The $84 billion question: Reforming the skilled migration points-tested visa system

As the government considers potential reforms to the points-tested visas for skilled migrants, the importance of these changes cannot be overstated.

Skilled migrants play a crucial role in Australia’s prosperity, enhancing our diverse society, increasing productivity, and boosting the earnings of Australians.

The points test system assigns points to prospective migrants based on factors like age, English proficiency, education, and work experience.

This system is the backbone of Australia’s skilled migration program, with points-tested visas making up nearly two-thirds of all permanent skilled visas granted annually.

If current trends continue, Australia will issue 800,000 points-tested visas over the next decade. However, the system has its flaws.

Our latest report indicates that adjusting the points allocation could significantly increase the long-term earnings of points-tested visa holders, benefiting government budgets by $84 billion over the next 30 years.

Such changes would also enhance the likelihood that migrants contribute to the productivity of Australian workers.

There are three key problems that need fixing.

The points test fails to prioritize the most skilled migrants.

The points test fails to prioritize the most skilled migrants.
Firstly, points-tested visas should be granted to those likely to make the greatest economic impact on Australia, with lifetime earnings serving as a strong indicator.

While earnings don’t account for everything, such as unpaid work or undervalued professions, they are a more reliable measure than other criteria.

Generally, higher earnings lead to a greater financial benefit for Australian governments because migrants contribute more in taxes and depend less on government-funded support.

Higher earnings tend to indicate skills that employers value and are often linked to productivity benefits for other workers.

New ABS data enables us to assess what influences skilled migrants’ long-term earnings, up to 20 years post-visa grant.

Our analysis reveals that education levels, English proficiency, occupational skill levels, and high prior earnings in Australia are the most significant factors for long-term earnings.

However, these factors only account for 70 of the 130 points available.

The points test has become overinflated with unnecessary criteria.

The second issue arises from awarding points for characteristics that poorly predict migrants’ lifetime earnings.

One example is studying in Australia. Applicants get five points for having an approved Australian qualification and an additional five points if they studied outside Sydney, Melbourne, and Brisbane.

However, skilled migrants who studied in Australia typically earn about 10 percent less than those with equivalent qualifications from abroad. This is partly because granting extra points for domestic study lowers the threshold for graduating students to receive a points-tested visa.

Likewise, encouraging students to study in regional areas doesn’t enhance their lifetime earnings or ensure they remain in those areas after graduation.

Migrants also receive five points for completing a ‘professional year,’ a qualification designed for international students in accounting, IT, and engineering, costing up to $15,000. However, this qualification does not significantly improve their employability or long-term earnings.

Many skilled migrants are ineligible for points-tested visas.

Thirdly, permanent points-tested visas are restricted to applicants in occupations classified as being in shortage.

This restriction limits access to much of the best global talent. Over 200 other high-skilled occupations currently do not qualify for the Skilled Independent visa.

Moreover, most migrants do not continue working in their nominated occupation long-term.

One year after receiving permanent residency, only half of employed points-tested visa holders were working in their initially nominated occupation.

After 15 years, only about 40 percent remained in their nominated occupation, often transitioning to other high-skilled roles that better utilize their abilities.

Simple changes could benefit everyone.

Our revised points test would favor skilled migrants more likely to thrive in Australia. We suggest:

  • Increasing the maximum points available from 130 to 500.
  • Awarding more points to applicants with higher degrees, exceptional English skills, and skilled spouses.
  • Providing more detailed points based on age.
  • Eliminating bonus points for Australian study, regional study, a professional year, and specialist education qualifications.
  • Offering points only for the first two years of high-skilled employment experience and for high-paying Australian work experience.
  • Opening points-tested visas to all high-skill occupations.

Setting a minimum points threshold of 300 for a points-tested visa and guaranteeing an invitation to applicants with at least 400 points.
When it comes to selecting skilled migrants for permanent visas, even small changes can make a significant impact.

Brendan Coates is the program director of economic policy at the Grattan Institute.
Natasha Bradshaw is a senior associate in Grattan Institute’s Economic Policy Program.
Trent Wiltshire is the deputy director of migration and labor markets in Grattan Institute’s Economic Policy Program.


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