May 20, 2026 Episodes Economics

The Economics of Australian Immigration — Martin Parkinson [Immigration Series]

61 min read

Part 1 of a three-part immigration series this week. Mark Cully (history) drops Thursday; Mike Pezzullo (acculturation, social cohesion, security) drops Friday.

Martin Parkinson ran the Australian Treasury (2011-2014), then the Department of Prime Minister & Cabinet (2015-2019). He's also thought deeply about the economics of migration policy, not just in those roles, but also in his past academic life and as chair of the Australian government's 2023 Migration Review (the most significant review of our migration system in more than three decades).

We discuss the central but underappreciated issue with Australian migration policy today: we've drifted into a quasi-guest-worker system without anyone voting for it. About 2.3 million people in Australia now go to sleep here every night with work rights, but without being citizens or permanent residents.

We also work through how migration affects living standards, the "Soviet-style" occupation list that governs our skilled program, how to attract true global talent, how international student fees came to subsidise roughly half of Australian university research, and what should be the upper and lower bounds for net migration. We end up in an unexpected place: how much more geopolitical weight would a larger population actually buy us?

Video

Transcript

JOSEPH WALKER: Today it's my great pleasure to be speaking with Martin Parkinson. Martin was secretary of PM&C [Australia’s federal Department of Prime Minister & Cabinet] from 2016 to '19 and secretary of [Australia’s federal] Treasury from 2011 to '14. Most relevant to today, he chaired a major review into Australia's migration system in 2023.

Just to put that into context, that was the most significant review of migration policy since the Fitzgerald Report of 1988. And the world it's trying to grapple with is a world partly caused by the Fitzgerald Report, or the ultimate adoption of some of its recommendations by the Howard government. And I describe that world as a kind of post-settler society.

So that's really the world that Martin's report is trying to grapple with. And I'm sure it'll be the cornerstone of the conversation about what the next paradigm looks like for years to come.

So Martin, welcome.

MARTIN PARKINSON: Thanks, Joe. Pleasure to be here.

What surprised Parkinson about Australia’s immigration system?

WALKER: So first question: last year I did an interview with Abul Rizvi on immigration, which I think you've listened to.

PARKINSON: Yeah, it's a great interview.

WALKER: Thank you. And at that point I knew very little about how migration policy worked, and so I was trying to learn very basic stuff – just, you know, the different streams within the permanent and temporary program, how net migration is calculated using the 12-out-of-16-month rule, et cetera. And it was really interesting learning all of that. And one of the first places I went to was your report just to learn some basic things and get a kind of lay of the land.

PARKINSON: You've got to get out more, Joe.

WALKER: I really do. It's fair criticism. But I'm curious: you’d run PM&C and Treasury, but neither of those departments owns migration. When you came to chair the review in late 2022, how much did you know about migration policy at that point and what did you do to upskill? Who were you calling up, and what were you reading?

PARKINSON: Great question. So I've got a labour market macroeconomics background. So I've always been interested in what are the sort of drivers of labour market behaviour and macroeconomic performance. And so migration had always been part of that. But I'd never really delved into the intricacies of it.

When I was secretary of Prime Minister and Cabinet, the then-secretary of Home Affairs came to me at one stage and said “look, I think we've got to start to think about the structure of the migration program and whether or not some of these visa classes are actually delivering what it is that we should be trying to achieve as a country”. And that got me thinking about “well, what is the objective of the migration program”?

We had a number of conversations there. The government of the day wasn't actually that interested in grappling with any of this. This is the end of the Turnbull era, beginning of the Morrison government, and there wasn't a lot of appetite by the minister [Peter Dutton] to take a serious look at migration. It was more about playing at the margins. And then I left and COVID hit.

During COVID I got a call from Clare O'Neil, who said that she really wanted to take a deep step back and [a] deep think about the migration program and all its dimensions, and would I be involved? So happily [I] said yes. I had two fellow reviewers, John Azarias and Dr Joanna Howe, and we had a great team of people with deep expertise in migration. We had access to people who'd been around these traps a lot.

So a lot of it was not so much reading, but actually sitting and talking to people – understanding how the system worked, understanding the journey of the potential migrant from the point of application through the application process through to arriving in Australia.

And to be fair, one of the things that had puzzled me for a very long time – and Tony Sheppard, the businessman, had mentioned this to me years and years ago, and it just stuck in the back of my mind – he said one of the things that was really striking about that settlement-era immigration program was the emphasis being put on settlement services and integration. One of the things that as we went into looking at this was the realisation that that settlement services dimension really wasn't there to the same extent. There's great work being done, but it's not the same scale and structured programs that there were with that great wave of post-World War II migration. And so that also was something for us to reflect on through the course of the whole review.

WALKER: What were some of the other things that surprised you during the process of the review?

PARKINSON: The first thing that surprised me was … because like most people, I always thought of the migration program in terms of the permanent migration program …

WALKER: Me too.

PARKINSON: … and then that being supplemented by a relatively small, highly skilled temporary migration program. And what really surprised me was I had not realised how much the temporary skilled program had morphed into a – it's difficult to find quite the right words, but it had been eroded. It wasn't – it hadn't been consciously turned into a low-skilled worker program, but it had de facto become that.

That had occurred because there's a thing called the TSMIT, the Temporary Skilled Migration Income Threshold. That used to be set such that the only people who'd come in under that temporary skilled program were very highly skilled people. But that was frozen in 2013 with the change of government, the election of the Abbott government. And so that eroded in real terms over that decade. The end result was that you had a lot of people coming in who there was no way you could describe as highly skilled.

The other thing that was really surprising to me was that when we did this, there were about 2.3 million people who would go to sleep here every night, of whom 1.8 million had work rights [and] were not either citizens or permanent residents. And I had never really appreciated during my time in government just how much those temporary streams had grown.

If you fast forward to now, that number's probably half a million more, 2.9 million thereabouts. And that 1.8 million with work rights are probably 2.3 or thereabouts. So you just step back and think about it: now, not all those people are working, but if you think about what we've done, we've built an economy that requires something like 2 million more workers than we have citizens and permanent residents. And the magnitude of that was what surprised me.

WALKER: Yeah, it's so interesting and important. We'll come back to that.

How does migration affect Australians' living standards?

WALKER: I just want to take a step back and talk about how migration affects Australians' living standards. So if we decompose GDP per capita into three different terms – the share of the working age population, the employment rate, and then productivity – I just want to go through each of those terms and talk about how migration affects it.

So the share of the population that's of working age, obviously migration is going to increase that share because we bring in a lot of young skilled migrants. I think that one's pretty easy.

PARKINSON: It has big economic benefits if it's done properly. But as Abul [Rizvi] said to you in the podcast you did with him, one of the big consequences of that is that it slows population ageing. So that buys us more time to address the sort of fundamental demographic challenges that pretty much all countries in the West face.

WALKER: I'll come back to that, because I’ve got some questions about how we think exactly about the benefits that delivers. But migrants to Australia will probably increase the share of the population that's of working age, because they're very young. So the second term is the employment rate. Again, I assume migrants will probably increase that because they're often coming in for jobs, or how do you think about that?

PARKINSON: Yeah, so there's some data in the migration review where we look at the employment rate of pre-existing Australians and of migrants. And you see in most cases the participation rate of the migrant is higher than that of the existing population. That's typically – if you think about it in an aggregate sense – because the migrant is younger than the average Australian. We're not bringing in people of my age who are no longer in full-time work.

WALKER: Yeah, okay, so then that brings us to the third term, which is probably the juiciest one – output per worker. Empirically, how do you think migration to Australia affects that?

PARKINSON: So I think it depends what you're talking about. It's a bit like the old Castrol ad: “Oils aren't oils, Sol”. So migrants aren't migrants. If you're bringing in highly skilled migrants, typically they complement the existing Australian workforce. So that's beneficial for Australia as a whole in terms of typically boosting productivity and boosting wages, with spillover effects for the existing Australian workforce.

The flip side is if you're bringing in unskilled workers and there are Australians in those areas, typically they're competing for jobs. I say “typically” because there are some areas where Australians just won't take the jobs, and if you didn't have unskilled workers you'd have to really rethink how you manage those businesses, those sectors.

But assume that there are Australians already working in those areas. Then typically unskilled migrants or lower-skilled migrants compete with Australian workers. So the increase in the size of the labour force means that there's not the same incentive to invest in capital-saving technologies. So you typically don't get the same boost to overall productivity, and typically what you do is get a bit of dampening in terms of the wage growth and the employment prospects for the existing population. Now that's very broad-brush.

WALKER: So that capital widening at the expense of capital deepening, that doesn't happen as much for the high-skilled migrants?

