The Joe Walker Podcast - "We've built an economy that requires 2 million temporary migrants" – Martin Parkinson [Immigration Series]

Episode Date: May 19, 2026

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? (Episode recorded on 27 February 2026.) Sponsors Eucalyptus: the Aussie startup providing digital healthcare clinics to help patients around the world take control of their quality of life. Euc is looking to hire ambitious young Aussies and Brits. You can check out their open roles at eucalyptus.health/careers. Vanta: helps businesses automate security and compliance needs. For a limited time, get one thousand dollars off Vanta at vanta.com/joe. Use the discount code "JOE". To sponsor a future episode, go to https://josephnoelwalker.com/sponsor/See omnystudio.com/listener for privacy information.

The single biggest issue that we confront migration is confusion about what the migration program is. All this nonsense about the 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. We've ended up with a group of permanent temporaries, almost a quasi-guise, I guess, worker system. 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? I don't think they would have at all. Is it possible to have an ethical, temporary program for unskilled workers where there is no

path to permanency? If they're in and then they're out, there's not an incentive for them to integrate. And is that what you want as a society? I think I know the answer. but I flip-flop on it. A quarter of a million people who we've ticked as having commensurate schools and experiences Australians get here and are not working in the areas that we've said they're skilled for

because they're subject to licensing requirements. This is just a productivity boost that's sitting there on the table. I think it's a mistake to think solely in terms of population size as a determinant of your ability to project hard power. So Populatal Parish is not making a comeback. It's not working for me.

Today, it's my great pleasure to be speaking with Martin Parkinson. Martin was Secretary of Pam and C from 2016 to 19 and Secretary of Treasury from 2011 to 14. Most relevant to today, he chaired a major review into Australia's migration system in 2023. And just to put that into context, that was the most significant review of migration policy since the Fitzgerald Report of 1988. The world that'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 described that world as a kind of post-settler society. So that's really the world that Martin's report is trying to grapple with. then I'm sure it'll be the kind of cornerstone of the conversation about what the next paradigm looks like for years to come. So Martin, welcome to the podcast. Thanks, Joe. Pleasure to be here. So first question. Last year, I did an interview with Abel Risvi on immigration, which I think you've listened to. Yeah, it's a great, great interview. 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. You've got to get out, would you? I really do. It's fair criticism. But I'm curious, you know, you'd spent time, you'd run, you'd run payments and see treasury, but

you didn't have, you know, 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 up skill? Like who were you calling up and what were you reading? Great question. You know, 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 always been part of that, but I'd never really delved into the intricacies of it. And 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 what is the objective of the migration program. But 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 sort of Morrison end of the, end of the Turnbull era, beginning of the Morrison government. And there wasn't a lot of appetite by the minister to get to take a serious look at migration. It was more about playing at the margins. And then I left and COVID hit. And during COVID, we, we, We had, I got a call from Claire O'Neill, who said that she really wanted to sort of take a deep step back

and deep think about the migration program and all its dimensions and would I be involved. So happily said yes. And 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 just not so much reading, but actually sitting and talking to people about understanding how the system work, 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, I mean, one of the things that had puzzled me for a very long time,

and Tony Shepard, the businessman had mentioned it to me years and years ago, and it just stuck in the back of my mind that, you said, one of the things that was really striking about that settlement era immigration program was the emphasis has been put on settlement services and integration. and one of the things that as we went into looking at this was the realisation that that settlement services dimension really wasn't there and to the same extent. Like 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 sort of something for us to reflect on through the course of the whole review. What were some of the other things that surprised you during the process of the review? Oh, the first thing that surprised me was because like most people, I was thought of the migration program in terms of the permanent migration program. Me too.

And then that being supplemented by a relatively, small, highly skilled temporary migration program. And what really surprised me was I had not realized how much the temporary skilled program had morphed into a difficult to find quite the right words, but it had been eroded. So it wasn't, it hadn't been consciously turned into a low-schooled worker program, but it had de facto become that. And that had occurred because there's a thing called the TISMET, the temporary school migration income threshold. And that used to be set such that the only people who'd come in under that temporary school program were very highly schooled 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. And so 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 of those had work rights that were not either citizens or permanent residents.

And I had never really appreciated during that time in government just how much that 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 if you just step back and think about it,

now not all those people are working, but if you think about it, what we've done is we've built an economy that requires something, like two million more workers than we have citizens and permanent residents. And the magnitude of that was what surprised me. Yeah. It's no, it's so interesting and important. We'll come back to that. I just want to take a step back and talk about how migration affects Australian's living standards. So if we if we decompose GDP per capita into three different terms, 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 a working age, obviously migration is going to increase that share because we bring in a lot of young, skilled migrants. So I think that one's pretty easy. Well, you know, it has big economic benefits if it's done properly. but as Abel said to you in the podcast you did with him,

one of the big consequences of that is that it slows population aging. So that buys us more time to address the sort of fundamental demographic challenges that pretty much all countries in the West face. Yeah, I'll come back to that because I've got some questions about how we think exactly about the benefits that delivers. But so migrants to Australia will probably increase the share of the population that's a 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? 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. And that's typically, I mean,

if you think about an aggregate sense, it's typically because the migrant is younger than the average Australian. and so we're not bringing in not bringing people of my age who you know sort of are no longer in full-time work yeah okay so then that brings us to the the third term which is probably the juiciest ones so that's output per worker yeah um empirically how do you think migration to australia affects that so i think it depends what you're talking about um so it's a bit like the um the old castro at oils aren't oil soul. So migrants aren't migrants. Yeah. It's, 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 Australian work, 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, say typically because, you know, 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.

