Migrants contribute $8.10 billion to the economy but prejudice obscures

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Over the past decade, immigration has shifted to temporary visas (Productivity Commission Report)

Venkat Raman
Auckland, November 13, 2021

The contributions of temporary visa holders including migrant workers and international students to the national economy are not often understood, according to the 2021 Report of the New Zealand Productivity Commission.

Dr Ganesh Nana, Chairman of the Commission said that available studies are static assessments and that many overstate the actual impact.

However, his Report states that the migrant community contributes about $8.10 billion through income tax, excise duties and GST, while the estimated fiscal expenditure on this population is about $4.81 billion.

Higher net fiscal impact

“Consistent with international studies, the annual net fiscal impact of migrants in New Zealand increased with the duration of stay and was higher than for the locally born population. Younger, more highly skilled migrants have a larger positive fiscal impact. From arrival, the net positive impact increases with the duration of residence, as immigrants move on to higher-paying jobs and therefore pay higher taxes while drawing less on social assistance,” Dr Nana said.

While the country’s immigration policy has shifted from permanent migration and settlement to people on temporary visas, there is no proper management of volume or value, it said.

The Report acknowledges that New Zealand’s migration story is not only about arriving people and states that apart from recording one of the highest rates of inwards migration in the Organisation for Economic Cooperation and Development (OECD), but also has high rates of outward migration.

Australia accounts for the largest share of migrants from New Zealand mainly due to higher levels of income. Therefore, the net migration of New Zealanders is outside the control of immigration policy. Studies of the fiscal impacts of immigration find varying results, reflecting the different policy settings and cohorts in each country. That said, the studies reveal consistent themes.

The measurement process

According to Dr Nana, the period over which fiscal impact is measured matters.

“Children tend to be a net fiscal cost, due to their use of public education and health services. Once a person reaches adulthood and enters the workforce, they typically become net contributors, as their taxes paid often exceed the cost of services used. And upon retirement, people once again make larger withdrawals (eg, pensions, health) than tax payments. However, snapshot or static assessments of fiscal impacts may provide an unduly positive result, as they may not take into account the effects of the permanent migrant cohort ageing and having children. Dynamic studies, in comparison, try to account for these lifetime effects on the public purse and generally find smaller fiscal impacts,” he said.

Shift in attitude and policy

The Report cites the shift in attitude and immigration practice from focus on permanent migration and settlement to temporary migration (eg, student and work visas).

This is largely the result of policy choices made by governments in response to demands from employers for workers, the growth in the international education sector, and a points system for residency that awards points for having an existing job offer and/or New Zealand work and study experience.

Dr Nana said that the composition of the growth in temporary visas is important.

“For example, while most people who enter on working holiday visas leave New Zealand at the end of their holiday, many who enter on a student visa category will stay for multiple years. Some will transition to a post-study work visa and then to a residence visa. Young, skilled migrants are positive for the public purse Migrants can contribute to the community by helping to meet the costs of public services. All residents of a country affect public finances through their contributions (tax payments) and withdrawals (receipt of cash or in-kind public services, such as education, healthcare and social assistance),” he said.

The difference between contributions and withdrawals is known as ‘fiscal impact.’

A positive fiscal impact means that a person contributes more than they use, while a negative fiscal impact indicates the opposite.

Migrants are healthier

“Migrants are on average healthier than the existing population (although this difference fades over time). There is no little or no evidence of immigration increasing crime. That migrants would, on average, provide a net positive fiscal impact is not particularly surprising given (a) the new host country has not had to pay for their schooling and childhood healthcare up to this point (b) immigration policy in developed countries typically tries to screen out people who might present high fiscal costs (eg, people with major health conditions, the elderly, people with criminal records); and (c) governments also typically restrict eligibility by some migrants to public services, at least for a period,” Dr Nana said.


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