Finance Minister Grant Robertson doesn't believe increasing immigration will ease capacity constraints restricting the Government's infrastructure spend

Finance Minister Grant Robertson doesn't believe increasing immigration will ease capacity constraints restricting the Government's infrastructure spend
Finance Minister Grant Robertson

By Jenée Tibshraeny

Finance Minister Grant Robertson doesn’t believe increasing immigration would ease the capacity constraints restricting infrastructure investment.  

New Zealand’s unemployment rate is rock bottom and the output gap is at zero. The economy is essentially maxed out and producing everything it can.

Asked by interest.co.nz at a post-Cabinet press conference on Monday afternoon what his view was on increasing immigration to alleviate capacity constraints – in other words bringing in more people to build the houses and infrastructure New Zealand needs but can’t build – Robertson responded: “The way we view it is that we do bring people in to New Zealand for this work.

“The Minister of Immigration has just recently moved towards more regionalisation of our skills list to partly address these issues that capacity constraints vary around New Zealand and vary by sector.

“We need a more sophisticated approach to immigration.

“No, I don’t particularly think it means we need more people coming in, but we do need to make sure we’re getting the right people to the right parts of New Zealand.

“At the same time, what we desperately need to do is improve the skill levels of New Zealanders and make sure that we have people training in the areas where we need them.

“We’re trying to do both of those things, but I don’t believe it requires an increase in the number of migrants.”

Why is creating more capacity in the economy important?

Treasury, in its Half Year Economic and Fiscal Update (HYEFU) released in December, flagged “the extent to which capacity constraints bind” as a risk to New Zealand’s economy.

It said: “While many sectors in the economy report tight capacity pressures, this is particularly true for the construction sector, limiting growth in residential investment.

“Policies aimed at alleviating the capacity constraints in the sector can affect residential investment, house prices, and productivity. However, their impacts are yet to be known.”

Treasury said capacity constraints were so major in 2018 that they meant the Government couldn’t spend all the money it planned to, so would endeavour to try to play catch up in 2019.

It believed this would see the Government’s operating balance before gains and losses (OBEGAL) fall from a surplus of $5.5 billion in 2018 to $1.7 billion in 2019, before picking up again to reach $8.4 billion by 2023. The 2019 OBEGAL will be revealed with the Budget on Thursday.

What about the politics?

There is also a link between capacity constraints and the Government using its Budget Responsibility Rules to market itself as fiscally prudent in the face of the stereotype that Labour-led governments are frivolous spenders.

As Westpac senior economist Michael Gordon said in October last year: “Bottlenecks and capacity constraints have for some time been the main hindrance to a lift in infrastructure spending, not the Government’s self-imposed borrowing limits.”

In other words, Gordon believed Robertson faced more of a “can’t spend,” than a “won’t spend” situation.

This is something to keep in mind as the Government has given itself the flexibility to take on more debt as a proportion of Gross Domestic Product from 2021/22.

Robertson last week announced that after 2022, he would broaden his target of reducing net core Crown debt to 20% of GDP, to keep it within 15% to 25% of GDP.

If the New Zealand economy doesn’t become more productive or increase immigration to alleviate capacity constraints, the Government’s ability to spend more – even if its debt target allows it to – will continue to be restricted.

Speaking of spending…

Robertson in the press conference refused to clarify whether another one of his Budget Responsibility Rules – to keep core Crown spending at around 30% of GDP – would stay after 2022.

He said he would “take another look” at whether his five rules capture what the Government is trying to achieve with its wellbeing focus and would have more to say about this ahead of the 2020 general election.

He said Treasury didn’t have anything specific to say about government spending, despite it supposedly recommending the Government target a range rather than a single figure when it came to debt after 2022.

Coming back to immigration…

Net migration gains continue to run at the high levels they were at under the previous government.  

The latest figures show a net gain of 56,137 people in the year to March – an 11% increase from the year to March 2018.