Sure. So that capital widening at the expense of capital deepening, that doesn't happen as much for the high school migrants? Well, the high school, you've got to think of them as actually coming in with a lot of embedded human capital. or either if they're coming in or if they're trained here, right? So if those high school 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 school migrants are complements for the existing work force. 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 schools. And that's typically productivity beneficial. 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. 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 schools to one that increasingly is increasingly, is focused on lower schools, or no schools or lower schools, 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 school. Now, what those actual numbers are, there be a matter going and crunching them. Yeah.

you know, 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. Yep. 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. So 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 sort of out of scope? How do you think about that? No, so I'm intrigued that you think there was too much economics in it because there's There's quite a lengthy discussion about what should be the objectives of the migration program. And part of it is Australia's economic prosperity. So that's your skills, your productivity, exports and so on. But it's also one of the other dimensions in there 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. So that's sort of interesting. And then there is a discussion in there about the importance of social licence and how do you get social licence? and we're quite explicit in discussing that if you don't have effective integration, then you will have an erosion of support.

So maybe we, I hate to say it, show, maybe we're just a bit too subtle for you. Well, that's why I say. But we definitely were not large P political about it. No, of course. But we couldn't pretend otherwise. Absolutely. Yeah. You do kind of identify those considerations, but there's no detail around, for example,

how migrants should be integrated or things like that. Well, we weren't asked to do that. So that's sort of out of scope. Yeah. So the terms of reference were really step back and tell us, you know, 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.

He said, well, what are we, what's the objective of the migration program? And everybody sort of scratched the heads and said, well, is it this, is that? And we ended up with a whole sort of series of potential objectives for it. And then we said to our support team, what are the objectives of the migration program? And they said, well, it's very unclear. It was quite clear in that post-settlement, so 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 migration, 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 realized that part of the challenge had been that issues had arisen and ministered. had addressed those issues in isolation. So there'd be 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 to pop 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, you know, we sort of pointed out to you.

There's page 22 of the report, the core objectives that should drive the future migration system. You know, building Australia's prosperity, so meeting labour supply needs, supporting exports, enabling a fair labour market, so complementing employment wages and conditions for Australians, 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 sort of walking together. and sharing information. But, you know, the other three were around building a community of Australians. And it's worth touching on some of that, you supporting sustainable population growth. So that goes to much of the discussion you were having with ABLE, building a cohesive multicultural community of people who participate fully in Australian life. And if you think about that, you pass that.

It's like 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 a reunification of families. We've got a very odd system of family reunion. We might touch on that later. But it's real crapshoot if you're trying to get your family out to Australia. but, you know, the fourth one, fourth objectives,

protecting Australia's interests in the world, especially with partners in the Pacific. So that's really family, you know, family ties, people-to-people ties. And then the last was, you know, 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, it's going to lose popular support. Yeah.

So we've kind of drifted into this almost guest worker system, as you mentioned earlier. Yeah. They're about 2.3, 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? I don't think they were, they would have at all. And indeed we say in the report that we've ended up with a sort of a group of permanent

temporaries, almost a quasi-guise guess worker system without anybody consciously setting down to decide that we should do this. And that if you ask 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. And there's only, you know, sort of 100,000, maybe 200,000 of those who'd fall into the permanently temporary underclass group. That 2.9 mill that we talk about, a chunk of those who were visitors,

like in this city, they're tourists or they're coming to see family members and the like. And so they wouldn't even get counted towards nom, would they? No, typically not. Because they'll be here for fewer than 12 out of 16 months. 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. And they're not really, you wouldn't think of them in the guest worker category. You've got around about 700,000 students.

Now, because of the work rights that students have, they've filled jobs in inner cities that are very casual. Food delivery type stuff. Food deliveries, baristas and the like. but then you've got working holiday makers and so on. So you can't say that that whole 2.3 million of 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 school migration program who are really,

they're 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, you know, as you look forward, you really want to prevent the creation of a large group of people who have no pathways to permanence.

And, you know, so you've got to do two things. One is you've got to think about how to, 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? And our view was in the end very similar to the discussion that you were having with with Abel, which was, you know, with the group that's already here, you most of them find pathways for them to become permanent. But then tighten up on the arrangements. So the people who come in the temporary school 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, is how do we make sure that the international students who are graduating, who we might want to keep here actually are being matched properly by the labour market into jobs with the skill levels that have been trained for.

Yeah. 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 and norm. Well, we never even had control over norm then. Exactly.

The difference was what we did is we control the inflow. Yeah. Yeah. Yeah. And so with the rise of temporary migrants, norm is now much more volatile and much more difficult to control. Much more volatile year to year. Yeah.

Yeah. Yeah. So I think Canada, has 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 like a limit on visa stay periods or something like that? Well, it's a good question. So let's think about what the temporary program comprises. You've got the, you've got the, the demand-driven schools program where an employer is basically looking for somebody

with a particular set of schools 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 those schools, they can't get people with those schools to come to Australia. forget about the moment whether that's a good thing or a bad thing. The consequence of that is going to be school shortages in the first instance. Second group you've got working holiday makers,

and I have the numbers of the top of my head, but they're going to be less than 200,000 or 200,000 thereabouts maybe. They are people whose term is capped. It's typically 12 months, 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 Labor Mobility Program. Those people are term limited and they go. But where you've got no caps until recently have been that demand-driven component,

students are New Zealanders. And, you know, like if you think about putting caps on, if you cap your working holiday maker numbers below where they are, you're going to get screams from, you know, 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, both sides of the same. Stasman, 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 go and cap the demand-driven component, as I said, you know, 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 constituency out there, political constituency. It's students. And yet, what is the argument for capping international student numbers? I mean, I think there's a very legitimate argument if you wanted to make it around ensuring the quality of education for everybody who's it in Australia. in university. But that's not the argument that's been 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, norm 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 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. And, you know, 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 in this whole argument, their driving house prices is spurious. But let me come back to the... I guess you could say they are driving rents. Well, they are in an aggregate sense, but they're not typically renting also 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 and I think that's a perfectly reasonable position for governments to take and the community it's a way then of you know, 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. But if it just come back to NOM again, you know, 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. I 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. And particularly so if you're talking about, the state-driven part of the migration program. That makes sense. To what extent do our free trade agreements actually restrict our ability to cap temporary visas? Yeah, so some of our free trade agreements have labour mobility agreements in them. Yeah.

