The draft Productivity Commission report released to the government recommends that the Australian Government abolish the Significant Investor and Premium Investor Visa streams. The report says it only benefits the visa applicants and the funds management industry “who are able to extract commissions from would-be immigrants who are forced to invest in their products”.
The report suggests the impact of the program on the broader Australian community, and providing access to funds for businesses, will be small or non-existent. This is an interesting observation given the four-year program is only part way through, and no data has been included on the future impact of wealthy migrants on the Australian economy.
Why does Australian have an immigration program?
The objective of immigration policy is to improve overall “well-being” of the Australian community, the budgets and balance sheet of the Australian government, and of course, meet our global responsibilities in relation to refugees.
Over recent decades, Australia has focused on attracting a diverse range of immigrants who can potentially make the greatest contribution to the Australian economy and society.
The measures of well-being include:
- Economic – language skills, education, training, labour force participation, productivity and increase in GDP
- Environmental – impacts on housing and infrastructure, as well as congestion
- Social Cohesion – having English language skills helps migrants fit in. Also considered is trust, fairness, safety and public acceptance.
How many immigrants are there?
There are currently around 1,500,000 “temporary” visas, primarily international students, temporary skilled workers and working holiday visas. The number of “permanent” visas granted is generally around 200,000 p.a. In 2014-15 Australia granted permanent residency to 129,000 skilled migrants, 61,000 family migrants and 14,000 under humanitarian grounds.
Most have come from English speaking countries (UK, NZ, SA) and increasingly Asia (including China, India, Philippines), and are typically of working age, with formal qualifications. Given our ageing population, this provides a demographic benefit, with higher output over working lifetimes. The majority of new residents speak English well and settle into capital cities, predominantly Sydney and Melbourne.
What are the visa streams?
There are broadly four visa categories:
- Skilled – contributes to productivity through innovation, entrepreneurship and technological changes
- Employer nominated – this is a core focus with positive labour market outcomes, plus net contribution to government finances
- Business innovation and investment program – these are active business ownership streams, plus a passive investor stream of which the Significant Investor Visa is a new category
- Distinguished Talent.
Qualitative criteria include character, health, financial capacity, age, skills, family connections and humanitarian needs. Some visa sub-classes are subject to minimal qualitative criteria but have a relatively high charge or other financial aspects.
Business Innovation and Investment Program (BIIP)
- Active – Business Ownership
This category requires ownership of a business in Australia with a minimum turnover level. The majority operate established businesses in retail or hospitality with fewer than four employees.
A report by the Joint Standing Committee on migration inquiring into BIIP found it does deliver economic benefit, however, it is difficult to quantify in terms of:
- increasing exports of Australian goods and services
- increasing the production of goods and services in Australia
- impact on new or improved technology
- developing links with international markets.
It is not possible to determine if these visa holders crowd out others who would have owned these businesses, or if this stream adds any additional benefit over and above those from the skilled migrant categories.
- Passive – Investor Visas
Investment thresholds range from $1.5M for the Investor Visa to $5M for the Significant Investor Visa and $15M for the Premium Investor Visa. They account for a very small proportion and require investments into assets that are highly liquid, including shares and bonds.
Because there is no English requirement or upper age limits, the Productivity Commission report suggest it is likely these visa holders will generate less favourable social impacts than other immigrants.
For more information on BIIP visas including the 132 category, check out the article here.
Significant Investor Visa (SIV) & Premium Investor Visa (PIV)
The objective of the SIV and PIV streams is to attract HNW individuals that can add to the economic prosperity of Australia. The assumption is that people with a lot of money inherently make desirable immigrants.
Page 352 of the Productivity Commission report suggest SIV and PIV applications could lead to other economic benefits as applicants are free to invest addition funds, and some may invest in businesses that would otherwise not attract funding. Whilst some immigrants will have business acumen, and links to home countries that could increase economic activity, the report suggests there is no reason to expect they would be more successful than other visa categories.
Whilst there is now the mandatory requirement to invest $500,000 into early stage venture capital, the report states it is doubtful if it will make any material contribution to the cost of capital for Australian businesses. Intended to increase funds available for high-risk businesses that might struggle to attract investment, the report says the scale is so small it would be immaterial!
For more information on the SIV complying investment criteria, check out the article here.
Other issues & concerns raised
- Age – younger applicants are said to contribute more to the Australian economy because they have more of their working life ahead of them
- Language – English language skills are extremely important for success in Australian business
- Residency requirements – the minimal residency requirement means passive investors can obtain permanent residency without requirement to create new economic activity
- Source of Funds – concern about money laundering and other fraudulent activity. There is no evidence of this with the detailed vetting of applicants assets to determine they are lawfully held.
- Loan Backs – these arrangements during the first two years (enabled by some finance firms), meant potentially no net financial benefit, which was contrary to the spirit of the program. The legislation has been re-drafted to prevent this from 1 July 2015.
Paid Permanent Visa (PPV)
There is the exploration in the report of a new category of Paid Permanent Visa (PPV) which would involve a high, non-refundable fee to go to consolidated revenue. The price would reflect costs such as administration, healthcare, council and government fees. The price-based system would need to be in the order of $35,000 to $45,000 to manage an annual intake of around 190,000 people.
However, selling visas to those who can pay without meeting other criteria would essentially place short term revenue raising ahead of long-term economic and social considerations. It would also expose Australia to negative perceptions associated with” selling” visas.
Observations from an SIV perspective
SIV is relatively new, so it is too early to benchmark against findings of other types of migration pathways. The report seeks to focus on the benefit of skilled and employer nominated visas versus the Business and Innovation Program overall, of which SIV & PIV are new options for potential investment migrants to consider which provide more flexibility.
Many of the applicants already have children studying in Australia and intend to build their long-term future here. Once they do take up permanent residency, these migrants will be taxed on their worldwide assets which could provide substantial revenue to the Australian government.
There is no reference in the report to early evidence of additional inbound investment into property, acquisition of businesses and sectors such as agriculture, healthcare and financial services where we can collaborate and export our skills and capabilities.
The report recommends that the program is reviewed after 5 years i.e. in 2017. Those interested in providing feedback on the draft report can do so by 8th December with submission details here.
There were 56 submissions to the report which you can access here. Below are the responses from our SIV partners and industry bodies:
While Stacey Martin is an employee of National Australia Bank, and a licensed Financial Adviser, this article does not represent the opinions of the National Australia Bank nor any of its other employees. To the extent permissible by law, National Australia Bank shall not be liable for any errors, omissions or misrepresentations or for any loss or damage suffered by persons who use any information in these articles.