increase. Now I can see that a rise of 1% in population might add 1% to GDP but that's hardly good news in terms of GDP per capita. Bill English says we need to export more to help pay for the consumption we've already had. Are these folk going to help lift exports to 40% of the economy (Government target for 2025) or are they mostly just more consumers? Given past history it would seem the later.
If Auckland is to receive the bulk of inward and local migration what are they going to be doing? Don't we have enough nuclear physists and brain surgeons driving taxis?
As an immigrant I am gonna try to answer this from my point of view.
Immigrants are consumers as well. Immigrants buy in shops, pay rents, go to cafes and restaurants, put petrol in their cars, and so on. These things not only drive the consumption up helping business to sell more and to hire more, but also the money immigrants spend at first is not NZ's earned money but their overseas saved money, which has a generally good impact in NZ.
Also, lets consider some facts
The immigration in New Zealand is highly controlled and easy to do so. Being an island where the immigrants usually come by plane and must show their IDs at the border, it is relatively easy to keep immigrants under control. NZ has an enormous advantage compared to some other countries in the world where immigrants can arrive without any control by road vehicles, illegal boats or even by walking. In other words, it is rare to see illegal immigrants in NZ
We have to distinguish between long-term immigrant and short term immigrants. If I am not mistaken (I have to confirm this, maybe somebody can confirm it?), any work visa granted to any person is considered as an addition to the immigration account. But there are many types of visa. Many many immigrants come for a very short time, like those coming into NZ with a Working Holiday Visa for up to a year before permanent departure, or like those coming into NZ for seasonal jobs or Chch construction jobs.
The immigrants granted with residency (long-term immigrants) are generally under some sort of skilled immigration scheme. Hence these people have the qualification and experience needed for NZ businesses. Think about that, skilled immigrants coming to NZ to cover vacancies that cannot be filled by new zealanders, with knowledge and education where NZ's government did not spend a cent on, usually working in roles where they add higher value to the final products, and EXPANDING the economy through productivity (and not through debt).
Isn't obvious that in NZ immigration is directly related with more employment?
Also lets not forget that it is extremely difficult to get a work visa for an unskilled position where there are new zealanders that could fill the role. A company willing to hire an unskilled immigrant must prove to Immigration NZ that they have tried to hire a new zealander or a resident first but could not find any suitable one.
And if the unemployment grows, Immigration NZ (parlament decission, of course) can simply modify the law.
Unlike some other countries where immigration usually means more unskilled people that could mean a higher public money spending and unemployment due to more competition for same position, in New Zealand situation immigration usually means the opposite: more consumption non debt-based, higher added value for final products, more opportunity for business to expand and more creation of jobs.
PS: But again, I'd like to know exactly how these immigration numbers are being calculated and who is being considered as an immigrant.
I hate it when ppl use "obvious" and "common sense" the answer is often no.
Oh and on a finite planet you cannot expand for ever.
When we talk about consuming, that is really consuming more of a one time resource. So when such resources are limited then true wealth is per capita. On top of that increased consumption is not real productive GPD growth its just more churn.
Many vacancies can be filled by NZers, either businesses are not prepared to pay a reasonable rate, or are not prepared to train NZers "sitting around" or for their up skill. My own experience in both engineering and IT over decades is Ive met enough immigrants to see that a noticable % are of marginal capability or un-usable capability for instance I know a ICBM liquid fuel pump designer / engineer who drives taxis. So skilled? how many petrol pump attendants are there in NZ from overseas that are really un-skilled because their skills are not up to the mark?
Stress on infrastructure, more ppl means we have to expand sewers, water, power etc. If we tarined NZERs who are already here the extra cost is marginal.
If un-employment grows we cant actually eject people how have come here to live legally, not saying that is a goer ever. Now we can reduce temp/casual visas and should
A lot of Qs here I dont know the detail on, but it isnt as rosy / one sided as you imply.
regards
Although I agree it is difficult to expand forever in a finite planet, some may argue that the economy expansion could be driven not by the usage of natural resources but the productivity and efficiency increase. And some may also believe that human creativity is infinite, hence it would be possible to expand monetary system or economy to back this new value created. So that's not actually a fact but an opinion.
Anyway, I though we were talking about the specific situation of New Zealand, but after reading your opinion I am not that sure as New Zealand is still a country with a huge amount of resources. Now these resources could be used to produce dairy and export it, or could also be used to develop an internal market for a growing population. In any case I don't see a short-term restriction there.