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. Do you know what some of the most important FTAs are there? I don't think the Indian one has a labour mobility clause. Yeah, I just say you've got me on that. I'm just not across the details of those FTAs. But sorry, I interrupted you?

Yeah, but it is a, you know, it's something that maybe 15 years ago didn't exist and now is increasingly an issue that's put on the table in FTA negotiations. Labor mobility? Labor mobility, yeah. So the more that gets put on the table, the more we're kind of relinquishing control of NOM. Well, of another component, yeah. Yeah. So, you know, if you think about NOM, we can't,

control the outflows. Yeah. And we also can't control, like there's a big chunk of the inflow bit that we haven't even spoken about, which is Australians returning home. Yeah. You know, 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. it's 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 that all that call came in a, you know, or one or two-year periods, so you get this spike. but we also had a huge number of Australians come home. And so 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 norm. So that sort of those nom numbers, you know, 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 forecast. wrong but it's a pretty unhard thing to forecast but the thing is that if 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 you know relatively relatively stable again so somewhere in

the between two and three hundred thousand a year in norm yeah okay this is Jay Joe Jay works at eucalyptus. I was trying to work out when it was that you and I first connected online. And I went back and checked out Twitter DMs. And it was September 2020. That's crazy. You're one of the OG listeners, so probably back when they're about 2,000 listeners per episode on average or something. Yeah, wow. Back in the jolly swagman days. Some would say the golden days. Yeah, some may say the golden days. We finally met in person at one of my live events. And at that time, you were working in the think tank world. You've been a policy researcher at various think tanks. Now you're working in growth marketing at eucalyptus.

Why the shift? Really it was more of shifting from optimizing for, frankly, like intellectual status and loft towards our mindset around being a gun by 30. Like I wanted to learn as many skills from like the best in Australia as possible. I was watching Tim doing a keynote speech at sunrise. And then he mentioned offhandedly that he was currently trying to hire someone who'd written an essay online about taste. And I thought, that's got to be Jay.

Am I right in thinking that that essay was what put you on Tim's radar? It was. It was a response to a sort of disassociating and insufferable discourse around taste and culture emanating from Silicon Valley tech types. One weekend, I finally decided to just write the rant down and then shipped it on substack. Tim saw it on LinkedIn, his favorite platform. And then, yeah, he reached out from there. Why do you think it is that eucalyptus selects on writing ability? The marker of like a good generalist today is your writing ability.

I think if you can write, you can think, you can do most jobs. What would you say you've learned here that you wouldn't have learned in the think tank world? Joining a startup is great to sort of see ambition realized with respect to speed and velocity and also autonomy. That's super refreshing. All right. Jay, thanks for joining me on the podcast. My pleasure. This is where I see whether I can spell eucalyptus. You can check out Eucalyptus' open roles at eucalyptus.health slash careers.

That's E-U-C-A-L-Y-P-T-U-S dot health slash careers. Cool. They call me One Take Walker. Let's go. My man can spell. So how leveraged are, is university research funding and domestic student places to international students? So if we started cutting international student numbers, at what point would that start to trade off with research and or domestic places?

Immediately. Okay. Yeah. So it's worth understanding what's happened here. So 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.

Now, partly what's filled the gap has been domestic fees, so paid by domestic students, but the big chunk and the thing that's changed most has been international student fees. So international students essentially their fees cross-subsidized research and probably pay almost 50% of the total cost of research that's done in universities. Now 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 had, so they'd

limited government contributions. They knew, sorry, 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. So go out and recruit international students. So the universities did. It was the only way they could make the books square. So 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. And the net result of that is that today, international students contribute in the region of 30-odd billion dollars a year to the university, well, through the university sector, and probably eight or maybe 10 thereabouts. to the vet sector. So if you, you know, if you cut rather than cap,

so, you know, remember what the government's done is it's capped 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 because 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 and a half and we spend 1.7. Of that 1.7, the business community is responsible for about 0.8 or 0.9% of GDP, probably amongst the, well, 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 0.8.9 to 1.7, what's happened is essentially government expenditure, direct government expenditure on R&D has fallen and university expenditure on R&D has risen. And so those two things have stayed roughly, you know, roughly the same. And I'm being very proud 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, you know, the consequence for the Australian community, if we're not doing that R&D, is really quite significant. because that R&D, like we're aspiring to being, you know, a world-leading economy and right close to the frontier in a whole variety of areas, but we're not actually doing, we're not 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 a threat of being taken away. So that's, that's again one of the, these points I keep making that people have to think through the second and third order consequences rather than just focusing on cut students, you know, because they're driving up housing prices. When they're not driving up housing prices, that's caused by a completely different set of issues and be cut into national students. This is going to be the consequence.

Yeah. Think about the tradeoffs. Yeah. So you mentioned earlier we've got like a de facto low skilled migration program. Should we have an official one? It's a really good question. And again, in the report we actually make the case, 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 arguments for social, ethical arguments in favour of temporary migration programmes. You've got to decide where you want to land on this. Our problem is that we're not, we keep talking, in terms of a program that leads to permanency,

but we've actually created this permanently temporary underclass. So I personally 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. Now, you know, that can be part of your international education program or can be part of your unskilled program. But, you know, the worst thing you can do is let people stay here, become part of the fabric of the community with this constant threat

that they're going to be kicked out. So 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 the weakness in the point system, which we haven't touched on, which is part of the permanent program, because the weaknesses in the point system, 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. So I said we come back to population aging.