PARKINSON: Well, the high-skilled, you've got to think of them as actually coming in with a lot of embedded human capital, either if they're coming in or if they're trained here. So if those high-skilled migrants happen to be people who we've trained at Australian universities and then they go into jobs at the skill level that they've been trained for, then we're actually getting deeply embedded human capital.

But yeah, typically the higher-skilled migrants are complements for the existing workforce. And if you think of them as being a mix of those coming directly from overseas and those coming through our education system, then you're getting a mix of different experiences, different skills, and that's typically productivity-beneficial.

WALKER: So then putting all that together over the last, say, decade, do you think migration to Australia has, on net, raised living standards, it’s been neutral, it’s lowered them?

PARKINSON: Look, that's an empirical question, and I couldn't answer that off the top of my head. But I would say that if you think about moving from a migration program that is predominantly skills-oriented and high-skills, to one that increasingly is focused on no-skills or lower-skills, then it ex ante is unlikely to deliver for you the growth in living standards that you would have got from the same-sized migration program remaining focused only on higher-skilled [workers].

What those actual numbers are would be a matter of going and crunching them. Brendan Coates and the Grattan Institute folk have done some work in this space, but off the top of my head I can't recall exactly where they ended up.

The political equilibrium

WALKER: So if I wanted to make a really broad, maybe unfairly broad, critique of the report, it would be: there was too much economics. And I'm curious whether or how you think about the political equilibrium. To make that clearer, some of the recommendations might not be able to be adopted or maintained if they lead to a lot of, say, public dissatisfaction about the mix of migrants or migrants' ability to integrate into the Australian way of life. So I'm just curious how you think about that. Or was it sort of out of scope?

PARKINSON: No. I'm intrigued that you think there was too much economics in it, because there's quite a lengthy discussion about what should be the objectives of the migration program.

Part of it is Australia's economic prosperity. So that's skills, productivity, exports and so on. But one of the other dimensions in there, [that] we're very explicit about, is a fair labour market – building a population of Australians, a cohesive group of Australians, being able to project Australia's interests into the world.

And then there is discussion in there about the importance of social licence and how do you get social licence. We're quite explicit in discussing that if you don't have effective integration, then you will have an erosion of support. So maybe – I hate to say it – maybe we're just a bit too subtle for you [laughs]. But we definitely were not large-P political about it. We couldn't pretend otherwise.

WALKER: You do kind of identify those considerations. But there's no detail around, for example, how migrants should be integrated, or things like that.

PARKINSON: Well, we weren't asked to do that.

WALKER: So that's sort of out of scope.

PARKINSON: Yeah.

What are the objectives of the migration program?

PARKINSON: The terms of reference were really: “step back and tell us about the migration program and how it's working”. And when we did, the first thing we sat down – I think probably in our very first meeting – we said, “what's the objective of the migration program?” And everybody sort of scratched their heads and said, “well, is it this, this, that?”. We ended up with a whole series of potential objectives for it.

Then we said to our support team, “what are the objectives of the migration program?” They said, “well, it's very unclear”.

It was quite clear in that post-settlement, post-World War II settlement era. Indeed, it was still pretty clear up until probably the late '90s, when it was still focused on the permanent migration program and the relatively small highly-skilled temporary migration program.

But if you look back over the period of the 2000s, it becomes very unclear what the program is – what the program objectives are, I should say.

And in part, I think the three of us realised that part of the challenge had been that issues had arisen and ministers had addressed those issues in isolation. So a problem would pop up over here, they'd invent a new visa class or a new set of arrangements for it, and then there'd be an issue that would pop up over here and they'd do that. And there was no overarching structure, there was no clear objective that was written down that they would go back to and say: Is our response here consistent with this objective? Is the objective no longer the correct one?”

And so that's why we pointed out to you – it's page 22 of the report – the core objectives that should drive the future migration system: building Australia's prosperity, so meeting labour supply needs; supporting exports; enabling a fair labour market, so complementing employment, wages and conditions for domestic workers; and preventing exploitation.

Now, we didn't do very much on exploitation in here because at the time we were doing this, Christine Nixon was doing the report into exploitation of migrant workers, and so we were walking together and sharing information.

But the other [objectives] were around …

Supporting sustainable population growth – so that goes to much of the discussion you were having with Abul.
Building a cohesive multicultural community of people who participate fully in Australian life. And if you think about that, you parse that, you've got to have settlement systems that don't allow people to congregate in groups and not integrate. So we actually talk a bit about settlement support systems and the like in the report.
Enable the reunification of families. We've got a very odd system of family reunion. We might touch on that later, but it's a real crapshoot if you're trying to get your family out to Australia.
Protecting Australia's interests in the world, especially with partners in the Pacific. So that's really family ties, people-to-people ties.
And then the last was ensuring we've got a fast, fair, and efficient system. Because if the Australian community doesn't think the system is working in its interests – that it's fair to the migrants but it’s fair to the existing Australian residents – it's going to lose popular support.

The drift into a guest-worker system

WALKER: So we've kind of drifted into this almost guest-worker system. As you mentioned earlier, there are about, give or take, 2.3 million people here at the moment on temporary visas with work rights. Do you think if that system was put to the Australian public as a proposition, they would have voted for it or supported it politically?

PARKINSON: No, I don't think they would have at all. And indeed, we say in the report that we've ended up with a sort of group of permanent temporaries, almost a quasi-guest worker system, without anybody consciously sitting down to decide that we should do this. And that if you asked the Australian public, as a review we thought it would be highly unlikely that they would have agreed to that.

Now, we should be careful – that 2.3 million, they're not all people who would fall into the guest worker group. There's only 100,000, maybe 200,000 of those who fall into the permanently temporary underclass group. That 2.9 million that we talk about, a chunk of those are visitors – in this city they're tourists, or they're coming to see family members and the like.

WALKER: And so they wouldn't even get counted towards NOM, would they?

PARKINSON: No, typically not.

WALKER: Because they'll be here for fewer than 12 out of 16 months.

PARKINSON: Yeah, they're not going to be here for 12 months out of 16. But there's, what, over 700,000 New Zealanders who can come and go freely. They're not really – you wouldn't think of them in the guest worker category. You've got around about 700,000 or 800,000 students. Now because of the work rights that students have, they've filled jobs in inner cities that are very casual.

WALKER: Food delivery-type stuff.

PARKINSON: Food deliverers, baristas and the like. But then you've got working holidaymakers and so on.

So you can't say that that whole 2.3 million people who've got work rights would all be guest workers. But there's a group who have come in through what was the temporary skilled migration program who are still here. And then there's a group of the students who have graduated who have moved from bridging visa to bridging visa and are still here.

And one of the questions we had was, as you look forward, you really want to prevent the creation of a large group of people who have no pathways to permanence. So you've probably got to do two things. One is you've got to think about how do you stop that happening in the future – so how do you stop adding to that stock? And then what do you do with the stock?

Our view is in the end very similar to the discussion that you were having with Abul, which was for the group that's already here, you find pathways for most of them to become permanent, but then tighten up on the arrangements so that people who come in the temporary skilled program don't think that that's a pathway to permanence, because it's not.

And with the students, think about when you're bringing them in and they're going through our education system, how do you pick the best ones who are going to make a contribution to Australia? So don't be in the world of automatic work rights post-graduation, but think about which ones you want to give temporary graduate visas to. And then from that group, think about which of those you might offer pathways to permanence. And that takes us into another issue which I assume we might come back to: how do we make sure that the international students who are graduating, who we might want to keep here, are actually being matched properly by the labour market into jobs at the skill levels they've been trained for.

WALKER: Yeah, we can come back to that. I had a question on … So one of the big shifts that's happened over the last couple of decades, as you alluded to earlier, is that we no longer have control over net overseas migration through capping the permanent program. There's been this disconnect between the permanent program …

PARKINSON: Well, we never even had control over NOM then. The difference was that we controlled the inflow.

WALKER: And so with the rise of temporary migrants, NOM is now much more volatile and much more difficult to control.

PARKINSON: Much more volatile year to year.

WALKER: So I think Canada's capped their temporary migrants. We already capped the permanent program. Why haven't we just put a cap on our temporary program? Or if that's not possible, why haven't we put a limit on visa stay periods or something like that?

PARKINSON: It's a good question. Let's think about what the temporary program comprises. You've got the demand-driven skills program where an employer is basically looking for somebody with a particular set of skills to do a job. Now, if we capped that and the cap was binding, then we're basically saying to a bunch of employers “you can't get people with those skills to come to Australia”. Forget for the moment whether that's a good thing or a bad thing – the consequence of that is going to be skill shortages in the first instance.

