Fiscal impacts of immigration 2005/06
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Method
This section defines the categories used in this study, outlines key terminology, and sets out the method used to calculate the fiscal impact of migrants to New Zealand for each of the central government's revenue and expenditure components analysed in the study.[1] It also notes limitations to the coverage and extent of this study.
The definitions used in this study replicate, where possible, those used in BERL's previous studies of the fiscal impacts of migrants to New Zealand.[2] This allows valid comparisons to be made between the studies.
Data sources
The principal population data source employed for this analysis was the 2006 census. Census data cross-tabulations were provided for migrants by region of birth, duration of residence in New Zealand, plus income, age and region of residence where relevant. In addition, 2003/04 Household Expenditure Survey (HES) data and the Treasury's Long Term Fiscal Model (LTFM) were used to determine population expenditure profiles by age group.[3]
Crown Financial Statements, Budget Estimates and Budget documents were used to obtain details of aggregate central government revenue and expenditure profiles. This was complemented by data provided specifically for this project from the Ministry of Social Development, on beneficiaries, and the Ministry of Education, on students.
Definitions and analytical categories
A migrant is defined as a person who was born overseas. Some census returns did not specify the respondent's country of birth. For estimation purposes, the numbers in the non-specified group are pro-rata allocated across the two categories (migrant and New Zealand-born). This reallocation aims to preserve the migrant-to-domestic-born ratio and to maintain consistency with nation-wide totals.
The migrant population was divided into sub-categories for additional analyses, according to their duration of residence in New Zealand at the time of the census (3 groups) and by region of birth (6 specified areas). The categories are listed below.
| Group | Notes |
|---|---|
| Recent migrant | Overseas born and usually resident in New Zealand for less than five years |
| Intermediate migrant | Overseas born and usually resident in New Zealand for five to eleven years |
| Earlier migrant | Overseas born and usually resident in New Zealand for 15 or more years |
| Region of birth | Notes |
|---|---|
| Australia | |
| Pacific Islands | Melanesia, Micronesia, Polynesia |
| The United Kingdom and Ireland | |
| Europe and North America | Excluding the UK and Ireland |
| Asia | South, Central and Eastern Asia |
| Other | Africa, the Middle East and South America |
| Not specified |
In addition, the analysis also investigated the impact of migrants by five regions of residence in New Zealand and eleven occupation groups as follows.
| Region of residence | Notes |
|---|---|
| Auckland | Auckland City, Manukau City, Waitakere City, North Short City |
| Wellington | Wellington City, Hutt City, Upper Hutt City, Porirua City |
| Rest of North Island | |
| Christchurch City | |
| Rest of South Island |
| Occupation group |
|---|
| Legislators, administrators and managers |
| Professionals |
| Technicians and associate professionals |
| Clerks |
| Service and sales workers |
| Agriculture and fishery workers |
| Trades workers |
| Plant and machine operators and assemblers |
| Labourers and related elementary service workers |
| Not elsewhere included |
| No occupation |
Fiscal impact
The fiscal impacts analysed in this study are limited to the following items of the central government's budget. The impact components are consistent with the earlier study.
Government revenue components:
- income tax receipts - direct tax on individuals (excluding fringe benefit tax) and withholding tax on resident interest and dividend income;
- GST receipts; and
- excise taxes on petrol, alcohol and tobacco products
Government spending components
- education expenditure - in the early childhood, primary, secondary and tertiary sectors;
- health expenditure;
- welfare transfers - on the main types of benefits;
- student allowances; and
- New Zealand Superannuation
Per capita fiscal impact
Per capita estimates allow some comparison of the fiscal impacts across sub-groups within the migrant and New Zealand-born populations. These impacts equal the relevant estimated total divided by the number of persons in the relevant population group. For example, the per capita fiscal impact on income tax revenue of recent migrants equals the total tax revenue from that group ($1,075m, as per Appendix Table 1) divided by the number of recent migrants (299,000), giving the result of $3,596 (as per Appendix Table 2).