Okay, so say just as like a toy model, say you have a population where the, 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 yeah that that first migrant who comes in as a 20 year old is going to young the population yeah 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. Yeah. So tell me how you think about the value of using migration as a tool to slow population

ageing if it's true that you have to increase, the level has to accelerate and if it doesn't it seems to make the problem bigger in the long term? 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. And compounds. And compounds. Yeah.

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 so you're going to get the fiscal benefits, you're going to get the productivity benefits, the economic growth benefits.

But at the end of the day, from the day they arrive, they're aging 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-incrength. increasing numbers of migrants. So I don't think of it as a, I don't think it as a strategy that permanently prevents population

ageing. Well, I think of it as a strategy that buys you time to prepare, but also, and that buys your 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, that to me is the important bit. And when you say it buys you time to prepare, like what would, what would that plausibly look like? Is it like having a national debate about whether we increase the retirement age or is it getting more efficient around age care or like all of the above really yeah yeah yeah yeah yeah so you think about

about retirement age when the age pension was introduced and retirement age was introduced there are time and age for men, and I'll get this wrong, but it was about the average life expectancy of a male, might have even been a little bit above that, and it was a little below the life expectancy for a female. And we've, you know, through considerable political pain at the outset, not that it really seems to resonate anybody anymore. We've slowly managed to raise the retirement age to sort of what are we now,

67 heading for 68. And yet, you know, over that time, life expectancy for men will have risen from somewhere in the mid-60s to, you know, sort of high 70s, early 80s, you know, sort of Australian life expectancies in the low 80s. Women have higher life expectancy than men. But, you know, we've added probably 15 to 20 years, and yet all we've done is add a couple of years to the pension age. Now, is that a good thing or a bad thing? If you're a narrow, take a narrow view of wanting people to work, then, you know, 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 having a, you know, presumably they're 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. is that effective marginal tax rates for those people who are on the age pension become quite high if they want to keep working. Now, as more and more of us are no longer dependent 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 a tax, how does your tax system encourage or discourage older people to work if they want to. So for me, it's really about the choice set of all to them. Yeah. Yeah. I shouldn't say to them, given I'm well past that, including to me. To us.

Yeah. Oh, come on. You said it. You've got a while ago. So I've got some questions about the permanent skilled program. Yeah. The first one is I was hoping you could just help me understand how to think about skill shortages as an economic concept.

It feels really slippery to me. It is. 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 labor fallacy. Yeah. 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. Only if there are no spillover effects. Yeah. So if you just cloning all your workers and scaling up the economy.

Which is why you want the people you want to bring in are those who are going to be more, have more human capital on average than the existing stock. The composition really matters. Composition is a critical issue. The size of the program has some dimensions to it, but it's the composition of the program that's actually critical. Yeah, okay. So is there anything more to say on how to think about skill shortages as an economic concept?

Yeah. So I find part of the issue here really interesting is skill shortage is over what time period. So if I froze wage rates today and, um, 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 labor 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 would over, if you take a long enough time period, people would move either because they've got schools, they could transfer to those occupations or they can train for those.

occupations. But the flip side of that is that you shift your school shortages down the school's hierarchy and then your question becomes what happens to those industries do they shrink and because ultimately at the end of the day you know as you said if you treat everything as a fixed lump it's a whack-a-mole problem and pops up here, it's got to be paid for from somewhere else. So the question is how do I utilize schools in the best way to deliver productivity growth and the like? And can I do that in ways that don't create school shortages elsewhere?

And if I am going to create school 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. And that's one of the things. You've got to remember here, for any fixed wage rate, the decision that the employer is making is not just about do I employ a laborer, a person, it's also how much capital.

do I invest in? And there are some areas where we've got school shortages where you've seen very, very low productivity growth because they've become used to relying on really low-school cheap labour. And if that labour price went up, it's not necessarily the case that the sector's 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 where the answer is. but it's not a answer that's popular. Yeah.

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 labor or people being paid below the minimum wage. Absolutely, yeah.

And, you know, my local shopping center, any or shopping centers, pretty much any of the car parks I go into, there is a hand wash operation there. And it used to be that there were automated wash systems in multiple places. Yeah. So, yeah. maybe they're providing a higher quality service and people are doing that, but equally it may be a function of the fact that there's a lot of relatively low-skilled wage, sorry, low-skilled labour available.

Just coming back to the issue of school shortages, though, I mean, one of the things that, you know, we've, we prided ourselves on, and I remember, you know, 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 schools and a small temporary program directed at highly schooled people. This is back up until the, you know, the sort of early 2000s, mid-2000s. We set the gold standard. You know, we were the system that everybody wanted to emulate.

And, you know, this gradual erosion in the, the skilled migration program that occurred through, you know, from 2013 onwards because of the freezing and the tismet, the introduction of labour agreements, which basically said, you know, well, even those requirements that we've got under the temporary migration program of around age, around skill levels, around English level, around wage rates, while all of those, where you can get dispensation on them. That actually was another thing that actually eroded the schools program. So if you come back and start to say we want to go back to a true schools program for

permanent and I'll come back to the permanent and a true schools program for temporary and that's partly what's the government is adopted based on the review of the migration program by pushing up the TISMET. 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 wages?

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-schooled, unschooled program that's capped to assist those industries? Do we, if we do, do we run it for a long period of time? Do we make it as a, it's a fixed period to allow those industries to adjust? just. I mean, they're really, really difficult questions. But they're really important point is

wherever you land on that, don't allow yourself to do something. It creates a new permanently temporary underclass problem. Just come back to the point system because this is, so this is your permanent program. A key part of the problem that we've got with a permanent program now, And again, we sort of 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. So 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. That's just done. That's dumb. Yeah.

So the Canadian system now, which is modeled on ours, basically steps down each year. So, you know, it takes account that there's no drop off. The 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. So, you know, one of the things that we urge the government to do and they went out and did a a series of consultations about it,

but are yet to release their response is go away and rethink the point system so that you're using the point system to actually pick the best people who are going to make a lasting contribution. And so I actually put greater differentiators in the system and things that you've done, I mean, not you as in the current government, but 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 determinants.

