Rodney Dickens sees a risk that a cut to permanent migration will weigh on the tourism sector as visitors shy away from New Zealand - for reasons that are by no means clear

By Rodney Dickens*

When time permits between writing reports, doing contract work for clients and the on-going project to modernised our tired website, I do background research to further my understanding of how economic and housing cycles work.

Not long ago I decided to investigate the link between migration and tourism flows which is more relevant now the government plans to cut immigration by 20,000 to 30,000 per annum.

In an April Raving I pointed out that the impact of international tourism on the NZ economy wasn't just about visitor arrival numbers. When it came to the likes of consumer spending it was more about net tourism (i.e. how many foreign visitors are in NZ spending money versus how many NZ residents are overseas spending money).

Consequently, in the first instance I looked at the link between net tourism and net migration and found a curious high correlation of 0.76, akin to a 76% mark in an exam, as shown in the chart above.

Tourist visitor numbers are still growing and the economic multiplier process from the boom in tourism discussed in the April Raving is still at work.

However, growth in the number of NZ residents heading overseas temporarily has started to exceed growth in the number of foreign visitors.

As a result, net tourism, like net migration, is starting to show hints of falling.

The April Raving also discussed why falling net tourism will have a negative impact on the level of domestic spending while falling net migration means the permanent and long-term flow of people between NZ and the rest of the world will make a less positive contribution to growth in consumer/domestic spending.

It is possible that when NZ is in/out of favour with permanent and long term migrants it is in/out of favour with tourists.

The obvious question is whether the curious link that appears to exist between net migration and net tourism cycles means the government's plan to cut immigration will also have a negative impact on tourism (e.g. discouraging immigrants may also discourage some foreign tourists).

As discussed in our pay-to-view reports, net migration faces challenges in addition to those posed by the government's immigration policy.

Emigration has already starting to increase in response to a growing number of immigrants finding that things don't work out in NZ and leaving.

Signs of improvement in the Australian labour market also pose a threat; with people emigrating to Australia hugely dominate total emigration.

This threat is greater because of the low number of people heading to Australia for OE over the last three years (i.e. a growing pool of would-be OE seekers).

This most likely means greater upside risk to emigration in response to improving Australian job opportunities even allowing for some of the policy changes in Australia that make it a somewhat less favourable destination for would-be OE seekers. An improving Australian labour market would also mean fewer Kiwis returning from OE.

This means that if the government is successful in its plan to cut the number of student and work visas issued to foreigners by 20,000 to 30,000 per annum over the next year or so, there is likely to be a significantly larger fall in net migration.

Compared to the 24,000 student visas issued in the last year the government wants a cut of 6,000 to 10,000 on the assumption a significant proportion of student visas are issued for low quality studies and are effective means for people to gain the right to work here and gain residency.

The government plans to cut work visas that totalled a bit under 46,000 in the last year by 14,000 to 20,000, with 9,000 to 12,000 coming from a clampdown on people converting student visas into work visas post-study and 5,000 to 8,000 coming from cuts in general work visas.

There is also the plan to change somewhat the criteria for work visas including a regional focus and an option for building firms to attract immigrant workers to help cater for the government's KiwiBuild plan (i.e. build 10,000 "affordable" homes per annum for 10 years).

There are reasons for questioning whether the government will achieve the cut in immigration:

• maybe there aren't as many low quality education providers abusing the student visa system as Labour has assumed;

• maybe pressure from employers will make it hard to cut general work visas;

• if fewer of the courses catering for foreign students are low quality than assumed by Labour it reduces the scope for cutting the number of people with student visas being able to convert them to work visas post-study.

But, again, even if immigration isn't cut by 20,000 to 30,000, net migration may well fall this much and potentially more as a result of the other drivers discussed above.

The government's plan to cut immigration could have direct negative impacts on tourist numbers:

• a reduced number of people visiting NZ first as a tourist so they can check it out as an option to study or work for themselves or their children;

• friends and relatives of people who are stopped from coming for student or work visas not coming as tourists because there is no one to visit;

• maybe NZ's reputation as a welcoming country will be damaged by the immigration cuts and the planned ban on buying of existing dwellings by foreigners.

So it is possible the government's immigration policy will have some negative impact on tourist visitor arrivals vaguely in line with the link suggested by the chart above.

However, while I can see a case for their being some linkage between net migration and net tourism cycles - the idea that NZ is in/out of favour with tourists at the same time it is in/out of favour with migrants - the chart is still somewhat of a curiosity rather than something that I take as gospel.

There is a high correlation between foreign visitor arrivals and immigration but when any two lines move up over time this is always the case without any necessary link or causation between the two (left chart). But there appears to be an element of NZ being in/out of favour with foreign travelers and migrants at the same [time].

However, it is questionable whether there is any link between NZ residents leaving temporarily, mainly on holiday, and the number leaving on a permanent or long-term basis (right chart).

The primary drivers of emigration by NZ residents (the state of the Australian labour market and to a small extent the state of the NZ market) are different to the primary drivers NZ residents heading overseas temporarily (the state of the NZ economy and labour market and to a small extent the exchange rate). The lack of linkage in the right chart fits with the disparate drivers.

But there appears to be some justification for the apparent link between net migration and net tourism cycles shown in the chart. And there appears to be a reasonable case for expecting the cut in immigration planned by the government (and at least one other policy) to pose a mild threat to the tourism industry.


*Rodney Dickens is the managing director and chief research officer of Strategic Risk Analysis Limited.

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27 Comments

One of the things I ask people who have recently migrated to NZ, either permanently or on visas they hope might lead to residency, is whether they visited NZ before they moved here.

My guess is possibly as much as 70% of people who visit NZ subsequently apply for a longer term visa.