About training new zealanders "sitting around" to do what migrants come to do, I wonder if these new zealanders are willing to be trained to do so as I believe your opinion does not include to enforce the knowledge and skills..
I believe the market's offer and demand should be enough "enforcement" for new zealanders to prepare for those sectors with good forecast that help the society. But the truth is that there are not enough graduates to fill these vacancies and technology businesses prefer to hire overseas workers rather than to wait till local people start studying things that they don't want to study. That happens everywhere, but maybe it does not hurt to bring people from overseas with an overseas point of view and experience. Who knows, that could actually make NZ's business more ready for the global world.
I also work in IT, and if there were enough new zealanders ready and prepared to work in IT, businesses would not hire us so easily. I guess some of us, immigrants, offer something more than low salary expectactions :) But I guess it's better if you ask businesses, which after all are the ones who know better what is and what isn't profitable and how much are they willing to pay to some worker to keep him/her under their payroll. Again, offer and demand balance these things.
And finally, about your last paragraph mentioning again that more immigration means more infrastructures you forget the efficiency variable. That's off-topic, but there are other ways to build infrastructures. Maybe if people were more willing to live in apartments, closer to CBD and not needing transport or vehicle to move around, the infrastructures needed were actually cheaper, and the house affordability as well.. And that would save more land to increase food production without the need of destroying more natural environment. In other words, it is not only about the amount of people but about the way people choose to live. Personally I love having things within walking or bike distance, and I rather live in an apartment than in a house with garden kms away from friends and work place. That's, of course, assuming that eveyrbody can keep the quality of life. Not everybody finds the spread-cities house-with-huge garden as a sinonym of life quality, althought that's more of a cultural thing I guess..
PS: Unemployment will eventually grow, but not due to immigration (which will be balanced according to the offer-demand). Unemployment will be driven by higher energy costs (higher transport and production costs), lack of overseas demand (as unemployment and inequity is growing globally) and further competition between exporters (lets keep an eye at USA's growing dairy industry and we'll see how easily New Zealand starts exporting less unless government starts subsidizing the sector). And China's economy turbulences are to come soon hitting hard New Zealand and Australia's economy. And that's an even better reason to develop more higher added value sectors such as technology industry while developing internal market. And to do so, nowadays in New Zealand, immigrants are needed.
It isnt "difficult", mathematically it is impossible to grow expotentially for ever on a finite resource so that is a fact not an opinion.
Productivity increases are measured per worker. Sure lets say go back 100 years, to plant and harvest a field of wheat by hand may well have taken say 10 ppl per acre, today with a harvester 1 man can do acres, but he is using fossil fuels to do it. Peak oil is about now so we wont pump more fossil fuels per day from now on and in fact it will decline...yet we have grown to 7billion ppl and teh projection of some is 9billion. Personally I think 2billion by 2050 is far more likely as fossil fuels will be gone and woth it cheap energy and fertilizer.
Some resouces are a one time use so should be spread or considered per capita and even inter-generation. Sure NZ has some considerable resources for 4million ppl, but not for 40million+ like say the UK that has used it all up in effect.
"enforce" skills, indeed. However I have over the last 20 years observed that employers dont want to train but employ ppl that can do it straight off. That is fine but of couse that means its very hard for an individual to grow skills and experience. I also think that employers importing cheap labour do so as a way to surpress wages in NZ. Though bear in mind we are generalising here.
In terms of NZ IT there is a refusal to pay enough to move ppl. I have held my present job for 7 years, I get phone calls with offers but these work out at the same salary more or less making a move of no value. Yet I know ppl who would like to mve up and would do so for the salary offered but dont get offered it...ie when Ive declined something but I know someone with the potential to do it I touch base and send them off, usually its a no.
More ppl means more infrastructure, its not a cas eof efficiency here really, a pipe of a ceratin diamter only carries so much waste for instance, there is no efficiency gain available. Ditto water we drink so much per person, want more ppl? well that is more dams and more treatment and more pipes.
Sure ppl could live more densly, but why should they? NZers like their space, so why should they squash up so more ppl can come in? that is just nuts.
Also then more polution, more fossil fuel imports, worse balance of payments....etc etc.
I'll agree on the last para, except for the last sentence....no no more immigrants are needed as the lifestyle with less energy life will be simpler. "value add" btw is pretty much more energy use locally...which we have to import much of.
regards
"some may argue that the economy expansion could be driven not by the usage of natural resources but the productivity and efficiency increase"
You could argue it, you could also argue the moon is really made of Fonterra cheese stockpiles. Doesn't make it true.
