How should the skilled migration points test be reformed? It’s an $84 billion question

As the government consults on potential reforms to points-tested visas for skilled migrants, the stakes couldn’t be higher.

Skilled migrants contribute enormously to Australia’s prosperity – shaping our diverse society, making us more productive and boosting Australians’ earnings.

The points test allocates points to potential migrants depending on characteristics such as their age, proficiency in English, education, and work experience.

It’s the workhorse of Australia’s skilled migration program. Points-tested visas account for nearly two-thirds of all permanent skilled visas offered each year.

On current trends, Australia will offer 800,000 points-tested visas over the next decade. But the system isn’t perfect.

Our latest report shows that tweaking the allocation of points would increase the long-term earnings of points-tested visa holders, boosting government budgets by $84 billion over the next 30 years.

It would also increase the prospects that migrants raise the productivity of Australian workers.

There are three key problems that need fixing.

The points test does not reward the most-skilled migrants

First, points-tested visas should be allocated to migrants who are likely to make the biggest economic contribution to Australia, for which lifetime earnings is a good proxy.

Earnings certainly don’t capture everything, including the value of unpaid work or working in underpaid occupations. But they’re a better measure than the alternatives.

All else being equal, higher earnings provide a bigger budgetary boost to Australian governments since migrants pay more tax and rely less on government-funded supports. Higher earnings are also more likely to reflect skills that employers value and are more likely to be associated with productivity spillovers to other workers.

New ABS data allows us to measure what drives skilled migrants’ long-run earnings, for up to 20 years after their visa is granted.

Our analysis shows that education levels, English language proficiency, occupational skill levels, and high prior earnings in Australia matter most for migrants’ earnings in the long run.

Yet these factors account for just 70 of the 130 points available.

The points test has become bloated with unnecessary points

The second problem stems from allocating points for characteristics that are poor predictors of migrants’ lifetime earnings.

This includes studying in Australia. Applicants receive five points if they have an approved Australian qualification, and an additional five points if they studied outside of Sydney, Melbourne and Brisbane.

But skilled migrants who studied in Australia tend to earn around 10% less than migrants with equivalent qualifications earned abroad. This is partly because offering extra points for domestic study lowers the bar for graduating students who receive a points-tested visa.

Similarly, pushing students to study in the regions doesn’t help their lifetime earnings, and doesn’t guarantee they will stay there after they graduate.

Migrants are also granted five points for completing a “professional year”. This qualification was created exclusively for international students graduating from accounting, IT and engineering degrees, and costs up to $15,000. Yet it does not appear to make them more employable, or boost their long-term earnings.

Many skilled migrants are ineligible for points-tested visas

Third, permanent points-tested visas are currently limited to applicants qualified in skilled occupations deemed in shortage.

This limits our access to much of the best global talent. Prospective migrants working in more than 200 other high-skilled occupations are currently ineligible for the Skilled Independent visa.

On top of this, most migrants don’t keep working in their nominated occupation over the long term.

Within one year of being granted permanent residency, only half of employed points-tested visa-holders were working in the occupation they nominated when they applied for the visa.

And within 15 years, only about 40% were working in their nominated occupation, often switching to other, high-skilled occupations that better utilise their skills.

Simple changes could make us all better off

Our reformed points test would reward skilled migrants who are more likely to succeed in Australia. We recommend:

• Increasing the maximum points available to 500, up from 130
• Offering more points to applicants with higher degrees, excellent English language skills, and those with skilled spouses
• Offering more granular points based on an applicant’s age
• Abolishing bonus points for Australian study, regional study, a professional year, and specialist education qualifications
• Offering points for only the first two years of high-skilled employment experience and also for high-paying Australian work experience
• Opening points-tested visas to all high-skill occupations
• Setting the minimum points floor for a points-tested visa to 300 points and guaranteeing an invitation to apply for a visa to applicants with at least 400 points

When it comes to selecting skilled migrants for permanent visas, even small changes quickly add up.