Because at the end of the day, this is another problem, another issue where you're trying to fix a legitimate problem with the wrong solution. So why is regional Australia unattractive to Australians? It's a lack of education opportunities. It's a lack of infrastructure, as in 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? So deal with those things and you'll make regional Australia. attractive to everybody.

And that's the reason why, if you say just take Victoria, that's the reason why, you know, sort of Geelong, Ballarat, Bendigo are all, you know, thriving places because they've got, they've got good infrastructure, they've got a good education systems, and they're within an hour and a half of Melbourne. And so there you've got a geographic advantage. But then you look at, say, New South Wales, or more challenging still, you know, a South Australia or a 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. And 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, you know, the absence of infrastructure and the like, that's not, let Australians to no longer live there. That's not a solution.

No, no. This might be a naive question, but something like updating how we treat age in the points test, which is the most important factor. It's the most high. highly weighted factor. Oh, it's 25%. Yeah, yeah.

I'm dating that to something more akin to the Canadian system where each year takes an incremental step down. Yeah. Rather than the kind of crazy system we have at the moment. But also the Canadians give lesser weight to age in aggregate. Okay, yeah. But so not necessarily copying that part, but just how each year is treated,

like what that curve, what that graph looks like. That kind of seems like a no-brainer, just from like a policymaking perspective, why isn't that, I mean, what are the constraints on government there? Like the report came out in 2023. Why isn't that something that gets sort of picked up

the next year or something like that? Why is it 2026 and we still haven't made an obvious improvement like that? Because at the end of the day, the benefit from doing that in isolation is quite small when the rest, when the rest of the points test is skewing you in the wrong way. Okay, so you want to update the whole thing at once.

You do it holistically. And that takes time. Yeah, yeah. Yeah. Yeah. You know, and as I said, they've done the consultation process. I hope it's not in the back burner. I really hope that, you know, come this budget, we see some progress there.

because if we don't, it's a lost opportunity. Yeah. When I was learning about the permanent skilled program last year, one of the things that kind of struck me was this thing called the occupation list, which is this funny kind of top-down Soviet-style list of occupations that underpins, well, really both the employer-sponsored visas, also the points tested, like the skilled independent visa, Yeah.

And the state and regional phases. Yeah. Can you just talk, walk me through kind of concretely what that list is and how it's compiled and how regularly it's updated? Yeah. So this is one of those shake your head moments. So the way it worked was that the government would, compile a list of schools that were in shortage.

But to do that, what they used was an occupation mapping that had been created for Australia of 2001 or two, you know, like it's over 20 years old. And it had been updated at the margins. since then, but basically, you know, the sorts of people that employers needed didn't exist back then, like the occupations didn't exist. And so you had this bizarre situation that I might be looking for, let's say, a global procurement procurement manager. You know, 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. But, I mean, it was just, 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,

things that, you know, roles that were now common, but didn't exist 20 or 25 years ago. weren't on the list. How was it actually updated? The bureaucrats who... Yeah, and the bureaucrats were frustrated because it was just such a difficult sort of process to run and 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? You know, how important is it to the Australian economy? But 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's 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 and Co in New York

and they need me to come out for a three-month or six-month or 12-month stint to do a particular job. why am I going through a process of trying to get, you know, that person identified on a shortage list and then bring them out? Just allow those people to come and go freely, but say, you know, those people have agency. They're not going to be exploited, right, because they can just get up and work and go to the next professional services firm. The government adopted that and then said, we said, well, okay, then right at the bottom of the school's distribution list, you've got a set of occupations where people have very limited schools, so they're unschooled, and as Christine Nixon pointed out,

those people are really rife for exploitation. Now, we've got to be very clear. The vast majority of employers are not doing the right thing, but there's a small number who are doing the wrong thing, 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 didn'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, you know, for that middle group in particular, they're the ones you can tell you if this is a legitimate shortage or not. And so you can really sort of get away from this sort of, you know, clunky, rigid, old-style Soviet-style planning

and do something that is able to deliver in response to, to changing occupations. But, yeah, like, some of the stories we heard were just like you're pulling your hair out. Do you remember any of them? Oh, well, that one about the global procurement manager was the real one. Yeah. Yeah, the closest analogy to the person. So this is a person who probably earns, well, earns multiple hundred 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 colds or willies. No disrespect to the guy who runs colds and bullies, you know. But when you're trying to draw links that are so tenuous, it's telling you this not system isn't just broken, it should be just thrown out. Exactly, yeah. Is the, is labor market testing also a bit Soviet style?

We've got to like... Yeah, well, but this is the same issue, right? Yeah, yeah, yeah, yeah. And so that labor market testing was what was taking up so much time. You're sending the government. You're like your sea guards and... Yeah, yeah, yeah. And now, you know, what they've adopted, you know, is the first set of,

things they adopted out of the review was to push up the tismet and then make these changes and well overdue yeah so are you happy about that now happy um i think it could be i think you need to be careful that the uh the councils don't end up becoming um uh being welcomed by everybody because they were less bad than what we had there, but themselves over time become inhibitors to flexible responses. And that will really come down to the degree of cooperation that you get between the employers and the unions in those areas. And you've also got to recognise that you're not going to have those councils in every, you know,

in every industry. So, GSA has got a big role to play there. So Jobs and Skills Australia, and, you know, that's a work in progress. So we'll see how it goes. Yeah.

So when it comes to our underutilization of skilled migrants, because we have this much vaunted permanent skilled program, but one of the issues that your reviewed your attention to was that we're actually massively underutilising our skilled migrants. Can you just talk through specifically what do you see is the problems there and also what the magnitude of those problems is? Yeah.

So it's worth separating it and thinking about international students and the permanent program. So 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 one or two. There's a five-level national schools 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 one or two. international students, those who stay here after university, they end up, 51% of them, end up in working in school 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.

