Student intake could fill the skilled migration COVID gap

Among the myriad reasons to hope for a vaccine for COVID-19 is that an ongoing shortfall in skilled immigration will significantly damage Australia’s medium-term economic fortunes.

In our report, Pathways to Recovery, KPMG shows how – in the absence of a vaccine in the next two years – our overall population could be a million short of the ABS’ pre-COVID projected figure of 29 million by 2030. The effect, our modelling suggests will mean a GDP hit of $117bn in a decade’s time. The loss of economic activity will not be recovered.

Having 28 million people living here rather than 29 million does not represent a problem in itself. But if lower rates of population growth were associated with missing out on younger, more highly skilled Australian migrants, then Australian living standards would be adversely affected.

Some might argue that GDP can be a meaningless figure to many people. So in our report KPMG examines household disposable income, which is a better measure of material living standards. We assess this will be $80bn lower as a result of COVID-19’s effect on immigration – which represents more than $2,800 for every man, woman and child in Australia.

The annual loss of GDP and national income from reduced immigration is caused by two factors. The first is that fewer working-age people will be supporting an ever-growing percentage of older Australians, as migrants are typically younger. The second is the loss in productivity, since the immigration program is deliberately tilted towards skilled migrants including university students and graduates.

Since the end of World War II, population growth has been a strong driver of Australia’s economic growth. This has remained true in the 21st Century. From the end of the mining boom in 2012 to end-2019, population growth contributed two-thirds of Australia’s economic growth.

The main source of population growth has been Net Overseas Migration (NOM) contributing 240,000 people in 2019 compared with a natural increase of 143,000 people in the 12 months to June 2019.

Australia’s natural fertility rate is expected to fall in the near term owing to the weaker economic conditions and outlook associated with the COVID-19 pandemic. Australia’s total fertility rate of 1.76 live births per woman is well below the accepted replacement rate of 2.1 live births. The age dependency problem, highlighted in successive intergenerational reports, will worsen.

So what can be done?

We propose that to mitigate some of that potential $117bn GDP shortfall Australia introduces policies to boost the numbers of overseas students coming here once the pandemic is over. If encouraged to stay – by enhanced post-study work rights and prospects of permanent residence – they will add skills and productivity to the economy.

Our modelling found that even a modest 40,000 additional skilled working-age migrants would boost GDP by up to $4.7bn by the end of the decade. Overseas students, if given a clearer pathway to residency, would be a means to achieving that end.

The reality is that the post-COVID-19 world competition for international students will be intense, and incentives will be needed to encourage international students to choose Australia. So a pro-active and targeted intake program is needed.

Our paper suggests Australia could:

  • make post-study work rights last longer
  • add further permanent residency points for those staying on to work
  • add even further permanent residency points where both the course and post-study work rights are in an area of skill shortage outlined in updated skills lists; and
  • introduce an accelerated pathway to residency program for students, especially those in regional locations, based on updated skills lists.

Using Australia’s international higher education system as a pathway to residency has the advantages of selecting younger, highly skilled migrants who have already had the experience of living in Australia during their studies.

This area can be contentious, especially in the short-term. But our paper is looking ahead, at what needs to be done to mitigate the economic problems caused by COVID-19 over the next decade.

Immigration not only freshens up the age profile of the population, it also adds skills to the economy, while benefiting society through cultural diversity. It can also create stronger business and trade ties with our main trading partners. An accelerated international student intake is a mechanism to achieve this.

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