Working age population per capita fiscal impact
The working age population (WAP) per capita figures are also calculated to improve the comparability of these estimates across the sub-groups. These figures allow for the effect of the differing age structures of the various sub-populations. For example, there are no under 15-year-olds in the earlier migrant group. The impact of this sub-group on primary and secondary education is partly determined by the category's duration-related definition. It can therefore be useful to adjust for age-composition effects. A simple adjustment is to calculate the per capita impacts for those aged 18-64. This approach differs from age standardisation.[4]
The WAP per capita figures equal the total fiscal impact estimate for a population group divided by the number of people aged 18-64 in the relevant population group. For example, the WAP per capita fiscal impact on income tax revenue of recent migrants equals the total tax revenue from that group ($1,075m) divided by the number of recent migrants aged 18-64 (210,000), giving the result of $5,130 (as per Appendix Table 3).
Estimation method
This study uses population income and expenditure profiles to disaggregate government revenue and expenditure data. As indicated in section 3.1 a range of administrative data sets were combined with data provided from government ministries specifically for this study. The methods used for each of the revenue and expenditure estimates are detailed below.
Section 5details the estimates for the main revenue and expenditure items. In most cases these estimates are calculated on an individual basis. This reflects that the New Zealand tax system is based, for the most par, on the individual.
GST and excise duty impacts are based on household expenditure profiles, rather than translating household expenditure patterns into individual spending. For this purpose, a migrant household is defined as one where either the occupier or spouse identified themselves as born overseas (according to census responses).
Income tax
Estimates for income tax revenues from each of the various groups were calculated using 2006 census data. The census data specifies the number of people in each personal annual income band, distinguished by region of birth and duration of residence in New Zealand. Rates from income tax scales were applied to these incomes. This calculated tax revenue from individuals was disaggregated by region of birth and migrant group. A similar method was used to obtain an estimate for the tax revenue from the New Zealand-born population.
Using tax scales ignores the impact of some tax rebates claimed by individuals. However, the largest rebate (i.e. the Low Income Rebate of 15 cents in the $1 tax rate for annual incomes less than $9,500) was included in these calculations.
The figures using the above procedure were then scaled to ensure that total income tax revenue was consistent with that given in the Government's Statement of Financial Performance. The estimates were calibrated with Budget data on tax receipts by income.
GST and excise duties
These estimates were derived from household income data (differentiated by region of birth of occupier/spouse) from the 2006 census and the application of expenditure profiles from the 2003 HES. The study estimates differentiate expenditure patterns by household income, which is the principal variable for the expenditure profiles used in this study.
HES data were used to determine the share of average weekly expenditure by income deciles on petrol, tobacco, alcohol and total net expenditure. Census data gave the shares of migrant and New Zealand-born households in particular income deciles (by region of birth and duration of residence). These shares were used to apportion total GST and excise revenue across the migrant groups (by region of birth and duration of residence) and New Zealand-born. This allocation method was used to overcome the under-reporting (in aggregate) of expenditure on these items (especially tobacco and alcohol) in the HES data.
Education and health expenditure
Total expenditure was calibrated to the relevant output classes in the Vote Estimates. The approach used here, and in the previous studies, assumes that migrants have the same age-related education and health service use patterns as the New Zealand-born population. This approach reflects data availability but may overestimate some education and health expenditure attributed to migrants. First, some usually resident, but non-migrant, students may be counted as residents eligible for government subsidised education when then pay full tuition fees. Second, residency requirements and health checks for some classes of migrants means that the health of the average migrant may be higher than that of the average New Zealander.
Age-specific aggregate education expenditure data were obtained from the Ministry of Education for this study. These data was applied to the age profile of each of the migrant categories (by region of birth and duration of residence). Education expenditure data cover operating grants, salary costs and external costs. External costs include central administration services provided by the Ministry as well as the Education Review Office, support services such as the Special Education Service, and the provision of buildings but excludes capital grants and expenditure.
By using data from the Estimates of Expenditure, total education spending is comparable (in terms of category coverage) with that for the earlier studies for primary, secondary and tertiary education. In addition to Vote: Education expenditure on Early Childhood Education (ECE), data on Ministry of Social Development (MSD) Childcare subsidies (of $110m) was included in total ECE expenditure. This reflects current ECE expenditure levels and is conceptually consistent with including funding related to population size. However, it affects the comparability with the earlier studies. These subsidies were not included as they were a small part of government expenditure at the time of the previous studies.[5]
Age-specific tertiary student enrolment data was sourced from the Ministry of Education. This age profile was used to allocate the tertiary education expenditure from the 2006 Estimates for Vote: Education. The use of tertiary education services by the New Zealand-born and migrant population were then estimated by splitting the age-based expenditure profile using demographic profiles from the census data.
