18th June 2008

Dear Investor,

Welcome to the new Australia

Welcome

In the 2008-09 budget, the total intake for immigration and temporary people movement is near 300,000, boosting the intake by 30 per cent. This is the heart of the strategy embraced by Kevin Rudd and Wayne Swan in their first budget; the biggest lift in immigration since Ben Chifley inaugurated the scheme.

In an interview with Inquirer, Immigration Minister Chris Evans says Australia needs "a great national debate over the next few years" about the need to import not just skilled but semi-skilled and unskilled workers. "The system's creaking at the moment because it is unresponsive to new demands and new realities," he says. It is urgent because migration "is based on a model that is out of date", still anchored in the 1950s and '60s and not geared to the mobile internationalisation of labour in the 21st century.

"The demands of business are hitting us in the face," Evans says. His experiences as a West Australian aware of acute shortages and capacity constraints drive this urgency. Next month cabinet is expected to endorse a pilot program based on the New Zealand model for guest workers from Pacific nations. The Prime Minister wants this for foreign policy and economic reasons.

Evans says: "The debate about temporary migration, quite frankly, is over." His threshold point is that the immigration debate is no longer just about skills, though skills are vital, but has become a debate about labour. There is an unspoken agenda: aware that the abolition of Work Choices risks higher wage pressures, Rudd and Swan are using higher migration as a device to boost labour supply and limit wage inflation. The price of the ACTU's 2007 victory is a trade-off between industrial relations and immigration. Call it Rudd's revenge.

The program's transformation will be a challenge for economic and social policy for trade unions, a test of Australia's racial and cultural maturity, and the next step in gearing the nation's labour market to global realities. It becomes a vital instrument in managing the resources boom. In their first budget, Rudd and Swan did something they never promised: the biggest annual increase in migrants since the inception of the scheme.

This has three elements. The total intake rises to 190,300 (compared with 73,900 in the first year of John Howard's government); the skilled component has reached its highest level at 70 per cent of the intake (compared with a scandalous 29 per cent in the last year of the Keating government); and the class 457 visas for temporary skilled workers now run at above 100,000 annually (compared with just 39,000 in 2003-04). This is a reminder that immigration is always a function of economics. The budget tells us that Rudd is a strong immigration PM, including an allocation of $19.6 million to improve processing and compliance of the 457 scheme migrants and more than doubling the number on such visas.

The budget papers have a pro-immigration focus, with Treasury saying that migrants will become more important as a source of labour supply. During 2006-07, it says, migrants delivered 40 per cent of labour growth and helped to contain wage pressures. Evans says more recent figures put this at 50 per cent, probably for the first time.

Rudd builds on Howard's legacy. Evans says: "One of the ironies is that John Howard convinced the Australian public that he was a small-migration man with the rhetoric about 'who comes to this country'. But the migration program continued to grow under Howard." This understates the Howard phenomenon. After cutting the intake initially, Howard became a silent convert. Immigration doubled during his era from 82,000 in Keating's last year to 159,000 in Howard's final year. But Rudd, unlike Howard, cannot conceal what he is doing. So how does Labor handle the politics?

Evans says: "I think Australians are prepared to accept strong migration provided they think we need the skills and contributions that people bring. The issues are around settlement and how people settle here. When unemployment is very low, I believe you can run a successful large migration program." Australian labour shortages are here to stay. They are driven by economics and demography. With the retirement of the baby boomers, limits to female workforce participation and the permanence of the China-India resources boom, immigration is returning to centre stage in dramatic fashion.

Evans stresses the dynamic of contemporary people movement. "Last year upwards of 500,000 people came into this country with working rights: holiday-makers, students and so on," he says. A further trend is onshore migration, whereby students and 457 visa holders convert to become migrants. "This is now over 40 per cent of the total and growing," Evans says. "These people know their employment prospects. They know what they're getting and we know what we're getting."

At the same time, habits of native-born Australians are changing. "We can't get Australians to work in abattoirs in rural Queensland," Evans says. "We've got Brazilian meat workers here who want to convert to migration, and their employers want this, too." Discussing his revamp of the system, Evans says: "I've got to do two things. One is make the program more responsive and the other is to build confidence and integrity in the system.

"What's not widely understood is that there is a global competition for labour. Part of what I'm trying to do is a fairly major overhaul of the migration system. The workforce now is more contract-based. For example, BHP brings an engineer here from South America for two years and he'll be in Africa two years after that. Workers don't join BHP for 40 years, they move around, the nature of work has changed. We need to be more responsive to modern working life and internationalisation. In my view we are increasingly facing a labour shortage, not just a skills shortage."

He highlights pressure on the 457 visas: the shift from professionals (doctors, engineers) to move down the skill scale "as demand has grown for people we don't have here": tradesmen, accountants, IT professionals. Evans says: "You can question the current rules in terms of integrity and responsiveness, and I think there are problems on both sides." These reformist plans will stimulate the race debate. "There's always, frankly, the race issue," he says. "One of the challenges is that source countries are changing. We still get 25 per cent of the program from Britain but we are seeing an increase from India, China, the Philippines and South America off a small base." He agrees it will be tricky to persuade the unions and the public to accept unskilled labour. But this is a debate Australia cannot avoid.

More migrants will impose pressures on urban systems, transport, housing prices and climate change. Better infrastructure is essential to contain a political explosion. Hence the nation-building priority.

Welcome to the new Australia.


Best regards,
Chris Andrews

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Chris Andrews
Head of Funds Management

t  +61 3 8610 2811
e  candrews@latrobefinancial.com.au

Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
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