Labour before the 2017 general election campaigned on it expecting its policies to see net annual migration fall by 20,000 to 30,000 people. New Zealand First campaigned on cutting net annual migration to 10,000 people.

However, since taking office both parties have been relatively quiet on migration; the Government not introducing any major policies to target migrant numbers.

As Robertson alluded to in his response above, a change it is making is replacing the Immediate Skill Shortage List with a Regional Skills Shortage List.

The regional list will be divided into 15 regions, providing a clearer picture of where the shortages are than the immediate skills shortage list, which was only divided into six regions.

While Robertson isn't keen to increase migration, it is plausible capacity constraints are what's holding the Government back from trying to slash migration. 

Net long term migration

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37 Comments

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15
up

both sides lab and nat use immigration to fuel the economy hence the reluctance to reduce to a number we would find more comfortable to absorb over 1% per year is a high rate compared to anywhere else in the world.
talk about the chicken and the egg , we need more to help our infrastructure too many are overloading our infrastructure

11
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Yes, but only the current coalition campaigned on reducing numbers and then did nought. It won't be forgotten come election day.

"New Zealand’s unemployment rate is rock bottom and the output gap is at zero. The economy is essentially maxed out and producing everything it can." I don't know that i believe this. It may be right for the big cities, but being regionally based, the opportunities seem to be minimal. There are plenty of minimum wage and part time positions around, but real jobs and opportunities are awfully thin on the ground. To get ahead, with good qualifications and experience people need to move to the cities with all the costs that go with that. the younger set generally expect and look forward to that as a part of getting those qualifications, but older workers find it much harder and having to move to the big cities may well be a significant step backwards.

I understand your point but most businesses wouldn't view open spaces in regional centres as spare infrastructural capacity to move their businesses in. I can barely think of one regional urban centre that could readily accommodate a business looking to move their 50-100 person operations away from Auckland or Wellington.
We can't put the cart in front of the horse, therefore infrastructural facilities needs to be built before companies move their operations into the regions.

Shane Jones has a $3B regional fund to spend doesn't he?

The economy is maxed out producing non-productive housing stock, bureaucrats and unsustainable debt levels. All the other descriptives are BS.

This sounds like BS to me...something else is going on here.

12
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New Zealand’s unemployment rate is rock bottom and the output gap is at zero. The economy is essentially maxed out and producing everything it can.

Jenee, do you really believe this?

You know this measure is known as 'U3' right? The measures are U1 to U6. And each are different. U3 is the one used by OECD countries.

Do you realise this means that if you're employed for 1 hour per week, then you're considered employed? Or that if you haven't been to a job interview for the last 4 weeks you are not considered unemployed?

So there's a lot of criticism of this measure as being too optimistic. But governments like it because it allows them to report almost full employment. When the opposite is true.

If you look at the labour stats, you can see that there are circa 350k people in this country who are of working age, but not working. And the number of people who are underutilised is very very high. Utilisation rates have been falling around the developed countries for some time. Many people have say 20 hours work per week and want more.

All of this means the economy is no where near maxed out. Please dig into this a bit. I can provide links if you require.

Agreed. Employment figures also do not account for skill mismatches, i.e., a candidate taking up a job below their skill level due to lack of opportunities in their skill area creates slack in the workforce that’s not reported in the headline figures or utilisation reports.
An example of that is when you put the envious wage growth that industries boast in IT and engineering domains under scrutiny, you realise that these positions are limited to a minority, while hundreds of qualified locals and migrants are stuck in career limbo as helpdesk support or small account managers at companies.

Maybe they aren't good enough to earn the big bucks, true fact - not everyone has the skills and mindset to be a big earner.

My wife is working age, but not working and I'm fine with that. Are you expecting full time Mum's to be out there working because it makes the numbers look better? In some ways it's a positive that people can make it as single income families.

Sounds like the ideal family unit of days gone by, but sadly not PC anymore. Also not in the governments interest. Wife working, more tax, more family breakdowns, more welfare and more reliance on govt!