The Treasury's LTFM contains an age-specific health cost profile (in 2003/04 dollar terms, and inflated to 2005/06 dollar terms for this study). This profile was applied to the relevant output classes from the 2006 Estimates for Vote: Health. This expenditure data covers the provision of hospital (and other health) services, the management of health and disability funding and the purchase of public health services administered by the Ministry (e.g. health education and promotion, the prevention and control of communicable diseases). Total health spending is comparable (in terms of category coverage) with the earlier studies.
Benefit and student allowance payments
Information on benefit payments in the 2006 Estimate for Vote: Social Development was used to estimate benefit expenditure. Estimates were made for the main benefits including the unemployment benefit[6], domestic purposes benefit, invalids' benefit, sickness benefit, and supplemental benefits including the accommodation allowance, the disability allowance and the student allowance (the last of which is listed separately).
For each of the benefit types, except student allowances, the proportion of the population in the various sub-categories of the migrant and New Zealand-born population were determined using data provided by MSD.[7] These data contained information on the number of people on benefits according to their region of residence and duration of residence in New Zealand (for migrants). Total benefit expenditure was then allocated according to the share of beneficiary recipients in each sub-category. The sub-analysis for benefit expenditure by region of birth applied the proportions by region of birth and benefit type from the 2006 Census to MSD data on the number of people receiving particular types of benefit.[8]
Census 2006 data were used to estimate student allowance expenditure by population group. Total expenditure on student allowances was allocated across the New Zealand-born and migrant sub-populations using the census information converted into shares of the total.
New Zealand Superannuation payments
New Zealand Superannuation payments were calculated in a similar way to the main benefits, using MSD and census data. Total expenditure on New Zealand Superannuation was allocated to the sub-categories of the migrant and New Zealand-born population according to the shares in the MSD data.
The MSD data were adjusted to allow for the New Zealand Superannuation criterion that a person must reside in New Zealand for ten years to be eligible for this benefit. The MSD data combined the number of people receiving either New Zealand Superannuation or the Veteran's Pension. The data indicated that a small number of recent migrants (residing in New Zealand for less than 5 years) received one or other of these benefits. As this group does not meet the eligibility requirement for New Zealand Superannuation, these numbers were not included in allocating total New Zealand Superannuation expenditure across the migrant and New Zealand-born population.
No adjustment was made for superannuation remitted from abroad by a migrant's birth country, but received by the migrant through the New Zealand government. This approach is consistent with the earlier studies.
Regional analysis
Following estimation of the overall fiscal impacts of migrants to New Zealand, the study investigated the impact of migrants within particular regions of New Zealand. The five regions are specified in Table 3-3.
Census 2006 contains information on the region of residence for sub-categories of the migrant and New Zealand-born population. These data were used to disaggregate the main impact estimates according to the region of residence according to the share of the population in the relevant group in that area. Where feasible, this aggregation process also took into account the age profile of a particular regional population, for example, in calculating education expenditure by region.
Study and the migrant population
This analysis uses a similar method to that used in BERL's 2003 report. Census 2006 data about usually resident New Zealanders were used to examine participation in study by migrants. This analysis is based on responses with a specified country of birth.
Occupation group analysis
The study analyses the occupations of the working age migrant and New Zealand-born population, that is people aged 15 years plus, according to the eleven occupational categories as specified in Table 3-4. The analysis is based on Census 2006 data for responses with a specified country of birth, and is organised according to the categories as specified in section 3.2.
Scope and limitations
This project is one of several projects in the Department of Labour's Economic Impacts of Immigration (EII) research programme. As such the study focuses on a subset of relevant issues and is subject to a number of limitations.[9]
First, a separate literature review was not proposed for this particular project in the EII programme.[10] A literature review could aim to establish alternative methods to measure the fiscal impact of immigration, what the impact of population trends, such as ageing, are on public expenditure and how to compare populations with different compositions.
Second, the study concerns the impacts of gross immigration, not of net migration flows.