Can we sent that one back...it appears to faults in it's logic circuitry...
You can try, but you can't.. unfortunately for some being logical is not an immigration requirement as yet :)
A very simple example: you have one stick, one string and one stone. By itself each part has not much real value, but once you apply human creativity and put the parts together you have created a hammer. With exactly the same material resources human creativity and WORK have been the key factor to add value to a thing, to create synergy, and that added value is what can expand the economy.
There is always margin to create new work-value and increase creativity. And if work input can create value, then the natural resources are not the only variable in economy growth.
Another thing is to expect to grow exponentially in a finite planet. And I have never said that, I just said that you can argue that like the Austrian School Economists do. Probably the growth would be lineal, but the economy can certainly be expanded as long as human creativity can be expanded.
And another different thing is admitting that a lack of exponential growth will make the system collapse eventually because this economic system is based in exponential growth to pay the constantly growing debt. In other words, generally we are mainly growing due to a debt increase and "bringing wealth from the future" to maintain this system..
Ah look! another example on how an economy can expand without destroying natural resources per se. Simply by decoupling, even more, financial economy from productive economy. (and anybody can have a look at the percentage of the GDP that financial economy, and not productive, economy means in NZ)
Anyway, you are welcome to debate this with stronger arguments than the ones you chose before, but in any case NO ONE will be 100% right simply because Economy is not science. So take it as another opinion.
In your example you are talking about complexity. Complexity takes a surplus. The answer to a shortage is not more complexity, but less of it. Put it this way, we have been innovating for 250 years with ways to burn the cheap and abundant energy at our disposal, now that it is running out we are trying to invent the energy. In your stick, string and stone scenario it is like trying to conjure up another stick with your hammer when you are in the middle of the desert. Or perhaps it could be looked at like this, you have a choice to build a hammer or cook dinner.
First off, welcome to the country.
You say "natuarl resources are not the only variable in economy growth" I would agree with you there. What you don't seem to realise is that human creativty or technology tends to lead to faster comsumption of natural resources so what you claim to be the solution I see as the problem. I think we will have to agree to disagree on this.
I am interested which country you have come from and why did you choose New Zealand. If the answer has anything to do with better enviroment or less over crowding or simply a "better place to bring up kids" then I would suggest to you that whatever we are using our unbounded innovation it isnt making your home land that great is it.
That's true. I am not precisely a defender of constant economy growth. In fact I am of the opinion that economy, like people, must grow until it reaches certain level of sofistication and then transform itself to reach social development rather than an increase of consumption.
I was just defending my point that natural resources are not the only variable in the equation and, especially in New Zealand, that should not be of any concern as yet, and right now I see a population growth in NZ more of an advantage that disadvantage for the future of the country.
PS: Thank you for the welcome :-)
I come from Spain, a country that suffers nearly 28% unemployment, although unemployment was not the reason I came to NZ as when I left Spain the highly corrupted politicians and media were still denying there was any crisis and I had an easy normal life working in IT, but I wanted new experiences..
So when I came to New Zealand I came with a temporary visa that allowed me to work in seasonal jobs in agriculture (were immigrants are always welcome!) while visiting the country thinking that I would go back to Spain soon.. However I liked the country a lot and decided to try to get an IT job (my sector) and spend longer time over here seeing how ugly things were getting in Europe. But now going back to Spain seems like a silly and risky thing to do, so I'd like to stay longer and maybe settle down and have kids if things continue being good (but eventually I'd like to go back). I guess my situation doesn't exemplify the majority of the immigrants
PS 2: I personally like bustling cities and peaceful and quiet nature and villages. That's why I am not afraid of more densely populated cities with apartments instead spread houses where nature (real nature, not gardens in backyards) is within walking or cycling distance of one's home. But that's just a personal opinion and I don't mean any disrespect to the way cities are designed in NZ, which has some advantages too (not infrastructure and pollution efficiency though, as it's basically imposible to go anywhere without using public or private transport due to the widely spread neighborhoods)
"another example on how an economy can expand without destroying natural resources per se. Simply by decoupling, even more, financial economy from productive economy."
You have given an example in support of how the expansion could be.
I am pointing out that to do so destroys the productive sector, and without a productive sector just what kind of economy (or society) are we going to be left with???