And 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 work. occupational on the job training after their university qualification. So, you know, 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 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 it I could have but there was that that sort of uncertainty from the perspective the employer But I do think there are these issues there. And, you know, 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, you know, we really need to, 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, as I said, you know, 51% of the kids that were graduating who stay here to work here are not working in this, at the skill level that been trained for. The really weird one, though, is in the permanent program. So in the permanent program, about one third of all occupations claim to have school shortages. Of those occupations, two-thirds of those 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. So the way that works, you apply home affairs basically. takes your application, says, ah, okay, so Joe's applying for a skilled, 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 that you've got commensurate Australian qualifications. Now, by all means, there needs to be, you know, sort of a period of perhaps training and adaptation to the Australian environment.

But in actual fact, what's happening is that a quarter of a million of those people who we've ticked as having commensurate schools and experiences Australians 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. and that licensing system is, you know, typically run by either the state governments or by professional bodies. And so if you want to become an electrician, you've got to do, it's a minimum of eight months and around about $9,000 for you to get that additional qualifications. If you want to be a doctor, it can be 18 months or more, and it can 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 you hit this system. So just a couple of numbers to give you a sense of this. Of that quarter of a million with qualifications in school 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. And so if you think about the school 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 those people to get into those professions, even though to let them into Australia, we said, yep, you are, I would come in because we think you'll commensurate with those professions. So if you think about, you know, go back to where you started the questioning about the size of migration program, the impact on housing. There is a quarter of a million people in regulated professions or close to 700,000, 650,000 people who we've decided to let to Australia because they're skilled people.

So they're already here, but they're not working in those jobs. So 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 or whatever. but we suddenly massively boosts the supply of skilled workers. And that's got to be a no-brainer. Yeah. And it doesn't matter whether you want, you know,

a small migration program or whether you want a large migration program, you surely want to best match people with the skills to the occupations. And 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. 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? I think, well, let me be, let me be, let me be a politician to answer the question. No. Not the one that you want to ask me. But we'll get to yours. I think the single biggest issue that we confront migration is confusion about what the migration program is.

And, you know, all this nonsense about the mass migration to Australia has to be stopped by cutting, you know, 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 is getting people to understand that distinction.

Then what of the things that worry me the most, the permanent program is, I think, easily fixed. It's just changed the points test. And it just let it keep going at broadly the sort of numbers it's at. It's a fairly standard technocratic exercise. It's a standard technocratic exercise. It's not where the problem is. The issue is in the temporary program.

And how do we make sure that if we're going to run a temporary school program, we're bringing in the right people. The review gave recommendations the government's adopted those. So now we're going to make sure that that actually delivers what we think it will deliver. How do we make sure that we don't create a, 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 that you asked me about before, is where do we land on this?

Is it possible to have an ethical, socially ethical temporary program for unschooled workers where there is no path to permanency? that is they come for a defined period of time and then they go and where do we land on that? And on that one, you know, I just don't know. I don't think my view has any more merit than anyone else's view because I think it's not so much an economic issue. So 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. Yeah. Don't allow them to jump visas. They come, they stay for a period, they go. Yeah. This is the kind of post-Settler society paradigm that I said your report was trying to contend with at the start.

Yeah. Are there any models in? history or in other countries that you think we should look to around that low-skilled temporary class? I think what we don't want is a 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'm. 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. So 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 recognize too that there's not an incentive for them to integrate. And is that what you want as a society? Yeah. Yeah.

So that's why I'm saying, I don't feel that, I don't feel I know even where I would land on that spectrum. and I've thought about it for quite a bit. And I keep sort of thinking, you can't hold out false hope, but equally, you know, what potential social issues do you create if you're giving people no incentive to integrate in the Australian community? So if they're coming and you're not encourage 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 sort of labor shortages that you might have in the truly low schooled or unschooled areas? I think I know, I think I know the answer, but I flip-flop on it. And where do you stand currently? I think things like Palm are very clear, so people can come for a defined number of months each year and then they go. And they are coming from our region. They're coming from the Pacific.

And they're not really looking for migration to Australia through that to become a vehicle to residency. in Australia. But I think, you know, the others, some of the other programs in this area or the way in which the visas have been used in this area, it's been, 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 like and eventually settle. And that's the bit that I really don't like. Yeah.

So I've got five other big picture questions to finish on. Right. Okay. 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 something like a burning topic that we should not omit, we can always come back to it.

But just to finish with my five other big picture questions. if you wanted to caricaturize the permanent skilled program, you'd say that we're really good at taking in people around like 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... The true global talent. Right. The people are 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 like three or four standard deviations out? I would basically say I would make it sort of almost instantaneous visa approval. Like, you know, and then you've got to ask what would be the indicators of this brilliance that, and that takes you into different issue. but you know I try and identify I don't know five or six things that were prerequisites for being in that 99th percentile and then if you hit that and as long as you know character test was you weren't some sort of you know Jeffrey

Epstein in or something something you know sort of of that ilk you get access to a visa in you know in a week or 10 days or something so for example if you've got like a masters or above from a top 100 university in the world. Yeah, or, you know, or if, you know, let's say you've got that and you're working in particular areas right at the cutting edge at, you know, a handful of companies that are themselves at the country. cutting edge, that might be sort of prerequisites that, that in a sense, short circuit a lot of steps that you'd otherwise have to go through.

Yeah. So that's in a sense, that's your super global talent. Yep. And should we do something like that in your view? Like, is that desirable? Yeah, I think so. Yeah. Why don't we do it?

But small. Small. Sorry, what do you mean by small? A small program. Yeah. Yeah. Yeah. Yeah.

Yeah. Yeah. Because, you know, the danger with all of these things is they get eroded at the edges. Yeah. And they spread out and eventually bringing in people who don't really satisfy the criteria started off with. Yeah. Yeah. We've tried it before with global talent visas.