Third, the study concentrates on fiscal rather than economic impacts. The study is a snapshot of the fiscal impacts on government revenues and expenditures. The main estimates do not capture wider or generational economic benefits/costs (e.g. job creation or congestion costs). Section 9 addresses conceptual issues around the long term impact of migrants. The study is limited to estimating the direct monetary impacts on the government's operating budget. We do not allow for the indirect or induced revenues or expenditures that may arise due to the participation of migrants in the New Zealand economy.
Fourth, the study does not cover all components of the government accounts. This study includes the components explicitly identified in the study's tables and figures. These components respond to changes in the population size and can be sensibly related to such changes. The omitted components are mainly assumed to be 'fixed' costs that are unrelated to population size or are components such as 'lumpy' capital investment that are conceptually difficult to allocate in response to small changes in the population. Initial immigration and settlement impacts are omitted as one-off impacts for recent migrants only.
In addition, the estimates do not allow for life-cycle impacts of migrant characteristics. That is, the calculations are of a 'snap-shot' single year. Issues such as migrants' varying contributions and expenditure claims over their lifetime are not captured. Dynamic micro simulation might be used to establish the lifetime contribution of a particular type of migrant, but such a technique is beyond the scope of this project.
Fifth, this study captures a number of influences on differences in the fiscal impacts between population groups. Data limitations restrict the degree to which within group differences can be used to estimate overall impacts. This report takes into account differences in age, gender, income, country of birth and years (and region) of residence in New Zealand. As noted above in the methods sections above, however, in some cases it is necessary to use aggregate data where within group data is unavailable.
Sixth, the extent of non-response to census questions changed between the 2001 Census and 2006 Census. For example, the number of people with unspecified birthplaces rose from 3.9 percent of the 2001 usually resident population to 4.5 percent of the 2006 usually resident population. On the other hand, the non-response rate for the duration of residence in New Zealand by overseas-born migrants fell from 5.7 percent in 2001 to 4.3 percent in 2006. Changes in the non-response rates may affect the reported inter-censal changes. That is, some observed changes may reflect measurement rather than behaviour changes.
[1] The fiscal impacts on local government fall outside the scope of this report. Where migrants are wealthier than their New Zealand-born counterparts and live in more expensive dwellings, they may contribute greater amounts to TLA and regional council revenues while having similar impacts on expenditure. Research on migrant wealth was presented during the finalisation of this report: Gibson J (2007) What explains the wealth gap between immigrants and the New Zealand-born? Christchurch: NZAE conference, 29 June 2007.
[2] Figures in the millions or thousands are rounded to the nearest whole number as appropriate.
[3] LTFM health cost weights were inflated from 2003/04$ to 2005/06$ using appropriate GDP deflators.
[4] Age standardisation adjusts the estimated impacts to allow for the age distributions of the sub-populations.
[5] Appendix Table 28 to Appendix Table 30 report impact estimates without the MSD childcare subsidy expenditure. The estimates in these tables are directly comparable to the earlier studies, where this component was not included. The primary analysis and commentary in this report refer to expenditure including the subsidy expenditure.
[6] The unemployment benefit appropriation includes emergency benefit (EB) expenditure. The EB may be accessed by intermediate migrants who are not eligible for other benefits or New Zealand Superannuation. MSD does not report official statistics for emergency benefit payments. The base emergency benefit rate is the same as the rate for the unemployment benefit, but payments may be higher where the client meets certain criteria. Therefore, the average emergency benefit rate is likely to be higher than that the general unemployment benefit rate.
[7] MSD provided data on the number of migrants and New Zealand-born receiving specified main and supplementary benefits by region of residence and duration of residence (for immigrants).
[8] As the Census data contain information on income by benefit type, the unemployment benefit estimates are based on the number of beneficiaries rather than the number of people without employment. The number of people without employment would also count those that are technically not in the labour force. But people in that group would not necessarily receive an unemployment benefit, such as students or people aged 65+.
[9] These aspects are discussed in more detail in section 3.2 of BERL’s 2003 study.
[10] A recent, brief review of relevant literature on the fiscal impact of immigration is available in Poot and Cochrane (2005) Measuring the economic impact of immigration: a scoping paper, PSC DP48.