Your wife should be working, have you got kids, they should be out working as well, put a few tents in the backyard, rent it out to all these new people as we don't have enough infrastructure for them, drive them to work in a van, save them having cars, get clogged up on that motorway in Auckland. I'm sure the dog can carry a baby or two if you make them work as well.

Whats not to like about all this new immigration, life use to suck anyway when we could afford a house on one income, crates were 15 bucks, butter was cheap, and it took 18 minutes from Papakura to Auckland at peak times.

Love all this congestion and more people blocking up the hospitals, increasing capacity for schools. Its the future, bring in more I say, we can look like the UK, London must be the size of Auckland, thats 10 million more people we can fit in, more crime, more pollution, more infrastructure costs, great stuff.

Thanks for the comment Davo. Feedback always welcome.

I was aware of these issues with the data, but didn’t believe they were material enough to change the points I was trying raise. This was in part because the likes of the RBNZ, Treasury and various bank economists reference the same data when talking about capacity constraints. I do however concede that saying the unemployment rate was “rock bottom” was technically not the best choice of words. "Very low" may have been better. 

I also checked in with our data expert, David Chaston. This is what he said:

Davo36 is 'right' only in a technical sense. But wrong on a perspective basis. He/she is trying to assume that because of the 1hr work rule, therefore there is a massive undercount. I doubt that very much. Yes, there is an undercount, but I suspect as the output gap is closing, this is as well. (And I doubt RBNZ economists are just using the U3 basis in their calcs - they will be using the whole range from full-time back through the various levels to 1 hr. I don't know this for certain, but I just can't imagine they will have missed this sort of detail.)

I base my assumption on a chart we produce, in here. see "Part timers seeking more work". That has been stable at an absolute level at about 60,000 for more than a decade, even though the employed labour force has risen by +25% in that time. So that is evidence that part-timers who want more work are a stable but small part of the workforce. In 2007 they were 2% of the workforce which rose to about 3% in 2009. In 2019 they are back under 2%. So if part-timers seeking more work is so low and declining, it is hard for Davos36's conclusion of massive undercount to be true.

Here is Reddell's take on the fallacy of using migrants to solve "labour shortages":

"Thus, individual firms treat migrant labour as increased labour supply. And, for each of them, of course it is. But migrants add demand as well as supply – reasonable estimates (and the consistent historical view of New Zealand macroeconomists are that in the short-term the demand effects are stronger than the supply effects. After all, immigrants have to live somewhere, shop somewhere, work in some building, and few bring their household appliances (etc) with them. So an individual migrant might indeed ease an individual employer’s labour availability issues – and if there are lots of migrants in a specific sector, they might even ease those constraints for the sector – but for the economy as a whole:

•in the short-term high inward migration exacerbates overall labour shortages in the economy, and

•in the longer-term, high migration makes little or no difference to overall labour shortages (or, eg, to the unemployment rate).

10
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"output gap at zero" Fake news perhaps?

There were 286,450 working-age people in receipt of a main benefit as at the end of March 2019. Up 4.8%.
Of these, there was a 10.9 percent increase in the number receiving jobseeker Support - now 131,720

The proportion of the working-age population receiving a main benefit as at the end of the March quarters declined from 10.9 percent in 2014 to 9.3 percent in 2018, and then increased to 9.5 percent by the end of the March 2019 quarter.

Trending......

If the New Zealand economy doesn’t become more productive or increase immigration to alleviate capacity constraints, the Government’s ability to spend more – even if its debt target allows it to – will continue to be restricted.
Is he implying one of the two solutions to our infrastructural woes is to increase immigration further from the 1.5% per annum. Now that we've put in place a solution for high debt levels by slashing OCR and creating yet more debt, next on the agenda is to solve an infrastructure crisis aggravated by migration with more migrants.

Hi Adviser, that statement isn't from the Minister. It's an editorial line from me - the writer of the piece.

So you set yourself some "responsibility rules" then get rid of the rules because they are getting in the way?

10
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Wow, some commonsense for once!