[The] second group you've got are working holidaymakers, and I don't have the numbers off the top of my head, but there can be … 200,000 thereabouts maybe. They are people whose term is capped – it's typically 12 months, and then they can seek another 12-month period, but then they're meant to go home.

Then you've got things like PALM, the Pacific Australia Labour Mobility program. Those people are term-limited, and they go.

But where you've had no caps until recently have been that demand-driven component – students, New Zealanders.

And if you think about putting caps on, if you cap your working holidaymaker numbers below where they are, you're going to get screams from the industries where those people really make a contribution, so agriculture and tourism.

If you think about capping New Zealanders, well, you've got a huge political constituency on both sides of the Tasman. We've seen that over the last decade in the lobbying to get New Zealanders access to permanency. That's not going to fly.

And if you try and cap the demand-driven component, as I said, you're not going to have any short-term effect that doesn't involve the creation of skill shortages.

So if you look across that component, where's the one bit that government can relatively easily impose a cap which has been uncapped up to now, because there's not really a political constituency, it's students.

And yet what is the argument for capping international student numbers? I think there's a very legitimate argument if you wanted to make it around ensuring the quality of education for everybody who's at an Australian university. But that's not the argument that's being made, and it's not the one where the evidence is strongest.

It's really – you can actually impose a cap and hence limit inflows, because remember, NOM is inflows less outflows. So you can impose a limit on some part of inflows and it's the politically easiest thing to do.

And we've got the spurious argument that the rationale for doing this is because those students are driving up house prices. Well, you know the conditions in which students live. They're not buying houses out in the areas that Australians want to live. They are definitely not driving up house prices in the outer suburbs or in regional Australia. They are typically congregated around where the universities are themselves. And this whole argument that they’re driving house prices is spurious.

WALKER: I guess you could say they are driving rents.

PARKINSON: Well, they are in an aggregate sense. But they're not typically renting places that Australians might want to rent.

I think there's a legitimate argument – and the government has actually said this – that universities have an obligation to provide more housing themselves if they want more international students. I think that's a perfectly reasonable position for governments to take, and it's a way then of addressing this inchoate concern in the community about the link from students to house prices.

But what's really driving house prices is not students. It's actually supply problems in the Australian housing market.

If we just come back to NOM again, one of the things that we said in the report was, if you really want to think about this from a long-term perspective, don't try and cap the program year to year. Don't try and worry about the numbers year to year. Think in terms of maybe a 10-year NOM strategy and tie your NOM objectives to programs for infrastructure investment, for housing investment, for social infrastructure and the like. Particularly so if you're talking about the state-driven part of the migration program.

WALKER: That makes sense. To what extent do our free trade agreements actually restrict our ability to cap temporary visas?

PARKINSON: So, some of our free trade agreements have labour mobility agreements in them. And that means that a certain number of people from those countries can have the right to come and work here. And if you aggregate those numbers up, the more we put them into FTAs, the bigger a group that will be in our temporary migration program.

WALKER: Do you know what some of the most important FTAs are there? I don't think the Indian one has a labour mobility clause...

PARKINSON: Yeah, you've got me on that. I'm just not across the details of those FTAs.

WALKER: But sorry, I interrupted you.

PARKINSON: But it is something that maybe 15 years ago didn't exist and now is increasingly an issue that's put on the table in FTA negotiations.

WALKER: Labour mobility.

PARKINSON: Labour mobility.

WALKER: So the more that gets put on the table, the more we're kind of relinquishing control of NOM.

PARKINSON: Well, of another component.

So if you think about NOM, we can't control the outflows. And we also can't control a big chunk of the inflow bit that we haven't even spoken about, which is Australians returning home. One of the great ironies is that the explosion in NOM, in inverted commas, that we saw post-COVID is really a function of two things.

One, decisions that were taken by the previous government during COVID, which was to ease visa conditions so that once people could travel again, it was much easier to come back. And hence we got catch-up migration that we would have had over those years, but it all came in a one- or two-year period. So you get this spike.

But we also had a huge number of Australians come home. And when Australians have been overseas for more than 12 months out of the last 16 and they come home, then they count as part of NOM.

So those NOM numbers, they bounce around and then they plunge through COVID and then they spike back up. And now they're coming down. Now, yep, Treasury got forecasts wrong, but it's a pretty darn hard thing to forecast.

But I suspect if you step back and look at it in a couple of years' time, we're going to have had this trough, spike, end of spike, and things are going to look relatively stable again. Say, somewhere in between 200,000 and 300,000 a year in NOM.

How leveraged are universities to international students?

WALKER: So how leveraged is university research funding and domestic student places to international students? If we started cutting international student numbers, at what point would that start to trade off with research and/or domestic places?

PARKINSON: Immediately.

WALKER: Okay.

PARKINSON: So it's worth understanding what's happened here. If you go back in the not-too-distant history, Australian governments funded about 80% of the cost of running a university. Now they fund about 30 to 35%. That's a phenomenal reduction. Partly what's filled the gap has been domestic fees, paid by domestic students. But the big chunk, and the thing that's changed most, has been international student fees.

International students: essentially their fees cross-subsidise research and probably pay almost 50% of the total cost of research that's done in universities. This is a really important thing, because you’ve got to go back in history, but both sides of politics, both parties of government have been equally complicit in this. They didn't want to keep funding universities. They'd limited government contributions for students. They wanted to reduce government expenditure as a share of GDP on research and development, and there was only one lever left. So they said to the universities, “go for it” – go out and recruit international students.

So the universities did. It was the only way they could make the books square. If you wanted more domestic students educated, and you wanted world-class research that was going to benefit the Australian community, you had to go and get international students.

The net result of that is that today international students contribute in the region of $30-odd billion a year through the university sector, and probably $8 or maybe $10 [billion,] thereabouts, to the VET sector. So if you cut rather than cap – remember, what the government's done is cap international student arrivals at 295,000 – that's going to impact on the ability of universities to fund faster growth in research. But if you cut from where we are today, there would be an immediate impact on the ability of universities to do research.

And this isn't an abstract thing. If we think about Australian research and development expenditure, the OECD average is 2.7% of GDP. Australia spends 1.7%. To put that in context, South Korea spends 4.9% and the US spends 3.5%, and we spend 1.7%.

Of that 1.7%, the business community is responsible for about 0.8% or 0.9% of GDP. It is amongst the lowest and probably even the lowest share of GDP by the business community anywhere in the OECD. And then in the rest of that gap between the 0.8, 0.9 to 1.7, what's happened is essentially direct government expenditure on R&D has fallen and university expenditure on R&D has risen. And so those two things have stayed roughly the same. I'm being very broad in my language here, but essentially international students haven't just contributed to the funding of research by universities; they've substituted for the funding of research that had been done by government.

So the consequence for the Australian community if we're not doing that R&D is really quite significant, because we're aspiring to being a world-leading economy, right close to the frontier in a whole variety of areas. But we're not actually doing the research and development that's commensurate with it today. And then the one way in which we are funding what research and development is done is at threat of being taken away.

So that's again one of these points I keep making: people have to think through the second- and third-order consequences rather than just focusing on cutting students because they're driving up housing prices. When A, they're not driving up housing prices – that's caused by a completely different set of issues – and B, if you cut international students, this is going to be the consequence.

WALKER: Think about the trade-offs.

PARKINSON: Yeah.

Should we have an official low-skilled migration program?

WALKER: So you mentioned earlier we've got a de facto low-skilled migration program. Should we have an official one?

PARKINSON: That's a really good question. And again, in the report, we put both sides and we say, look, there is a legitimate argument – socially, ethically – that you shouldn't have temporary migration, that if you're going to bring people here, you should give them a pathway to permanency. On the other hand, there are social and ethical arguments in favour of temporary migration programs. You've got to decide where you want to land on this. Our problem is that we keep talking in terms of a program that leads to permanency, but we've actually created this permanently temporary underclass.

So I personally am of the view that you can have a temporary program, but you've then got to be serious about making people go home at the end of that period. That can be part of your international education program, or it can be part of your unskilled program. But the worst thing you can do is let people stay here, [and] become part of the fabric of the community, with this constant threat that they're going to be kicked out.

We have over 100,000 people here now who have been here over five years on bridging visas, meaning they're hopping from visa to visa to visa while they're trying to get permanency. And because of weaknesses in the points system, which is part of the permanent program, if you're a weaker applicant but you can work in Australia, then there's a real incentive to stay in Australia, work in Australia, because you get more points for being here and working here.

So you might be applying from overseas. I might be in Australia. I'm nowhere near as well skilled as you, but I'm getting points because I've actually come to Australia, whether as a low-skilled worker or even as a student, and I've managed to stay by visa-hopping, and now I've racked up a number of years working. So I get looked at more favourably than you. But you're clearly going to make a better contribution to the Australian community than I am. But I'm embedded in the community.

