TL;DR: Aotearoa’s desperation for cheap, easy and temporary labour has turned us into the Dubai of the South Pacific, constantly churning out renting residents to live in Australia, and replacing them with migrants on barely-policed work visas that allow them to be abused, sucked dry and then spat out.
Welcome to our ‘Churn and Burn’ economy.
This state of the nation was reinforced yesterday by migration figures showing a record-high number of migrant arrivals in the year to the end of June, only partly offset by a decade-high number of mostly-young residents leaving permanently to live mostly in Australia, where they can now become full citizens.
Another report last night of rampant abuse of temporary migrants through a hastily-introduced temporary work visa scheme reinforced just how rotten our approach to economic management has become. Our Government, and by extension most voters, are prepared to tolerate and encourage fraud and migrant abuse on a massive scale to keep the economy growing with the low wage inflation and high land price inflation needed to keep our economic ‘model’ churning and burning.
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Welcome to our ‘Churn and Burn’ economy
Welcome to our ‘Churn and Burn’ economy. Or more accurately, come on in to New Zealand and work here for a few years without security or an affordable or liveable home, in order to replace the work of citizens who left because they can’t afford a liveable home.
The hope for those keeping the churn going is that there’ll always be many more hopeful temporary migrants who can be strung along and neglected for long enough that the net effect is a higher population with higher GDP from the same level of infrastructure, higher rents, higher land prices and a lower budget deficit that will allow future tax cuts.
It’s a perfect economic model for land owners who rely on leveraged and tax-free capital gains for their wealth, serviced by the rents, disposable income and cash profits from salaries and businesses starved of investment. and only able to grow by throwing more low-wage and low-productivity labour at them.
It feels like it could keep working until;
enough of the hope-less migrants stuck here tell their friends and family about how Aotearoa has become the Dubai of the South Pacific;
enough of the young citizens and residents who don’t own land realise there is little hope of saving enough after rents to ‘get on the ladder’ in the cities they want to live in, such as Auckland, Wellington, Christchurch, Queenstown and Hamilton, and leave for Australia too; and,
the lack of public infrastructure investment needed to allow the tax cuts and generate the extra capital gains and rents from housing supply shortages eventually starts turning into paralysing levels of congestion, school waiting lists, doctors’ waiting lists and surgery waiting lists.
Every time it seems as if someone has finally exposed this New Zealand economic emperor as having no clothes, as Finance Ministers Bill English and Grant Robertson have done at various points, along with the Productivity Commission, the IMF, the OECD and countless Op-Eds from frustrated economics, the emperor just keeps striding on, brandishing their nakedness as an inevitable fact of life in our political economy.
There’s nothing you can do, they seem to taunt the naysayers every time: ‘we can’t change the incentives holding median voters in a happy hostage situation on their $1 trillion worth of residential land.’
At least not in our political lifetimes…
The implication is: ‘if you want to leave, then leave. We can always replace your labour and fill your rental with someone from India, the Philippines, China, South Africa or the United States. There’s plenty more mugs where they came from, and thankfully, many more mugs wanting to come than mugs who work out they can leave.’
It seems extraordinary that this can last before the tensions and heat in the system seize the engine of New Zealand’s political economy. Sadly not. All that’s necessary is three settings:
net migration creating annual population growth of 1.5% to 2.0%;
continued infrastructure under-investment; and
growth in rents and land prices.
Luckily for the land-owners who benefit, the first condition supports the second one, and leads to the third one. However, like any other poorly-running engine blowing black smoke, more fuel and oil needs to be constantly fed into the engine, if only to stop it from overheating and seizing up.
That was what the Government effectively did last year when it first launched the AEWV scheme to (in theory) provide a way to police behaviour, but then used the scheme’s launch to massively increase the number of lower-skilled and lower-wage temporary migrants to respond to labour shortages and the risk of an inflationary and mortgage-spiking spiral higher in wages. See more detail on that in my July 19 email and podcast.
Where’s the latest example of abuse?
Newshub's Nick Truebridge had the scoop last night that a criminal investigation has started into how 40 migrant workers were crammed into the filthy, overcrowded three-bedroom home in Auckland for months on end, sharing a single shower and cooking over one stove.
Nick reported the 40 men paid thousands of dollars for employment agreements with local recruitment contractors, but since arriving they've received no work or pay. The men called police after their food ran out and they were forced to turn to begging.
This is a major story and should justify a ministerial inquiry into the Accredited Employer Work Visa scheme, which was launched last year to reduce migrant abuse, but instead has been weaponised to worsen it, with little policing after the Labour Government unleashed massive temporary worker migration to boost the economy and dampen wage growth at the same time.
Here’s more detail in Nick’s story:
Union Network of Migrants president Mandeep Bela walked Newshub through the property on Sunday night. Several men were crammed into a porta com out the front, suitcases were piled up into a lounge that doubles as a laundry, tiny back rooms were full of mattresses, while others sleep in the garage.
"In terms of work visa schemes - scam schemes - this is really at another level," Bela said.
Immigration New Zealand has launched a major investigation into alleged visa fraud and migrant exploitation, which are serious criminal offences.
"Once the investigation is complete, if the charges are proven we will prosecute and we will take serious action against any offenders," said Steve Watson, immigration compliance and investigations general manager.
So how widespread are scenes like this? The Ministry concedes it simply doesn't know.
"Um, makes me sad for the integrity of the system being called into question because there are a large number of employers and people who come to this country and have a positive experience. And I don't believe these people have had a positive experience," Watson said.
But Immigration Minister Andrew Little still won't commit to pausing the accredited employer scheme.
"We have about 27,000 accredited employers, we have about 77,000 workers here in New Zealand under visas under that scheme. The vast majority are working fine," he said.
Even though this is the reality for who knows how many.