Spain? Weren't they taxing solar panels recently?
Oh yes welcome to NZ btw.
I'll disagree with you here. Natural (energy) resources are the most important variable when you break the complexity of our global economy right down to the basic components.
So its like saying 1 x 2 x 0 (where 0 is energy) ='s something. The 1s and 2s might be really fantastic but if there is no energy its a zero for the output.
A simple short cut to this point is, money is an IOU for work or energy. No matter what you look at as a tangible good (as opposed to ponzi scheme finance) energy plays a critical part.
Even if you take the generation of ideas while you sit there you have had to eat so at some point energy under-writes everything.
As scafie says to grow we need surplus energy, ergo once we have a deficit of energy we will shrink. Now sure we can as a short term measure get more efficient (if we can afford to expand the energy to do so). Efficienxy hwever like human inventivness comes up against the laws of thermodynamics these are immutable.
Now in terms of shrinking at the moment the decline in crude oil output from old /known fields is globally 4~5% per annum (it maybe higher, 7%), and that is curently made up by new production, that however cannot last.
It cannot last based on,
a) its a finite resource and mathematically max output per day is at the 1/2 way mark of the total available, we are there, give or take 10 years.
b) New fields are smaller and drop faster.
c) Much of what is left is priced at a cost to extract our economy cannot afford to pay.
d) On top of that the oil majors are now not developing many new fields because they wont see the return, that bodes ill....if we are currently seeing 5% decline masked by new coming on line then when the new stops coming on line we face a 2~5% decline and maybe a lot more.
regards
Economy without the self-interest and the spin doctoring is a science. It's the lies people tell themselves that prevent them from analysing it properly.
Your second paragraph is a typical example of the ill-education to which I refer in my first sentence.
All the "added value" (aka higher cost) and synergies etc, are worthless if your customer cannot pay for their consumption.... Why can they not pay? Because the method you describe concentrates economic activity into the hands of a few. They become rich by having excess disposable income which they use to set up financial net(works) that catch and redirect funds back to them. The more that is spent the wealthier they become...but those who are outside the inner circle consume but do not profit - and it's a shrinking circle (ponzi schemes always are). The WORK you put in as described, the more added value, the higher the price, the smaller the consumer base becomes.
So there isn't always margin, because the margin is shrinking as your efficiency to provide output (value) decreases against the cost of production (value add) creates a devaluation effect. Tht devaluation effect, further exaggerated by interest and lossy taxation based spending, causes property and consumption to be more valuable than reinvestment (an event horzion develops) those below the rising line, are better off spending or buying houses (dead capital), and fewer at the top trying to keep up with the cost of the value adds..... after all it all worked out so well for the French just before hte revolution.
achieving the decouple that you speak of is utter foolishness. .... and is the type of talk of one who has never been part of setting up the productive economy. If you succeed at such a task, you will massively devalue the productive economy, which will have even less ability to continue itself than it does now. I'm surprised you would even suggest such a thing as the last time I heard of such a scheme was an accountant describing his time in Zimbabwe...right before their "re-valuation".
We have immigrant doctors who cannot get jobs as they were not trained in NZ, immigrants selling real estate, packing groceries, driving taxis none of these tasks are export related or will add any value to GDP; it would appear the immigration department know very little about the clientle they are sourcing and what happens to them once they hit the ground in NZ, probably don't have any data at all as to weather these people get jobs and successfully settle in the field that they applied and were accepted on.
Fletchers have just told their contractors to expect the work load to wind down; now what happens to all those that were sourced from overseas. Unemployment numbers won't drop once these people find there is sod all other opportunities in Chch or Wellington,so lets all go to Auckland !!
If doctors cannot get a job because they were not trained in NZ, I doubt they are even able to get a work visa in New Zealand unless they do so under the Partner Visa category.
I don't know how the immigration law was 10-20 years ago, but now I can tell it's not easy to become a long-term immigrant unless your qualifications and experience are assessed by NZQA (if gained overseas), and there is a job offer in a skilled position where the bussinesses cannot find suitable new zealanders or residents to fulfill.
Answering to your question about what will happen to the workers sourced from overseas that would become redundant, it is simple. Most of these temporary migrants were granted with a work visa attached to the company that employed them. If the contract with the company ends, so it does their work visa hence they'll have to leave NZ if they cannot find another job offer to request another work visa.