I'm not talking capital G, capital T, you know, as in names of them, but things that were sort of global talent. But they weren't really designed that well. We've done it with sort of entrepreneur visas too. And in fact, you know, a lot of those people were never really entrepreneurs. What they were doing was making a small investment in Australia in exchange for passport. Yeah. And, you know, those things.

Those things are the things that erode public confidence in the system. Yeah, yeah. if AI capabilities progress continues to accelerate and we start seeing big shifts in demand for white collar jobs, shifts changing on the basis of where like the changes are happening in like over a few months rather than a few years or decades, which is I think a plausible world in the next five, 10 years. maybe sooner, do you think the migration system can keep pace with that? Well, I mean, what does it, what do you mean in the sense that the skills we need change quickly?

Yeah. 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. That is, it'll feel, it'll, 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. And you can try and insulate yourself from it, but then it's happening everywhere else, you just get left behind. And I don't think, and 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 realize. And I think we're underprepared in our own thinking for it. And I think 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, you know, as in this sort of world disruption, having more of them in our court would actually not be a bad thing. So what does at a very broad level, like, can you conceive of a robust migration system for that kind of world?

what are the like the principles it operates on gee that's a hard question and you're giving me what three three seconds to respond to it yeah let's put that one aside for a comfort come back to that yeah that's one we might need to a couple of bowls of red wine to work out what you're right yeah scaling a business is hard enough already so you don't want to be bottlenecked on things like compliance and while achieving compliance can help you win bigger deals, enter new markets, and deepen trust with customers. It can also cost a lot of time and money. By automating up to 90% of work involved in SOC2, ISO-27-001 and more, Vanta gets you compliant

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it's a good question but remember AI is not the only disruptor that we've got yeah we've got geopolitical disruption we've got disruption in business models for other reasons we've got supply chain you know sort of reshoring or friend shoring so

So I think it'd be a mistake to see everything through AI. I mean, 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. Yeah. Just trying to think through like what's a plausible scenario within the kind of world I'm imagining. It might be something where like 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 these people stuck in the country for the next nine months or something. Like that's the kind of scenario that seems plausible. It could, but let's think about it, right? 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, well, you know, 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. And I think that use bit will be slower. Okay. 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. Yeah. Than Australian businesses and government actually anticipate. But to come back to your first point,

that diffusion lag presumably might buy us time to... The diffusion lag is really important. Yeah. Yeah, because it's a bit like, you know, going back to what we were saying about, migration as an inhibitor, not a preventer of population aging. You know, it simply buys your time, diffusion lags, buy your time. Now, one of the things that we know is if you get some firms right at the very cutting

edge and your diffusion layer 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 that you're going to start to do protection for everyone and we've lived through that world and that guarantees lower living standards. Third, big picture question. What do you think? should be the U. Martin Parkinson, what do you think should be the upper and lower bound for net migration's long-term contribution to population growth? So I suppose I broadly think that a norm that's somewhere north of 200 and somewhere south of 300,000 a year is probably the sweet spot.

So, you know, a permanent program that's in the high 100s and then a temporary program that delivers us something, in a long-term effect, delivers us something like $120,000 to $120,000 20,000 a year. And look, I'm pulling these numbers out of the air. But that seems to me to be about right. Because, again, if you think back to what's happened to fertility rates, you know, if you don't want rapid population growth, but you also don't want to have a situation where your population ages really quickly and then they all die,

which is the Japan, China, South Korea, potentially Italy, the situation we were talking about before, then it seemed to me somewhere in the 2 to 300,000 is your sweet spot. So then that's contributing maybe about, very roughly speaking, a half to two-thirds of population growth. Yeah, yeah, yeah. Because, you know, 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 till you get those children having gone through the education system and entering the employment market. So if you think you can fix this through fertility, you're actually showing a willing

to engage in long-term thinking that I don't see anybody willing to engage in any other issue. Yeah, yeah. That's for sure. So I first read your report last year when I was preparing to interview Abel. I was rereading it again yesterday, preparing to chat with you today. Does it got any better in the interim? It aged well. And one of the things in particular that piqued my interest and this wasn't one of the, you know,

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? Oh, yeah. In absolute terms, it's about 90,000 people. Yeah. Which is roughly the same size as the Fiji and diaspora or the diaspora from Thailand. Yeah.

And if you put it in terms of the percentage of Indonesia's population, it's about 0.03%. For the Chinese and Indian diaspras, I think it's about 0.05% in terms of the size of their diaspora in Australia relative to the population of the home countries. And so another important piece of context here is, which again I think is just a fact that's,

or a prediction that's super underrated in the Australian discourse, is that on the, the kind of 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, you know, 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 would say double or triple?

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 military, significant military power. That would be a function of its, the living, standards and the choices it makes about what it prioritises. Defence as a percentage of GDP, for example. But also, you know, you can be a military power, but that, you've got the combination

of projecting hard power and soft power. What is the US historically done? It's projected both. What is, you know, 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, right, there of, you know, hard and I think now learning that actually hard's not enough. You've got to have soft.

has 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. So 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 into Asia and South Asia, Southeast Asia, you know, we need to get our own house and order economically because that helps us being able to project both hard and soft power. Come to the specifics of Indonesia, I think it's remarkable that if you go back to when John Dawkins was treasurer, so the beginning of the 2000s, John was making.

comments about how, you know, there were, I'll get this wrong, the exact quote, but it was like there were more Australian kids studying Japanese than they 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 back with Julia Gillard in the Asia century white paper, we're going to be teaching Indonesian, we're going to teaching Japanese,

we're going to teaching Chinese, we're going to be teaching Asian languages in schools in Australia. All that's gone, right? The last decade, like you can't find reference to that Asia century, you know, Australia and the Asia century white paper anywhere nowadays. The previous government basically expunged it from history.