So is it morally and ethically fair now to rip me out and tell me to go, or would it have been better to have not let me get embedded in the community? I'm an economist. That's a political question.

Using migration to slow population ageing

WALKER: So I said we'd come back to population ageing. Just as a toy model, say you have a population where the average life expectancy is 80 and you've got a perfect population pyramid, so the median age is 40. And say you bring migrants in at the age of 20 to “young” the population. That first migrant who comes in as a 20-year-old is going to young the population.

But if you've been bringing those migrants in for, say, 60 years, the median age of those migrants – because they start to age after they join the population – is going to be 50. And so in the long term, they're actually going to increase the median age of the Australian population unless you bring in ever-increasing proportions each year.

So tell me how you think about the value of using migration as a tool to slow population ageing, if it's true that the level has to accelerate, and if it doesn't [accelerate] it seems to make the problem bigger in the long term.

PARKINSON: Well, it doesn't make the problem bigger if you look over the long time span, because you get benefit in the short term and some additional cost in the longer term. But if that benefit has been invested wisely, the community is wealthier.

WALKER: And it compounds.

PARKINSON: Yeah, it compounds.

But you're entirely right. And I think I touched on this earlier: a key benefit of bringing in migrants is technology transfer, skills they bring, but also making the population younger. So they're going to be in the workforce for longer, and you're going to get the fiscal benefits, the productivity benefits, the economic growth benefits. But at the end of the day, from the day they arrive, they're ageing just like everyone else.

So if your objective is to stop population ageing per se, then you've got no choice: you've either got to increase your fertility rate dramatically, or you've got to bring in ever-increasing numbers of migrants.

So I don't think of it as a strategy that permanently prevents population ageing. What I think of it as is a strategy that buys you time to prepare, and that buys you time irrespective of how productive people are. But if you get the right migrants, it actually buys you more investable capital so that you can be wealthier when you've got to tackle these problems than you would otherwise be. And that to me is the important bit.

WALKER: And when you say it buys you time to prepare, what would that plausibly look like? Is it having a national debate about whether we increase the retirement age, or is it getting more efficient around aged care, or …

PARKINSON: All of the above really. So you think about retirement age. When the age pension was introduced, the retirement age for men – and I'll get this wrong – but it was about the average life expectancy of a male, or might have even been a little bit above that. And it was a little below the life expectancy for a female.

We've, through considerable political pain at the outset – not that it really seems to resonate with anybody anymore – slowly managed to raise the retirement age to, what are we now, 67 heading for 68. And yet over that time, life expectancy for men will have risen from somewhere in the mid-60s to the high 70s, early 80s. Australian life expectancy is in the low 80s. Women have higher life expectancy than men. But we've added probably 15 to 20 years. And yet all we've done is add a couple of years to the pension age.

Is that a good thing or a bad thing? If you take a narrow view of wanting people to work, then it's presumably a lost opportunity to have more people working. On the other hand, from a societal perspective and thinking about the utility of individuals and aggregating them up, people are presumably having an enjoyable time in their retirement. Otherwise they would be working.

Now, I say “otherwise” – but then you've got questions about, well, are there more people who'd like to work than can work who are post-retirement age? In other words, do we have discrimination against older workers and so on? All of those are arguments in there. But it does seem to me that creating the capacity for people to work longer if they wish to is socially beneficial.

But one of the challenges we have is the way our tax system works. Effective marginal tax rates for those people on the age pension become quite high if they want to keep working. As more and more of us no longer depend on the age pension and are dependent on superannuation, that becomes less of an issue. But even so, it still says that you want to think about how the tax system encourages or discourages older people to work if they want to.

So for me, it's really about the choice set available to them. I shouldn’t say “to them”, given I'm well past that – including to me.

WALKER: “To us.”

PARKINSON: Oh, come on. You've got a while to go [laughs].

What “skills shortage” actually means

WALKER: So I've got some questions about the permanent skilled program. The first one is, I was hoping you could help me understand how to think about skill shortages as an economic concept. It feels really slippery to me.

PARKINSON: It is.

WALKER: And one of the ways in which it feels slippery is I don't understand how it's not just another version of the lump of labour fallacy. Because if you're bringing in more workers to address a skill shortage, they're going to add demand to the economy, which is theoretically just going to shuffle the shortage around.

PARKINSON: Only if there are no spillover effects.

WALKER: Yeah, so if you’re just cloning all of your workers and scaling up the economy.

PARKINSON: Yeah, which is why the people you want to bring in are those who are going to have more human capital, on average, than the existing stock.

WALKER: So the composition really matters.

PARKINSON: Composition is a critical issue. It's not size. The size of the program has some dimensions to it, but it's the composition of the program that's actually critical.

WALKER: So is there anything more to say on how to think about skill shortages as an economic concept?

PARKINSON: Yeah. I find part of the issue here really interesting: skill shortages over what time period? So if I froze wage rates today, then I can point to the fact that two-thirds of Australian industries or occupations have skill shortages. But if I said, well, I'm going to totally free up the labour market and let it just rip and in five years' time look at it, the question would be, would the skill shortages still be there or not?

Because what would have happened is that wages would be bid up in some areas, which, if you take a long enough time period, people would move, either because they've got skills they could transfer to those occupations or they can train for those occupations. But the flip side of that is that you shift your skill shortages down the skills hierarchy and then your question becomes, well, what happens to those industries? Do they shrink?

Because ultimately at the end of the day, as you said, if you treat everything as a fixed lump, it's a whack-a-mole problem – pops up here, it's got to be paid for from somewhere else. So the question is, how do I utilise skills in the best way to deliver productivity growth and the like? And can I do that in ways that don't create skill shortages elsewhere? And if I am going to create skill shortages elsewhere, do I care? In other words, is that a skill shortage that gets created simply because wages don't move to make that sector more productive – that is, there's no capital deepening in that sector? You've got to remember here, for any fixed wage rate, the decision that the employer’s making is not just about “do I employ a person”, it's also “how much capital do I invest in?”

There are some areas where we've got skill shortages where you've seen very, very low productivity growth because they've become used to relying on really low-skilled cheap labour. And if that labour price went up, it's not necessarily the case that the sector is going to shrink dramatically. It'll depend on the extent to which they've got the capacity to invest more in capital.

So classic example – think agriculture. We used to have lots and lots of people on family farms. Look at the number of people who are in the farming sector now and look at the output: agricultural productivity on big capital-intensive farms has gone through the roof. Has agricultural productivity on small family farms grown by the same factor? I've got a pretty good idea what the answer is, but it's not an answer that's popular.

WALKER: As another example, before you go on – in his new book on immigration economics, Alan Manning talks about how the car wash industry in the UK suffered a technological regress in the 2000s where they went from a lot of automatic car washes to hand washing because of the availability of really cheap migrant labour, a lot of people being paid below the minimum wage.

PARKINSON: Absolutely, yeah. My local shopping centre, or shopping centres: [at] pretty much any of the car parks I go into, there is a hand wash operation there. It used to be that there were automated wash systems in multiple places. So maybe they're providing a higher-quality service and people are choosing that. But equally, it may be a function of the fact that there's a lot of relatively low-skilled labour available.

Just coming back to the issue of skill shortages though: one of the things that we prided ourselves on – and I remember leading Australian delegations to the OECD annual reviews of Australia… People looked at our migration program, when it was a permanent program that was directed at skills and a small temporary program directed at highly skilled people. This is back into the early 2000s, mid-2000s. We set the gold standard. We were the system that everybody wanted to emulate.

And this gradual erosion in the skilled migration program that occurred from 2013 onwards because of the freezing of the TSMIT, the introduction of labour agreements which basically said, even those requirements that we've got under the temporary migration program around age, around skill levels, around English level, around wage rates – well, all of those, you can get dispensation on them. That actually was another thing that eroded the skills program.

So if you come back and start to say we want to go back to a true skills program for permanent and a true skills program for temporary – and that's partly what the government has adopted based on the review of the migration program, by pushing up the TSMIT – you've then still got a really legitimate question, which is the one you asked before. What do we do about those industries that are now reliant on low-skilled labour?

Even if they've got capacity to displace labour with capital, they can't do it overnight. So how do we manage that? Do we run a low-skilled, unskilled program that's capped to assist those industries? If we do, do we run it for a long period of time? Do we make it a fixed period to allow those industries to adjust? They're really, really difficult questions. But the really important point is: wherever you land on that, don't allow yourself to do something that creates a new permanently temporary underclass problem.