The Government says businesses would be able to fill these roles if they increased pay rates for the occupation.

Yeah, I was pleasantly surprised to see this. Seemed like a bit of a change in position to me?

Cafe's are a very low profit business, very few cafe' owners are making over 70k per year. Making coffee is a low skill job and is easily automated, if wages go up higher - those jobs will be filled by robots.

And if that happens then NZ will miraculously achieve some productivity growth.

skudiv,

Cafes is PLURAL,ie. more than one. Why do you use apostrophes(plural again,so NO apostrophe) when do clearly have no idea what they mean.

Yes! Immigration has nothing to do with infrastructure, we hardly need 50,000 people to build the next motorway project. Review of Stats NZ figures show immigration has been about supressing wages - cafe managers, dairy workers and rest home workers were highest categories.

Absolutely sickening how National ran the country for "their mates".

New Zealand’s unemployment rate is rock bottom and the output gap is at zero. The economy is essentially maxed out and producing everything it can.
I absolutely disagree with this statement. Labour underutilisation - discouraged workers and underemployed workers - is more like 11.3% - which is a national disgrace. That's at least 1 in 10 people seeking more hours. https://www.stats.govt.nz/indicators/underutilisation-rate
If we had genuine full employment in NZ we would see proper inflationary pressures with wages going up.
As to the labour bottlenecks in construction - why isn't this government training the 11% to take up jobs in the construction sector? OK some are not suited to that. But many young men and women in the regions are. Give incentives. Make the training free. Pay a student allowance. Subsidise lots of apprenticeships. Government has forgotten how to manage an economy after all these years of failed hands-off. And if the private sector could do it so well, why don't we see housing to meet consumer needs? It's not rocket science.

..Importation and exploitation of cheap foreign workers. Some being excellent immigrants, but also many aged and infirm and basically unskilled (but with dodgy degrees...ask a Nurse). This and destruction of our environment was the Nat Party approach. Labor will have to do a lot wrong before the Nats get my vote back.

In 2008 the unemployment rate was at 3.8%, but now, with unemployment at 4.2%, we are at "rock bottom".
Clearly there needs to be some sort of royal commission inquiry into rocks, so we can get to the bottom of their bottoms.

.they should keep an eye out for the rock star while at it.

they just check for a pulse every now and then.. he ran out of nose-candy a while back and he's out for a while.

I heard a passing comment the other day - "Who knew that rock-bottom had a basement?" Time to play Limbo - how low can you go?

Time for a new working group to assess:

1) how much load 100'000 immigrants put on infrastructure and housing
vs
2) how much 100'000 immigrants contribute to the building of new infrastructure and housing

Thousands of those working in NZ on visas are chefs, pastry cooks, restaurant managers, retail workers and waiters. I guess those immigrants contributing to building new infrastructure and housing have to be fed by other immigrants.

Anyone who has escaped a 3rd world life will be a shining star of radiant wellbeing for our new way of reporting govt successes. In fact the recent immigrants working in coffee shops and at the checkout will be far happier than their brothers and sisters who are engineers and project managers and professors. The well paid high skilled immigrant can always move on to a wealthier country (Oz, UK, USA, etc) so for maximum wellbeing we need thick but happy foreigners.

Good move. Relying on the immigration tap to drive the economy is a sugar rush and a dead end. Doesn't lead to higher quality of life overall, just more traffic and higher house prices. Why can't we focus on growing the slice of the pie for everyone who is here already??

Finance Minister Grant Robertson says "" what we desperately need to do is improve the skill levels of New Zealanders"" but the OECD says NZ has an exceptionally highly skilled workforce. Who should I believe?

From https://www.oecd.org/skills/piaac/Skills-Matter-New-Zealand.pdf
the 1st point is:
""Adults in New Zealand score above the OECD average in literacy, numeracy and problem solving in technology-rich environments.""
the 2nd point contains
""New Zealanders who speak English as a second language are over-represented among adults with low proficiency""