NZ Herald business editor at large

Should migrants pay for infrastructure costs?

Auckland traffic on the Southern Motorway. Photo / File
Auckland traffic on the Southern Motorway. Photo / File

The Government should consider a special levy on immigrants to cover the increased funding pressure on infrastructure, suggests a new report by think-tank The New Zealand Initiative.

The report, titled "The New New Zealanders, Why Migrants Make Good Kiwis", is broadly positive about the economic impact of immigration.

It is written by Jason Krupp, who has been a Research Fellow at the New Zealand Initiative for three years, and economist Rachel Hodder.

It concludes that immigration should not be copping the blame for high house prices and warns Kiwis' fears about immigrants taking their jobs tend to be overblown.

However, on the issue of infrastructure it concedes that record levels of net migration have put increasing pressure on the Government to fund new roads, schools and hospitals.

"No research seems to have been conducted at a local level on whether the financial contribution of migrants sufficiently offsets the costs it imposes on local jurisdictions in the long run," the report's authors write.

"But even if they do, the timing differences of when infrastructure costs must be paid and when councils collect rates can create financial and political issues at a local level."

On the basis that it is a broadly a positive for the economy, the Government should consider imposing additional fees on arrivals before it moves to cut back on immigration numbers, the report concludes.

The New Zealand Initiative says it works closely with its members, policymakers across the political spectrum, the wider business community, media, academics and the general public. The organisation conducts independent research on a wide range of policy issues.

The report cites a 2013 study by BERL economists Ganesh Nana and Hugh Dixon - "Fiscal Impacts of Immigration in 2013" - which assessed the value of migrants to the Government accounts at $2.9 billion. On a per capita level, it was equivalent to $2,653 per migrant.

"By comparison, native-born New Zealanders contributed a positive $540 million, or $172 per person. This reflected the older age structure of the native-born population," the New Zealand Initiative report says.

The levy could be bonded (that is held by the crown) with a view to reimbursing it if the migrant settled here long term.

But as a measure to address the social concerns of those calling for cuts to immigration, it could be used to pay for costs such as return airfares if the migrant was unable to support themselves or if they committed a crime.

"This flexibility would allow policy settings to adjust to changing circumstances. Rather than review the approval targets and deny entry to high-quality migrants who just didn't make the cut, more of the cost could be passed onto migrants," the report says.

The report makes the case that "economic worries about immigration are overblown" and argues that New Zealand's current settings are broadly about right.

But as well as suggesting an infrastructure levy it suggests a few other policy changes.
In particular it recommends that more of the responsibility for assessing the kind of skilled migrants New Zealand needs should be devolved to business.

"The free market is a much better decision-maker on how many imported pineapples or cars New Zealand needs. Likewise, the number and types of skilled workers New Zealand requires is for businesses to decide without the strong hand of government," the authors write.

"If a business wants to hire a skilled migrant, it is unclear why the government needs to step in to assess their qualifications and skills."

It also advocates the negotiation of more bilateral migration agreements - of the kind we currently have with Australia.

It notes New Zealand currently has a number of working holiday agreements around the world and suggests the country could try and extend this framework to a bilateral business visa scheme to invite entrepreneurial migrants to start businesses here.

New Zealand immigration levels are currently at record highs. Net migration for the year to November was 70,400. That has prompted concerns that migration is flattering New Zealand's economic performance.

New Zealand has experienced annual GDP growth of 3.5 per cent, but that is considerably lower on a per capita basis.

The report argues that most economists view immigration favourably.

An economy which is experiencing a net migration gain provides more opportunity for growth than one where there is a net migration loss.

However, it does quite specifically address the concerns of former Reserve bank economist Michael Reddell who has argued that New Zealand's immigration policy may have undermined our productivity in the past 50 year or so.

Reddell's 2013 paper identifies three "failures": the failure of New Zealand incomes to keep up with comparable economies, the failure of the real exchange rate to adjust as would be expected by the relative productivity decline, and the failure of interest rates to converge to international levels."

However, the reports authors are not convinced arguing: "Even if immigration is affecting GDP per capita, it is not evidently making anyone worse off. Taken to the extreme, a perpetual flow of migrants who did not work but purchased goods and services might reduce GDP per capita. But who is worse off? Businesses have more consumers. The net effect is the money the migrants brought with them flows into the economy."

Interestingly both this report and Reddell - writing on the topic on his blog Croaking Cassandra - accept that there is a lack of empirical data on the economic benefits of an open immigration policy. But they differ on whether the default, in the absence of data, should be an open immigration policy or a more restrictive model.

- NZ Herald

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