Problems with the points test

PARKINSON: Just come back to the points system, because this is your permanent program. A key part of the problem that we've got with the permanent program now, and again we explore this in detail in the review, is that the permanent program is not picking people for the greatest individual contribution they'll make to Australia.

I'll give you a really good example. You and I are both applying for entry to Australia. You're 39 and a half, and I'm 40 and a half. You get 25% of your potential total points because you're under 40. I get dramatically less than that. There's a few months' age difference between us and we're identical in every other respect. That doesn't make a lot of sense.

WALKER: That's just dumb.

PARKINSON: That's dumb. So the Canadian system, which was modelled on ours, basically steps down each year. It takes account – there's no drop-off.

[In] the [Australian] system now, pretty much every applicant can get the maximum number of points on all of the criteria. So you end up differentiating between you and me on the basis that you went to a regional Australian university or you went and worked in regional Australia and I happen to be living and working in London or New York or wherever. So you get points for that that I don't get credit for.

One of the things that we urged the government to do – and they went out and had a series of consultations about it but are yet to release their response – is [to] go away and rethink the points system so that you're using it to actually pick the best people who are going to make a lasting contribution. Put greater differentiators in the system. And things that governments in the past have done for political reasons, like give more points if you're in regional Australia, think about whether they are really the key determinant.

Because at the end of the day, this is another issue where you're trying to fix a legitimate problem with the wrong solution. Why is regional Australia unattractive to Australians? It's a lack of education opportunities. It's a lack of infrastructure – transport, telecommunications, health, social infrastructure. Why do you think regional Australia is going to be attractive to migrants if it's not attractive to Australians?

Deal with those things and you'll make regional Australia attractive to everybody. That's the reason why – if you just take Victoria – Geelong, Ballarat, Bendigo are all thriving places. Because they've got good infrastructure, good education systems, and they're within an hour and a half of Melbourne. So there you've got a geographic advantage.

But then you look at New South Wales, or more challenging still, South Australia or Queensland – where you've got much larger distances and smaller regional populations – if you really want people to go to those places, you've got to make it attractive. If you make it attractive to Australians, you're going to make it attractive to migrants. But simply thinking you can dump migrants there and leave the absence of infrastructure that's led Australians to no longer live there – that's not a solution.

WALKER: This might be a naive question, but something like updating how we treat age in the points test, which is the most important factor, the most highly weighted factor…

PARKINSON: It’s 25%.

WALKER: Yeah. Updating that to something more akin to the Canadian system where each year takes an incremental step down rather than the kind of crazy system we have at the moment…

PARKINSON: But also the Canadians give less weight to age in aggregate.

WALKER: Okay. But not necessarily copying that part,but just how each year is treated, what that curve looks like – that kind of seems like a no-brainer. Just from a policymaking perspective… What are the constraints on government there? The report came out in 2023. Why isn't that something that gets picked up the next year? Why is it 2026 and we still haven't made an obvious improvement like that?

PARKINSON: Because at the end of the day, the benefit from doing that in isolation is quite small when the rest of the points test is skewing you in the wrong way.

WALKER: Okay, so you want to update the whole thing at once.

PARKINSON: You do it holistically.

WALKER: And that takes time.

PARKINSON: Yeah. And as I said, they've done the consultation process. I hope it's not on the back burner. I really hope that come this budget we see some progress there. Because if we don't, it's a lost opportunity.

Our Soviet-style occupation list

WALKER: When I was learning about the permanent skilled program last year, one of the things that struck me was this thing called the occupation list, which is this funny kind of top-down, Soviet-style list of occupations that underpins really both the employer-sponsored visas and also the points-tested skilled independent visa, and the state and regional visas. Can you walk me through concretely what that list is, and how it's compiled, and how regularly it's updated?

PARKINSON: So this is one of those shake-your-head moments. The way it worked was that the government would compile a list of skills that were in shortage. But to do that, what they used was an occupation mapping that had been created for [the] Australia of 2001 or 2002. It's over 20 years old, and it had been updated at the margins since then. But basically the sorts of people that employers needed didn't exist back then – the occupations didn't exist.

So you had this bizarre situation where I might be looking for, let's say, a global procurement manager, because I'm running a business where I've got global supply chains. No such thing existed. Nothing remotely like it existed. So for me to be able to get access to bring somebody in under that category, I had to find the most comparable category. That might turn out to be “supermarket manager”. This was just nuts. And the time it took to update it, to get new occupations added to it, was incredibly long.

So employers were rightly frustrated that in a rapidly evolving world, roles that were now common but didn't exist 20 or 25 years ago weren't on the list.

WALKER: So how was it actually updated? Are there bureaucrats who…

PARKINSON: The bureaucrats were frustrated because it was such a difficult process to run. They had to sift through requests. And they didn't know whether somebody asking for this particular type of occupation… they had to then go and work out, well, is this a real occupation? How important is it to the Australian economy? They were frustrated because they didn't see the value-add of it. The employers were frustrated because the system was so clunky it couldn't deliver them what they wanted.

So one of the things that we said in the review is “think about a risk-based approach to bringing in people”. And so if you're talking about bringing in people under the temporary system, if I've got agency, it's very unlikely the employer is going to be able to exploit me.

So what might be an indicator of agency? It would be a professional qualification and a high wage rate. So, for example, I'm a highly qualified specialist, I work for Deloitte in London or I work for Bain & Co. in New York, and they need me to come out for a three-month or six-month or twelve-month stint to do a particular job. Why am I going through a process of trying to get that person identified on a shortage list and then bring them out? Just allow those people to come and go freely, but say those people have agency, they're not going to be exploited, because they can just get up and go to the next professional services firm.

The government adopted that. And then we said, well OK, right at the bottom of the skills distribution list, you've got a set of occupations where people have very limited skills, so they're unskilled. And as Christine Nixon pointed out, those people are really ripe for exploitation. We've got to be very clear: the vast majority of employers are not doing the wrong thing, but there's a small number who are, and they make it worse for everyone else. So you need a really close watch on that group.

And then you've got the vast group in the middle of occupations where you should be able to have more oversight than you worry about for the people at the top, because you just don’t have any, but not as much as for the people at the bottom end. And they've adopted that as a strategy.

And we said, you've also created these tripartite councils through Jobs and Skills Australia where you've got JSA, you’ve got the unions, you’ve got the employers. Surely, for that middle group in particular, they're the ones who can tell you if this is a legitimate shortage or not. And so you can really get away from this clunky, rigid, old-style Soviet-style planning and to something that is able to deliver in response to changing occupations.

But yeah, some of the stories we heard were just like pulling your hair out.

WALKER: Do you remember any of them?

PARKINSON: Well, that one about the global procurement manager was a real one. The closest analogy to the person… So this is a person who probably earns multiple hundreds of thousands a year and has to be able to understand global supply chains and have links everywhere. And the comparable occupation on the list is the guy who runs the local supermarket for Coles or Woolies. No disrespect to the guy who runs Coles and Woolies, but when you're trying to draw links that are so tenuous, it's telling you this system isn't just broken; it should be just thrown out.

WALKER: Is labour market testing also a bit Soviet-style?

PARKINSON: Yeah, well, it's the same issue. That labour market testing was what was taking up so much time.

WALKER: You're sending the government your Seek ads and…

PARKINSON: Yeah. And now what they've adopted – it was the first set of things they adopted out of the review – was to push up the TSMIT and then make these changes. Well overdue.

WALKER: So are you happy about that now?

PARKINSON: Happy? I think you need to be careful that the council rules don't end up being welcomed by everybody because they were less bad than what we had there, but themselves over time become inhibitors to flexible responses. That'll really come down to the degree of cooperation that you get between the employers and the unions in those areas.

You've also got to recognise that you're not going to have those councils in every industry. So JSA's got a big role to play there – Jobs and Skills Australia. That's a work in progress. We'll see how it goes.

We need to better utilise our skilled migrants

WALKER: So when it comes to our underutilisation of skilled migrants – because we have this much-vaunted permanent skilled program, but one of the issues that your review drew attention to was that we're actually massively underutilising our skilled migrant – can you talk through specifically what you see as the problems there, and also what the magnitude of those problems is?

PARKINSON: Yeah, so it's worth separating it and thinking about international students and the permanent program.

International students: this is a fantastic opportunity for Australia. They come to Australia, they pay us to educate them, we educate them up to the same level as our own students, and when they graduate, if they are able to stay here and work, they've been trained to be in what we would consider skill level 1 or 2. There's a five-level national skills rating system, and they come out with a degree or an advanced diploma, and you would expect them to be able to work in areas that are skill levels 1 or 2.