"You told us that you have a better life in New Zealand, you can settle with the family here, your children have a good education here. Where is it? Like this? Everybody sleeping like this?" Babu said. Newshub's Nick Truebridge
But wait, there’s more…
This isn’t the first instance of such fraud. Lucy Xia at RNZ reported extensively on such cases last month here and here, but also on calls for the AEWV visa scheme to be paused or scrapped, to give open visas to workers affected and to offer amnesty for overstayers.
Immigration advisor Katy Armstrong said while the selling of visas had existed for a long time, this form of exploitation had "intensified" with the introduction of the new AEWV scheme.
The loosening of requirements for employers to get accreditation under the scheme was to blame, she said.
"If you're an employer and you're unscrupulous, you can go and get yourself accredited with no documents or low documents, some of those accreditations come through as we know it in 90 minutes, boom you're accredited," she said.
Armstrong said the government had rolled the visa scheme and accreditation of employers in a rush amidst the post-Covid turbulence and labour shortages last year.
"There's been a mentality of just get them in, get them accredited, and weed them out on renewal, now that's one way of doing it, I can understand it, however there's a cost and this is the cost," she said.
Prior to the scheme, employers needed to provide evidence to pass the labour market test, demonstrating that they advertised locally and could not fill the role, she said. Whereas now, employers were only required to show the advert as part of the "job-check" requirement, but not the results of the advert.
The process for employers to get the licence to hire overseas workers was "automated" and like a "tick-box" exercise, Armstrong said.
The visa category had created a "commodity" of job tokens - a tangible thing which some unscrupulous employers could sell, she said. Lucy Xia at RNZ
Immigration Adviser Ankur Sabharwal wrote about the situation in this Op-Ed via Stuff last week.
INZ’s “ask no questions” approach to the Accredited Employer work visa is leading to migrant exploitation and an influx of unqualified workers for non-genuine positions.
Tick the right boxes, and INZ will approve an employer’s accreditation application without any checks.
If an employer wants to hire six or more migrant workers, they need to apply for “high volume” accreditation.
A company which has no staff at present can easily be approved “high volume” accreditation to hire six or more migrant workers. Again, just tick the right boxes on the application form.
Next, the employer advertises the role for 14 days and then informs INZ that no suitable New Zealand candidates applied. As a result, INZ approves a "job check", which permits the employer to hire the same number of workers they advertised for in New Zealand.
Employers don't have to prove to INZ that they need this many new workers from overseas or that they can afford to pay them.
So INZ approves work visas to migrant workers whose positions are not genuine and sustainable. The workers come to New Zealand and get sacked within 90 days – which is perfectly legal. INZ accepts employment agreements with a “90-day trial period” clause.
Surprise. Record high immigration. Decade-high emigration.
To prove the extraordinary size of the issue in our Churn and Burn economy, Stats NZ reported yesterday there were total migrant arrivals of 195,200 in the year to June 30, eclipsing the previous record-high 184,900 in the March 2020 year.
There were migrant arrivals of 168,900 non-New Zealand citizens, creating a net migration gain of non-New Zealand citizens, of 121,600. Before the 2023 record levels, the previous record was 80,400 in the March 2020 year.
There was a provisional net migration loss of 34,800 New Zealand citizens in the June 2023 year. This is the largest net migration loss of New Zealand citizens since the April 2013 year. The largest annual net migration loss of New Zealand citizens was 44,400 in the February 2012 year.
A storm in a fiscal teacup
There was another 'process' storm in a teacup on the campaign trail yesterday. An initial fact sheet sent to journalists under embargo was corrected before the final one was published, but some journalists didn't get the final one. That meant the Government didn't include about $250m of missing GST revenue in the 2023/24 fiscal year. I didn't use the wrong number.
I think we're all pretty sick of performative fiscal hole accusations by now.
Just briefly
‘Please forget the lockdowns of late 2021’ - The Labour Government has ended Covid restrictions, including mask-wearing requirements in hospitals and doctors' clinics and pharmacies, and the seven-day work standdown for those with positive Covid tests.
Politically, the Government knew it had to do it. Clinically, there's plenty of experts to say it was too early, given it's still the middle of winter and there are plenty of new strains coming and infecting thousands, with nearly a dozen people a week still dying.
‘Please vote for us’ - The Labour Government has also announced this morning its response to last week's awkward Parliamentary showdown with National over paid parental leave.
Labour has promised four weeks of paid parental leave for partners of a newborn’s primary carer. That's on top of the unpaid two weeks leave currently allowed for. It would start in July 2024 with two weeks of paid leave claimable, increasing to three weeks paid leave in July 2025, and four weeks in July 2026. The costs weren't detailed, but are expected be around $250m over four years, and slightly more beneficial to parents than National’s option proposed last week.
Briefly overseas
Keep an eye on one of China's largest finance companies, Zhongzhi Enterprise, which defaulted on a couple of bonds on Friday and there are fears contagion could spread to the rest of China's big shadow banks, also known as Wealth Management Product companies. They take in deposits from savers and pay out high returns, largely by lending to property developers...
We've seen this movie before. Think Hanover Finance and Bridgecorp. We'll see. Zhongzhi has US$134 billion in assets under management. Savers will want to know the Government will step in to help them...
It could be a key moment. Or not. Beijing announced last night a task force would investigate. Shares in the biggest apartment developer, Country Garden, also slumped.
Also, Argentina devalued its currency 18% overnight after a surprise win in a primary election for a Trump-y candidate and put up its cash rate by 21 percentage points to 118%. (Not a typo)
I previewed these items this morning for paying subscribers first on the Chat function on the Substack App, which generated another lively discussion, including here, here, here, here, here and here.
Ka kite ano
Bernard
'Welcome to our Churn and Burn economy'