And, you know, 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. 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. Now, I actually think from a geostrategic perspective, you know, cultivating our relationship with Indonesia is absolutely central. Yeah. Particularly, as you said, on all of the projections, Indonesia gets to, it 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 on our doorstep so it is an economic opportunity for us in terms of two-way trade but two-way investment and it's a people-to-people opportunity for us and they both bring with them then positive benefits for us in terms of our national security yeah and And, you know, God forbid if things were ever to get tense geopolitically, just in terms of the game theory, like you want a deep wellspring of kind of mutual understanding. Absolutely. You want fucking translators.

Exactly. And like, we're not even well positioned for that. If you look at the withering of Indonesian language studies. Exactly. Or just even just look at the map, right? Yeah. 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. So what becomes critical, actually, it's Indonesia, it's P&G, it's the Pacific. And that's the sort of focus, which we should have. And that's not about a military focus. It's about how do we help nurture thriving economically prosperous democracies and recognizing 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. And to me, education is absolutely central to that. And then it's sort of mutual engagement. Yeah. So say, just as one little follow-up question 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?

Well, I mean, 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 actually making it really easy for Indonesians to come to Australia and study. Yeah. People like Marty Natalaga study today and you... Yeah.

Murray Pangas too. Yep. Yeah. You know, there's like there's heaps. The former head of finance. the fiscal side had been an academic at Monash. Yeah, the finance minister has studied in Australia, kids have studied in Australia, yeah.

So, you know, finding ways to enmesh Indonesians into the Australian education system, which then means, you know, going back to things that we had in the past. Like A&U had, I remember much earlier in my career, A&U had just this phenomenal group of scholars who actually deeply understood Indonesia. And now, if you look around, you know, there's a handful of them left at A&U,

there's a couple in Victoria and that, but it's pretty thin on the ground. And, you know, the best way to do that is making it a priority. All right, last question. Yeah. Is this 5A or 5Z are we up to now? This is 5Z, 5Z.

5ZZ. So the ABS's midpoint projection for Australia's population by 2050, it's about 35 million people. Yeah. How much difference do you think it would make to our strategic weight and national defense if the population reached, say, 50 million by 2050 instead of 35 million.

Yeah. Funnily enough, this is a question that my wife and I have discussed at various times, which sort of tells you we have pretty sort of interesting discussions at home over a glass wine. I think you've got to come back again to there are some dimensions of, the ability to project power that you gain from population size. But there are others that actually don't require population size. They require high income, high living standards. And, you know, if you wanted to have a standing army that was very large.

you need large population. If you want to engage in, and I'm 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, you don't need, you know, 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. You know, the Singaporeans, they can't stand up to anybody

he seriously wants to invade them. But what they can do is with a hedgehog strategy, make it very, very costly to even think of having a stoutish with them. They're not going to win, but they're sure going to make you pay. They raise the costs. They make you pay a very high price. And, you know, 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. defense 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 defense for us is an Indonesia that is focused to its north,

knowing that we've got its south protected for it. So a larger population and therefore a larger GDP doesn't not, help. No. So for example, if increasing defense spending as a percentage of GDP is unpopular, growing your population means you can spread kind of those fixed costs of using your Navy and Air Force to defend the air sea gap to Australia's north, you can spread those fixed costs over a larger tax base.

So that's attractive. 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. You know, where are your priorities going to be? It's going to have to be on those sorts of things. So assuming we can solve like the infrastructure and congestion effects,

how much would 50 million instead of? 35 million help us defensively? At the margin, maybe a little bit, but I don't find it a compelling argument. Okay. I find a far more compelling argument as what do we do with, you know, 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. And so, you know, if you think about it,

one criticism that has occasionally made is that we built part of Australian Defence Force almost as if we were going to be fighting on the planes of Western Europe against the Soviets. Realistically, do I need a swagger tanks? Hard to see, right? On the other hand, would I like to see much greater stockpiles of missiles, standoff weapons,

you know, sort of naval capability and an army that was, you know, really rapid, deployable, you know, usable, you know, you think with those sorts of questions, you're going to lean one way or the other, and it's hard to see, you know, it's hard to see that we are at the moment configured properly. But look, you and I here are both complete amateurs. It's not where I expected to go in a discussion around migration. You've just got me thinking about soft power now as well. I mean, I can see ways in which having a larger population helps with that too.

So 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. And presumably more people-to-people links with other parts of the world. Yeah. Yeah, yeah, yeah. But see, I don't think, you know, I don't think population, I think once you get to a certain size, I don't think, you know, we're not in a populate or perish world.

And you've got to think about the capacity of Australia in a fragile environment to carry an ever larger population. So 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 environments, infrastructure, you know, existing social challenges and 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 alone perspective, it seems to me it's a pretty tenuous argument because it seems,

I find it more compelling to think that I would rather Australia was rich and able to support, you know, 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. Then I think, you know, having a large population so I could mobilise a large arm. You know, that seems to me a continental, a continental country question, and we're an island nation. So if we're an island nation, how do we think, or a continental, continental nation, but an island, how do we think about the right balance there? and particularly with our geography where we have, you know, sort of this crescent across, you know.

Yeah. Now, even that in a way you could say is a bit naive because, you know, there's still lots of other places you can come 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. And, yeah, it's a completely different set of issues. So populate or parish is not making a comeback. It's not working for me. Okay.

We better leave it there. This has been great. Thanks so much fun. Thanks. I've really enjoyed it. I hope you enjoyed this episode. If you did, you can support the show. by leaving a five-star rating on Apple Podcasts or Spotify or by subscribing on YouTube.

Thanks to this episode sponsors, you can find them in the episode description, and thanks to Bill Manos and the Manos Foundation for their generous patronage of the show. If you'd like to become a sponsor or patron, you can go to j-nwpod.com or email me at joe at j-n-wpodd.com. That's joe at j-n-w-podd.com. Thanks for listening. time, chow.