International students, those who stay here after university, 51% of them end up working in skill levels 4 and 5, which is essentially having had no additional education. And so you have to ask yourself, well, how could they have gone through an Australian university, graduated, and be down here?

Part of it is… well, there's a number of things that are all intermingled. One is that the post-study work rights were too short for people who needed to do supervised occupational on-the-job training after their university qualification – so if you needed to do a certain number of years to get your professional qualification. Almost certainly, if you were an international student, you would get a renewal of your visa. But if I'm an employer and I've got you and someone else to choose between, and you've got a visa for 18 months but it's a three-year post-qualification training program, and the other person's an Australian citizen, I'm not going to take you, right? Even though in three years' time, almost certainly you will have had your visa renewed, and so I could have. But there was that sort of uncertainty from the perspective of the employer.

But I do think there are other issues there. The universities need to do more on work-integrated learning for everyone – that is, for both the domestic students and the international students. But it was particularly acute for the international students because they typically don't have the same degree of networks and contacts. And so if we're going to pick the best of the international students that we've trained here, keep them here, offer them pathways to permanency, then we've really got to make sure that that transition from study to work is as good as possible for them, as it needs to be for our domestic students.

So that's the international student bit, where 51% of the kids who were graduating, who stay here to work, are not working at the skill level they've been trained for.

The really weird one, though, is in the permanent program. In the permanent program, about a third of all occupations claim to have skill shortages. Of those occupations, two-thirds have licensing requirements. Now, we know that there are about 700,000 people who have come in through the skilled migration program, the permanent migration program. The way that works: you apply, Home Affairs takes your application and says, “OK, Joe's applying for a skilled entry”. You go off to an assessment process whereby an independent assessor concludes whether or not your skills and experience are equivalent to what you would have if you'd been in Australia. Tick. You get to come in under the skilled migration program.

You then get to Australia and find that that actually doesn't allow you to work in the industry that you've just been told you've got commensurate Australian qualifications for. Now, by all means, there needs to be a period of perhaps training and adaptation to the Australian environment. But what's actually happening is that a quarter of a million of those people, who we've ticked as having commensurate skills and experience as Australians [have], get here and are not working in the areas that we've said they're skilled for, because they're subject to licensing requirements and they cannot navigate the licensing system. That licensing system is typically run by either the state governments or by professional bodies.

And so if you want to become an electrician, it's a minimum of eight months and around about $9,000 for you to get the additional qualifications. If you want to be a doctor, it can be 18 months or more and it'll be $50,000. But we've already let you in because we think you're an electrician or we think you're a doctor. And then you get here and hit this system.

Just a couple of numbers to give you a sense of this. Of that quarter of a million with qualifications in skilled professions, 20,000 of those people we let in because they were teachers, 50,000 engineers, 16,000 nurses, 5,000 psychologists, and 1,300 electricians.

If you think about the skill shortages that we talk about, not all those people are going to go into those jobs even if they could. But we've made it really difficult for them to get into those professions, even though to let them into Australia we said, ”yep, you are able to come in because we think you're commensurate with those professions”.

Go back to where you started the questioning about the size of the migration program, the impact on housing. There is a quarter of a million people in regulated professions, or close to… 650,000 people who we've decided to let into Australia because they're skilled people. So they're already here, but they're not working in those jobs. If we could better match those into the areas that we've said they're qualified for, we don't increase migration, we don't put any more pressure on infrastructure or housing, but we suddenly massively boost the supply of skilled workers. That's got to be a no-brainer.

It doesn't matter whether you want a small migration program or a large migration program; you surely want to best match people with the skills to the occupations. So this is just money for jam. This is just a productivity boost that’s sitting there on the table waiting for governments to do something about it.

What is the biggest problem with Australia’s migration system?

WALKER: So if you look at the migration system as a whole – all of the aspects that we've spoken about today, but also things that we haven't spoken about yet – which single feature or problem or shortcoming is the one that bothers you the most?

PARKINSON: Well, let me be a politician and answer the question I want to answer, not the one that you want to ask me – but we'll get to yours.

I think the single biggest issue that we confront on migration is confusion about what the migration program is. All this nonsense about mass migration to Australia has to be stopped by cutting the permanent migration program – that's been around about 190,000 people a year for a very, very long time. That's not the issue. The issue is that 2.3 million that we talked about who were here under various elements of the temporary program. So the biggest issue for me is, if we want to address any of the fundamental challenges around the migration program, getting people to understand that distinction.

Then what of the things that worry me the most? The permanent program is, I think, easily fixed. Just change the points test and let it keep going at broadly the sort of numbers it's at.

WALKER: It's a fairly standard technocratic exercise.

PARKINSON: It's a standard technocratic exercise. It's not where the problem is. The issue is in the temporary program. How do we make sure that if we're going to run a temporary skilled program, we're bringing in the right people? The review gave recommendations, the government's adopted those, so now we've got to make sure that that actually delivers what we think it will deliver.

How do we make sure that we don't create a future class of permanently temporaries again? What do we do about that stock that's here?

And then the really big issue, which is the one you've asked me about before, is where do we land on this: is it possible to have an ethical, socially ethical temporary program for unskilled workers where there is no path to permanency? That is, they come for a defined period of time and then they go. Where do we land on that?

On that one, I just don't know. I don't think my view has any more merit than anyone else's, because I think it's not so much an economic issue as I think at the end of the day it's an ethical issue. Do we want to run a migration program that gives everybody a path to permanency? Do we want to run one that gives people who come in under that system no path? If we want to do that, don't give them false hope. Don't allow them to jump visas. They come, they stay for a period, they go.

WALKER: Yeah, this is the kind of post-settler society paradigm that I said your report was trying to contend with at the start.

WALKER: Are there any models in history or in other countries that you think we should look to around that low-skilled temporary class?

PARKINSON: Well, I think what we don't want is a kind of permanently temporary guest worker system that allows people to come in and leaves them highly vulnerable to exploitation. So if we're going to run a temporary system, I think it's got to have safeguards so that it minimises the risk of exploitation, and it's got to not hold false promise to the people who participate. They've got to understand it’s: “you're in, you're out”.

Now, if they're in and then they're out, you've then got to recognise too that there's not an incentive for them to integrate. And is that what you want as a society? That's why I don't feel I know even where I would land on that spectrum. And I've thought about it for quite a bit.

WALKER: More than most.

PARKINSON: I keep thinking you can't hold out false hope. But equally, what potential social issues do you create if you're giving people no incentive to integrate in the Australian community? If they're coming and you're not encouraging them to integrate, then presumably you don't want them to stay for very long. And then you're asking, well, is that a sort of program that's really going to successfully deal with the labour shortages that you might have in the truly low-skilled or unskilled areas? I think I know the answer, but I flip-flop on it.

WALKER: And where do you stand currently?

PARKINSON: I think things like PALM [the Pacific Australia Labour Mobility program] are very clear: people can come for a defined number of months each year and then they go. And they are coming from our region, right? They’re coming from the Pacific. And they're not really looking for migration to Australia through that to become a vehicle to residence in Australia.

But [with] some of the other programs in this area, or the way in which the visas have been used in this area, the promise has been held out to people that this will get you into Australia and the Australian job market, and then you can hop visas and eventually settle. And that's the bit that I really don't like.

How can we attract true global talent?

WALKER: So I've got five other big-picture questions to finish on. My style is really just to ask things that I find interesting and important, so I acknowledge there's a lot of stuff we haven't spoken about today, like for example partner visas. If at the very end you feel like there's a burning topic that we should not omit, we can always come back to it.

But just to finish with my five big-picture questions. If you wanted to caricature the permanent skilled program, you'd say that we're really good at taking in people around the 70th or 80th percentile of the skills distribution, but we don't do as well for people at the 99th or above – the kind of people who are going to…

PARKINSON: The true global talent.

WALKER: Right, the people going to San Francisco and founding companies that turn out to be unicorns. Those kind of people. What's the most ambitious possible scheme you could conceive of to make Australia much more competitive at attracting those people who are three or four standard deviations out?

PARKINSON: I would make it almost instantaneous visa approval. And then you've got to ask: what would be the indicators of this brilliance? And that takes you into a different issue. But I'd try and identify five or six things that were prerequisites for being in that 99th percentile. And then if you hit that, and as long as the character test was – you weren't some sort of Jeffrey Epstein or something of that ilk – you get access to a visa in a week or ten days or something.

WALKER: So for example, if you've got a master's or above from a top 100 university in the world.

PARKINSON: Yeah, or if, let’s say, you've got that and you're working in particular areas right at the cutting edge, at a handful of companies that are themselves at the cutting edge. [Those conditions] might be prerequisites that in a sense short-circuit a lot of the steps that you'd otherwise have to go through. So that's in a sense your super global talent.