I've thought for a long time that immigration IS our real business model - and the only one that's easy for bureaucracy and government to implement. All other aspects of our economy are in effect advertising a product: NZ.

"immigration IS our real business model" It has been since 1840. I'd like to try a different model - one that isn't a ponzi scheme.

"My guess is possibly as much as 70% of people who visit NZ subsequently apply for a longer term visa." -
now that is truly a silly statement ; NZ gets over 1M visitors a year ; the number of permanent visa applications is an order of scale lower.

up
17

Sick to death of immigration and therefore, ever increasing population spruikers.
We cannot keep this craziness up forever.

No different across the Tasman and possibly worse. Immigration has had a strong role to play in the "success" of both countries since the GFC and also since the end of the mining boom in Australia.

As a percentage of population, our immigration is off the planet. Australia is very extremely high at 0.75%, whereas ours is 1.6%.

The only thing I seem to ever pick up from Rodney's articles is that he still hasn't grasped the elementary concept of correlation is not causation. This is a distressing persistent theme.
Perhaps this link might help.
http://www.tylervigen.com/spurious-correlations

And to further reiterate - look at the majority of developed countries; their tourism rates are experiencing positive growth, but without the happy meal visa lolly scramble we have going on.

I have a problem with the first graph which charts tourism arrivals and net migration.

Why _net_ migration?

Apples and oranges.

""The government's plan to cut immigration could have direct negative impacts on tourist numbers:
1) a reduced number of people visiting NZ first as a tourist so they can check it out as an option to study or work for themselves or their children;
2) friends and relatives of people who are stopped from coming for student or work visas not coming as tourists because there is no one to visit;
3) maybe NZ's reputation as a welcoming country will be damaged by the immigration cuts and the planned ban on buying of existing dwellings by foreigners.""

Well they are the three propositions. All must be true to some extent but are they strong or weak relationships? Fortunately it is easy to test by checking country of origin. The statements if true then we would find as many tourists from India as China but we don't; therefore disproved.

My conclusion if the government cuts immigration it will have only a mild indirect effect on tourist numbers.

"My conclusion if the government cuts immigration it will have only a mild indirect effect on tourist numbers."

And the benefits will far outweigh any downside.

I'd doubt this is going to be much of an issue at all. Just yesterday an article (was it here or NZ Herald) was predicting a massive uptick in Chinese tourism around the globe, based on sheer numbers of people with the wherewithal to travel. These numbers were of middle class tourists, not the high-end luxury tourists.

Yes, a tsunami of newly wealthy Chinese and Indian tourists, the size of which few Kiwis are unable to comprehend. And which this country will be unable to provide the infrastructure and labour to accomodate.

The coalitions crackdown (which I support) on low quality immigration will significantly worsen the problem. We will either have to limit the number of tourists or increase temporary work visas.

Or put the price up :)

It is generally agreed that there is a limit to how many tourists can be accepted without destruction of what they have come to see. But the same argument about immigration levels being too high are labelled as racist.

The article about middle class Chinese was dramatic but it will also apply to a growing middle class in all developing Asian countries. NZ tourism needs to move away from tourism on the cheap (freedom campers, etc) but somehow retain the feeling of space and freedom that makes us so popular.

The collapse in the NZ$ should take care of any reduction in immigration numbers. If nothing else, the Aussies will be here every other weekend.

As long as they go home after.

This article raises an interesting issue. After a visit to a very busy Rotorua earlier in the year I wondered if/when we might start asking it about NZ too.

Are too many tourists visiting Iceland?

http://www.bbc.com/news/business-41725713?ocid=socialflow_twitter

Thanks for the info. You put my point better than I did - if immigration and tourism are strongly linked then Iceland with minimal immigrants would have few tourists.

The correlation of tourism and immigration in this article is spurious. The main reason NZ has a tourist boom is the number of reported terrorist incidents in USA, Africa, parts of Asia and most of Europe.

High house prices in Iceland too.

And they speak an incomprehensible language (to 99.9% of the planet's population anyway)

Having lived in Rotorua for several decades, I see tourism as a mixed 'blessing'. Domestic tourist are the best, they often spend money in locally owed and operated businesses, foreign tourists less so, their money is on the whole captured by foreign owned business, and often before they even leave their home country.

Also of interest I know very few people who work in, or own tourist related businesses, and the general feeling around here is to avoid tourist related employment as it is low payed, casual or zero hour contract, and seasonal.

From a local point of view, it would probably be better if we saw more people from Auckland, and less from Asia. The Asian tourist particularly seem to be bus bound and often using free locations like Government gardens and the Redwoods.

For a very long time many conservationists have worried about NZ having too many tourists - it's a worldwide thing, for example;

http://www.sfgate.com/world/article/Machu-Picchu-in-danger-from-too-many...

Real thought needs to go into the impact of human numbers on our biodiversity threats such as kauri dieback, didymo, undaria etc. Folks are looking at the new levy with respect to solving our infrastructure deficit in the main - but more car parks and more public toilets also bring with them increased threats.

What is too many depends on how well spread they are by location and time of year. NZ is lucky to have winter tourists to partly balance the summer tourists.

I do like the idea of deliberately reducing tourists - we need a sort of anti-ATEED.

Or at least cut ATEEDs budget and pointless overseas visits.

Last week when in one of NZs iconic costal areas on business, I visited a natural attraction I believed to be less well known. I was clearly mistaken about that as it seems to have been ’discovered’ by tour operators. A stream of loudly talking and shouting bus tourists jostling for position, drove us off the viewing platforms. In October, not really the high season.

Lets go for highly reduced numbers, and making more money off them.

A lot of migrants work in and associated with tourism?