When you arrive in New Zealand you are required to fill in an arrivals card, on it you declare your length of stay, ie temporary or permanent, your nationality, your age, purpose of your visit, your occupation, and your intended address in New Zealand
All that information is collected by customs and immigration
But it is not published or made available
So, in answer to the queston of the pool of skills (or lack of skills) arriving in New Zealand, and where it is going, segmented into age groups, that data needs to be disclosed so the populace as a whole can have a meaningful discussion and arrive at some understanding.
Question: are there currently 40,000 vacancies in the medical profession or IT fields? How many new arrivals have dairying skills and intend to seek employment in the dairying industry? Are the skills in the manufacturing, export, or service industry sectors?
Essential information wouldn't you think?
With regard to information about who is buying property, data is not disclosed because the data is not gathered, whereas, in the case of new arrivals, information is gathered but not released. New arrivals have two needs, a job, and accommodation. Thus new arrivals impact on the age-old problem of housing and prices.
That is just plain wrong. It is all published in infinite, mind-numbing detail. There is probably more data published off of those departure and arrival cards than just about anything else the Government does.
Just because you haven't looked doesn't mean its not there. Two mouse clicks away.
http://www.immigration.govt.nz/migrant/general/generalinformation/stati…
some things here
also here
http://www.dol.govt.nz/research/migration/monthly-migration-trends/13ju…
if these are what you are looking for then annoyingly DC was right, two clicks.
Yeah, but raw data's only the raw data. We don't come here for that.
It'd be kind of an embarrassment if we had to explain to DC how this newfangled 'journalism' thingy works.
One of the questions they could ask is 'what's the verification process on this data, and how accurate is it?'
Thanks for the links Plan B
Interesting to look through the 2013 occupation analysis in the Skilled Visa Category
Lot of service categories not a huge quantity of manufacturing or production
Here's the 2 biggest ones
Cafe or Restaurant Manager 339 approved and 134 declined
Retail Manager - General 348 approved and 224 declined
Followed by
Software Engineers 200
Programmers 140
IT Support 126 approved and 35 declined
And among the lowest applicants
Medical Practitioners 3
So it would be easy for interest.co.nz to summarise that information in an informed interesting article for our benefit so we don't have to trawl through the mind-numbing detail. Why don't you do that rather than getting sulky? This is a business news website and a reader is asking legitimate business related questions....
Last boom starting early 2000s was lead by international students.
Is it same thing again this time?
Massey uni being nz's fastest growing uni likely to get the bulk.
I'd look it up myself eventually. But would add to the story if some more analysis on who these 50k odd people arriving are.
Highest annual net gain of migrants in over 10 years
In the February 2014 year, migrant arrivals numbered 96,900, and migrant departures numbered 67,800, resulting in a net gain of 29,000 migrants. This compares with a net migration gain of 1,200 in the February 2013 year.
In the latest year, New Zealand had a net loss of 15,000 migrants to Australia, well down from 36,700 a year earlier. Net gains were recorded from most other countries, led by China (6,100), India, and the United Kingdom (each 5,800).
So China, India and the UK make up 17,100 or 59% of new migrants to NZ.
I have no problem with immigration as a rule, however, I would be interested in how many of these new migrants are gaining residency through 'Family' or 'Employment' or simply having a "bucket-load" of cash!
Here is one example that I experienced first hand:
Recently, we had two brothers (13 & 15) from India arrive to our school, their father works as a chef at a local Indian restaurant. Neither of the boys had a grasp of the English language, though their father did. From a teachers' perspective, it makes our job bloody difficult trying to accomodate their educational needs and often there are not the resources to assist them with learning. Simply, we hope they integrate into the school community and learn English as they go.
I recall stories from my time in the UK where Primary teachers did not have one student who spoke English as a first language. My own experience was 4-5 per class at Secondary school.
I don't blame families from India and China, even the UK wishing to live here; however, we have to be better prepared (and funded) to provide education for new migrants otherwise they simply don't integrate and become isolated and inevitably a target for xenophobes and the like.
I still don't get the idea that immigration at the truely massive rate of 1% a year is to the benefit of the exisiting citizens. Seems to me to be harmful.
It must add 'turnover' for sure. But is it wealth producing, and adding to our benefits. I can't see it.
It adds massive infrastructure costs for sure, and I see that as an expense to us, not an increased benefit.
Similarly, earthquake in Christchurch, added to the economy apparently, to the excitment of some. But do we really want to promote this as the way forward.
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