WALKER: And should we do something like that in your view? Is that desirable?

PARKINSON: Yeah, I think so.

WALKER: And why don’t we do it?

PARKINSON: But small. Small.

WALKER: What do you mean by small?

PARKINSON: A small program. Because the danger with all of these things is they get eroded at the edges. They spread out. And eventually you're bringing in people who don't really satisfy the criteria you started off with.

We've tried it before with global talent visas. I'm not talking capital-G, capital-T, as in names, but things that were sort of global talent. But they weren't really designed that well. We've done it with entrepreneur visas too. And in fact, a lot of those people were never really entrepreneurs. What they were doing was making a small investment in Australia in exchange for a passport. Those things are the things that erode public confidence in the system.

Is the migration system robust to AI disruption?

WALKER: If AI capabilities progress continues to accelerate and we start seeing big shifts in demand for white-collar jobs – where the changes are happening over a few months rather than a few years or decades, which is I think a plausible world in the next five to ten years, maybe sooner – do you think the migration system can keep pace with that?

PARKINSON: What do you mean? In the sense that the skills we need change quickly?

WALKER: Yeah.

PARKINSON: No, I don't think it can. But I think in part it's because the vast majority of us – and I put myself in this group – won't be able to keep pace with those sorts of changes. In that sort of world, it becomes totally disruptive. And our ability to try and work out what to do… there's a limited capacity for us to actually absorb that information and decide what to do. You can try and insulate yourself from it, but then it's happening everywhere else, and you just get left behind.

I say this advisedly, given the hats that I wear: I think this is moving far faster than the vast majority of businesses and virtually all politicians in Australia realise. And I think we're underprepared in our own thinking for it.

Flip it around, go back to your first question. We should be making it easier for those super talented people to come here to help. In this sort of world of disruption, having more of them in our court would actually not be a bad thing.

WALKER: So at a very broad level, can you conceive of a robust migration system for that kind of world? What are the principles it operates on?

PARKINSON: Gee, that's a hard question. And you're giving me, what, three seconds to respond to it? That's one we might need a couple of bottles of red wine to work our way through [laughs].

It's a good question. But remember, AI is not the only disruptor that we've got. We've got geopolitical disruption. We've got disruption in business models for other reasons. We've got supply chain reshoring, or friendshoring. So I think it'd be a mistake to see everything through AI. It's potentially dramatic in terms of the impact it has on societies. But in the here and now, I don't think we're moving fast enough in response to a lot of more tractable issues that we've got to confront, without worrying about “let’s assume that AI accelerates as dramatically as it could”.

WALKER: I’m just trying to think through what’s a plausible scenario in the kind of world I’m imagining. It might be something where we've just given 10,000 visas to aeronautical engineers and then three months later 90% of the tasks of aeronautical engineering get automated and now you've got [many of] these people stuck in the country for the next nine months or something. That's the kind of scenario that seems plausible.

PARKINSON: It could, but let's think about it. Going from a system where aeronautical engineers are building planes – to stick with your example – to a system where all of a sudden AI is designing and building them… you've got a whole series of regulatory steps before AI can actually be used in any of those.

So I think you've got to draw a distinction between the speed with which AI capability changes and the speed with which AI capability is used. I think that “use” bit will be slower. But I do think that notwithstanding the speed with which AI capability is changing, AI use change is occurring outside of Australia a lot faster than Australian businesses and government actually anticipate.

WALKER: Just to come back to your first point, that diffusion lag presumably might buy us time to…

PARKINSON: The diffusion lag is really important. It's a bit like going back to what we were saying about migration as an inhibitor, not a preventer, of population ageing: it simply buys you time. Diffusion lags buy you time.

One of the things that we know is if you get some firms right at the very cutting edge and your diffusion lag gets longer and longer and longer, then your firms, if they're back here, get left behind. And in a globally competitive environment, at the end of the day, they ultimately are dead, unless you decide you're going to do protection for everyone. And we've lived through that world, and that guarantees lower living standards.

What should the upper/lower bound for net migration be?

WALKER: Third big-picture question. What do you think should be the upper and lower bound for net migration's long-term contribution to population growth?

PARKINSON: I suppose I broadly think that NOM somewhere north of 200,000 and somewhere south of 300,000 a year is probably the sweet spot. So a permanent program that's in the high 100,000s and then a temporary program that, in a long-term effect, delivers us something like 100,000 to 120,000 a year.

Look, I'm pulling these numbers out of the air, but that seems to me to be about right. Because if you think back to what's happened to fertility rates – if you don't want rapid population growth, but you also don't want a situation where your population ages really quickly and then they all die, which is the Japan, China, South Korea, potentially Italy situation we were talking about before – then it seems to me somewhere in the 200,000 to 300,000 is your sweet spot.

WALKER: So then that's contributing maybe about, very roughly speaking, a half to two-thirds of population growth.

PARKINSON: Yeah. Because think about this the other way around. We had the Costello baby bonus. Historically, these sorts of things don't lead to big effects. It did push up the number of births, but not a dramatically significant amount.

And if you're looking for an economic impact, well, in the short term it takes more women out of the labour force. In the long term, when you get the benefit, you've got to wait for 20 years or so until those children have gone through the education system and are entering the employment market. So if you think you can fix this through fertility, you're actually showing a willingness to engage in long-term thinking that I don't see anybody willing to engage in on any other issue.

The Indonesian question

WALKER: So I first read your report last year when I was preparing to interview Abul [Rizvi]. I was rereading it again yesterday, preparing to chat with you today.

PARKINSON: And has it got any better in the interim?

WALKER: It aged well. One of the things in particular that piqued my interest – and this wasn't one of the central recommendations or pieces of analysis, but it struck me as very underrated – was how strikingly small is the size of Indonesia's diaspora in Australia. In absolute terms, it's about 90,000 people, which is roughly the same size as the Fijian diaspora or the diaspora from Thailand. And if you put it in terms of the percentage of Indonesia's population, it's about 0.03%. For the Chinese and Indian diasporas, I think it's about 0.05% (in terms of the size of their diasporas in Australia relative to the population of the home countries).

Another important piece of context here – which again I think is a prediction that's super-underrated in the Australian discourse – is that on the central projections, Indonesia will probably be the fourth-largest economy in the world by about 2045. And presumably at that point it cashes out some of that economic power to military might. And then we've got a great power on our doorstep, which is something that we've never had in our history.

How much do you think it would improve our soft power if the size of that Indonesian diaspora was, say, doubled or tripled?

PARKINSON: It's a really good question. But let's step back for a minute. Indonesia being the fourth-largest economy in the world does not make it automatically a significant military power. That would be a function of its living standards and the choices it makes about what it prioritises.

WALKER: Defence as a percentage of GDP, for example.

PARKINSON: Yeah. But also, you can be a military power, but you've got the combination of projecting hard power and soft power. What has the US historically done? It's projected both. What did the Soviet Union achieve? It projected hard; it didn't project any soft power. Nobody ever sat around and said, “I want to model my economy on the Soviet Union”, or “I want a lifestyle like that of the Soviets”.

China's a more interesting case – hard power, and I think now learning that actually hard's not enough; you've got to have soft [power].

Australia's done very well in not having that much hard but projecting quite a lot of soft power and influence. But we've been able to do that because we've done it on the back of economic success at home. If you can show economic success at home, you make yourself more attractive to others.

So irrespective of who you're talking about – but I think it's particularly germane to Asia and Southeast Asia – we need to get our own house in order economically, because that helps us, being able to project both hard and soft power.

Come to the specifics of Indonesia. If you go back to when John Dawkins was Treasurer [from December 1991 to December 1993] … John was making comments about how – I'll get this wrong, the exact quote – but it was like there were more Australian kids studying Japanese than there were in the US and UK and Canada, for example. At that time, we had really thriving Indonesian studies programs at our universities too.

And we had this commitment with Julia Gillard and the Asian Century white paper [that] we were going to be teaching Indonesian, we were going to be teaching Japanese, we were going to be teaching Chinese, we were going to be teaching Asian languages in schools in Australia. All that's gone. [In] the last decade, you can't find reference to that “Australia in the Asian century” white paper anywhere nowadays. The previous government basically expunged it from history.

Now fast forward to your question: where is our relationship with Indonesia? We don't have very many Australian firms that do business in Indonesia. We don't have very many Indonesians here as part of the diaspora. We don't have very many Indonesians studying here. We don't have very many Australians going to Indonesia – and if they do, they go to Bali and they think they've gone to Indonesia. And Bali and the rest of Indonesia are very different places.

