Paul Glass: Targeted immigration is a strategy worth considering

New Zealand has one of the highest rates of immigration growth in the Western world. Photo / Nick Reed

Opinion

• Paul Glass is principal Devon Funds Management.

Following John Key's announcement that he is stepping down as Prime Minister, the political scene in New Zealand is likely to become more uncertain. While there are few short-term investment implications, the new leader will need to set out clear long-term policies on growth, immigration and infrastructure.

One of the big issues that needs to be debated is what type of economic growth we want in New Zealand.

Many of the world's challenges have been caused by the explosive growth of the human population. Just more than 200 years ago there were fewer than 1 billion people on the earth. Today there are 7.4 billion and the United Nations estimates there will be more than 11 billion by 2100.

From a New Zealand perspective, a low population is one of the factors that make us special and an attractive place to live and raise a family. However, New Zealand has one of the highest rates of immigration growth in the Western world and about three times that of the United States relative to the size of our population. Just to put this into context, in New Zealand our net immigration rate is running at 70,000 a year against a population of 4.6m (1.5 per cent), whereas in the UK it is 330,000 a year against a population of 64m (0.5 per cent). Yet in the United Kingdom the immigration rate was such an issue that it was a major factor behind the Brexit vote.

There is no doubt that this rapid rate is putting huge pressure on our infrastructure, particularly in Auckland, which is struggling to keep up with demands for more housing, transport, education, parks and healthcare. We have no strategy in place for dealing with this rate of growth or spreading it to where it is needed in the regions.

The Auckland Unitary Plan is a glaring example of our lack of long-term planning; many more houses will be built but without any real policies for the infrastructure needed to support them. It is a blueprint for a poorly designed city that will ultimately resemble Los Angeles.

In the not-too-distant future Auckland will be one large subdivision from Orewa to the Bombay Hills connected only by the parking lot we call State Highway One. Once farmland is torn up for housing, its natural beauty and productivity are lost to us forever.

So why are we wedded to this breakneck rate of immigration growth? Politicians are addicted to it because it lifts the most commonly used measure of headline GDP growth. However, this headline figure doesn't adjust for population growth and so simply gets boosted by immigration flows. What we should really be interested in is how are we doing on a per capita (per head of population) basis and there the numbers aren't anywhere as flash at the headline figures. For example in the year ended March 31 headline real GDP (gross domestic product) growth was an impressive 3.1 per cent, while at a per capita level it was a meagre 0.5 per cent.

If you think of GDP growth as a cake, then the basic measure just tells us what size the overall cake is. The per capita measure tells us how much cake we each get.

One of the arguments used in favour of strong immigration is the skills shortages we have in some sectors. We think this is a weak argument. Let's look at sectors like tourism and IT where we have issues around skill shortages. These sectors had the same issues more than a decade ago and rather than letting the market send the right signals to universities, training institutes and companies that we need to train more people with skills (by pushing wages in those sectors up materially) we brought in more low-cost labour.

This helps company profitability in the short term but does little to help real wages grow, which is important for our economy in the long term. We also have around 130,000 unemployed people, which seems like an incredible economic and human waste when we are importing, often low-wage, migrants to fill shortages.

One idea that has been floated, is that New Zealand should target a desired rate of population, deduct our natural growth rate and make up the shortfall with targeted immigration. That way we can plan for the necessary infrastructure and housing required rather than trying to play catch-up.

Targeted immigration can be good for an economy. It can bring in new ideas, cultures and increased entrepreneurship. As a nation we need to have a clear plan as to what rate of immigration we want and ultimately what we want our economy to look like. Do we want to be a higher-wage economy with strong clean, green credentials, much like a Switzerland of the South Pacific or do we have some other aspiration?

The problem with having no plan is that you're not sure where you're trying to go and won't recognise it when you get there. Just growing our population so we look like the rest of the world seems like a dumb plan. In a troubled and unstable world New Zealand has something increasingly special to offer and NZ citizenship should command a premium.