I actually think from a geostrategic perspective, cultivating our relationship with Indonesia is absolutely central. Particularly, as you said, on all of the projections Indonesia gets into the top five economies in the world in terms of size. And it's a population of a couple of hundred million sitting on our doorstep.

It is an economic opportunity for us in terms of two-way trade but [also] two-way investment. And it's a people-to-people opportunity for us. And they both bring with them, then, positive benefits in terms of our national security.

WALKER: And, you know, God forbid if things were ever to get tense geopolitically, just in terms of the game theory, you want a deep wellspring of mutual understanding.

PARKINSON: Absolutely.

WALKER: You want translators.

PARKINSON: Exactly.

WALKER: And we're not even well positioned for that if you look at the withering of Indonesian language studies.

PARKINSON: Exactly. Or just look at the map. Where does Australia want to stop threats to it? It doesn't want to stop it on our border. It wants to stop it from getting here.

What becomes critical actually is Indonesia. It’s PNG [Papua New Guinea]. It’s the Pacific. That's the focus we should have. And that's not about a military focus. It's about “how do we help nurture thriving, economically prosperous democracies?” And recognising we won't have the same global priorities and we won't necessarily have the same values, but where can we find the mutual interests that reinforce the relationships as much as we can?

To me, education is absolutely central to that. And then it's mutual engagement.

WALKER: Just as one little follow-up on this, say we wanted to dramatically increase the size of the Indonesian diaspora in Australia through the migration program. What are the specific policy levers there?

PARKINSON: Well, we've had a situation in the past where significant chunks of the Indonesian cabinet have been educated in Australia. So one of the first things I'd be doing is making it really easy for Indonesians to come to Australia and study.

WALKER: People like Marty Natalegawa studied at ANU.

PARKINSON: Yep. Mari Pangestu. There’s heaps. The former head of finance, the fiscal side, had been an academic at Monash. [An Indonesian] finance minister has studied in Australia … So finding ways to enmesh Indonesians into the Australian education system – which then means going back to things that we had in the past... ANU had, I remember much earlier in my career, just this phenomenal group of scholars who actually deeply understood Indonesia. Now if you look around, there's a handful of them left at ANU. There's a couple in Victoria. But it's pretty thin on the ground.

The best way to do that is making it a priority.

How much more strategic weight would a bigger Australia buy us?

WALKER: Last question. The ABS's midpoint projection for Australia's population by 2050 is about 35 million people. How much difference do you think it would make to our strategic weight and national defence if the population reached, say, 50 million by 2050 instead of 35 million?

PARKINSON: Funnily enough, this is a question that my wife [Heather Smith, former federal departmental head and now president of the Australian Institute of International Affairs] and I have discussed at various times. It sort of tells you we have pretty interesting discussions at home over a glass of wine.

I think you've got to come back to [the fact that] there are some dimensions of the ability to project power that you gain from population size, but there are others that don't require population size; they require high income, high living standards.

If you wanted to have a standing army that was very large, you need a large population. (We’re only talking hard power here.) If you want to engage with high-tech weaponry, standoff weaponry and the like – you’re talking long-range missiles, you’re talking ships, submarines, you’re talking jets, you’re talking drones – that's in a sense divorced from population size. What's a determinant there is your wealth – so your living standards, which goes back to your economic performance – and also your innovative capability, and your ability to manufacture what of those things that you actually need at home.

So I think it's a mistake to think solely in terms of population size as a determinant of your ability to project hard power. And I come back again to what I said before: the ability to project soft power, coupled with the ability to be a prickly target.

The Singaporeans, they can't stand up to anybody who seriously wants to invade them. But what they can do, with a hedgehog strategy, is make it very, very costly to even think of having a stoush with them. They're not going to win, but they're sure going to make you pay.

WALKER: They raise the cost.

PARKINSON: They make you pay a very high price. And Australia has the advantage of distance. But technology has eroded that historical advantage. And so for us, to me the issues are, you want to hold people at bay, and for that you don't need large standing armies – because by the time they get to the coast, you've lost, basically. So I don't think it's about 50 million versus 35 million. I think it's actually about productivity growth, raising living standards, and how smart you are in building defence capability. And that's not just your own, but partners. And so, go back to your question about Indonesia: one of the best pieces of defence for us is an Indonesia that is focused to its north, knowing that we've got its south protected for it.

WALKER: So a larger population and therefore a larger GDP doesn't not help.

PARKINSON: No.

WALKER: So for example, if increasing defence spending as a percentage of GDP is unpopular, growing your population means you can spread those fixed costs of using a navy and air force to defend the air-sea gap to Australia's north over a larger tax base. So that's attractive.

PARKINSON: That's true. But if you think about adding 15 million people over and above, you've already got stressors on housing, infrastructure, like transport infrastructure, social infrastructure. Where are your priorities going to be? It's going to have to be on those sorts of things.

WALKER: So assuming we can solve the infrastructure and congestion effects, how much would 50 million instead of 35 million help us defensively?

PARKINSON: At the margin, maybe a little bit, but I don't find it a compelling argument.

I find a far more compelling argument is: what do we do at home that boosts living standards, boosts our fiscal capacity to invest in national security? And then how we invest in national security.

If you think about it, one criticism that is occasionally made is that we built part of the Australian Defence Force almost as if we were going to be fighting on the plains of western Europe against the Soviets. Realistically, do I need a swag of tanks? Hard to see. On the other hand, would I like to see much greater stockpiles of missiles, standoff weapons, naval capability, and an army that was really rapid-deployable, usable? You’d think with those sorts of questions, you're going to lean one way or the other, and it's hard to see that we are at the moment configured properly. But look – you and I here are both complete amateurs. This is not where I expected to go in a discussion around migration.

WALKER: You've just got me thinking about soft power now as well. I can see ways in which having a larger population helps with that too. [With] a larger population, mechanically you've got more music stars, more sports stars, more ability to host global cultural events that require high fixed costs.

PARKINSON: And presumably more people-to-people links with other parts of the world.

WALKER: True, true.

PARKINSON: But I don't think, once you get to a certain size … we're not in a populate-or-perish world. You've got to think about the capacity of Australia in a fragile environment to carry an ever-larger population.

What is your optimal population at 2050? It seems to me it's a pretty significant set of trade-offs in a whole variety of areas around environment, infrastructure, existing social challenges and the like. Getting to 50 million by 2050 doesn't in and of itself seem to me to solve any of those problems. In fact, it exacerbates them.

So if you want to argue population size from a national security perspective alone, it seems to me a pretty tenuous argument. Because… I find it more compelling to think that I would rather Australia was rich and able to support a small, perfectly formed defence force that had the ability to make it very hard for anybody to get close to either us or our neighbours than having a large population so I could mobilise a large army. That seems to me a continental country question. And we're an island nation.

So if we're an island nation – a continental nation, but an island – how do we think about the right balance there? Particularly with our geography where we have this…

WALKER: Crescent.

PARKINSON: Crescent across…

Now, even that in a way you could say is a bit naive, because there are still lots of other places you can come from if you really want to hurt Australia. But you've also got to think about what is the objective of anybody who wants to go to war with us, or we want to go to war with. It's a completely different set of issues.

WALKER: So populate or perish is not making a comeback?

PARKINSON: It's not working for me.

WALKER: We'd better leave it there. This has been great. Thanks so much, Martin.

PARKINSON: Thanks. I've really enjoyed it.

The Economics of Australian Immigration — Martin Parkinson [Immigration Series]

Video

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Transcript

What surprised Parkinson about Australia’s immigration system?

How does migration affect Australians' living standards?

The political equilibrium

What are the objectives of the migration program?

The drift into a guest-worker system

How leveraged are universities to international students?

Should we have an official low-skilled migration program?

Using migration to slow population ageing

What “skills shortage” actually means

Problems with the points test

Our Soviet-style occupation list

We need to better utilise our skilled migrants

What is the biggest problem with Australia’s migration system?

How can we attract true global talent?

Is the migration system robust to AI disruption?

What should the upper/lower bound for net migration be?

The Indonesian question

How much more strategic weight would a bigger Australia buy us?

← Previous

Video

Sponsors

Transcript

What surprised Parkinson about Australia’s immigration system?

How does migration affect Australians' living standards?

The political equilibrium

What are the objectives of the migration program?

The drift into a guest-worker system

How leveraged are universities to international students?

Should we have an official low-skilled migration program?

Using migration to slow population ageing

What “skills shortage” actually means

Problems with the points test

Our Soviet-style occupation list

We need to better utilise our skilled migrants

What is the biggest problem with Australia’s migration system?

How can we attract true global talent?

Is the migration system robust to AI disruption?

What should the upper/lower bound for net migration be?

The Indonesian question

How much more strategic weight would a bigger Australia buy us?

← Previous

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