The expansion of migrant intakes under the skilled-visa class evolved from initial policy reforms in 1999 that aimed to reduce immigration numbers but increase the skilled-visa intake. According to the former Minister of Immigration and Multicultural Affairs, Philip Ruddock, the focus on skilled visas would help ensure that immigration was in the national interest (see Ruddock 1999, 2000). As discussed above, the skill intake increased quite dramatically in subsequent years — returning total immigrant flows to the pre-1991 recession levels. During her term as Minister for Immigration and Multicultural Affairs (October 2003 to January 2007), Amanda Vanstone justified this expansion as a solution to a ‘skills shortage’ (DIMA 2006). Likewise the Treasury (2007), in its Intergenerational Report, cites skilled migration as a net benefit to Australia as well as a source of offsetting population ageing.

It is easy to be sceptical about these explanations. As argued by Gittens (2006), the notion of a ‘skills shortage’ is difficult to reconcile with the basic workings of a market. To the extent that there are acknowledged shortages in some professions, such as health, this seems to be due to government policy — specifically a failure to maintain spending in high-cost education sectors (Birrell and Rhapson 2006; Norton 2007). Moreover a so-called skills shortage may, in fact, simply be one side of a general skills mismatch which, according to Miller (2007), is prevalent in the Australian labour market. Skilled immigration may have little effect on the shortage if similar skills mismatches exist within the immigrant labour force.

Nor, according to Guest and McDonald (2002), is increased immigration an appropriate response to population ageing. Their numerical simulations suggest that, due mainly to productivity growth, living standards will increase 84 per cent over the next 50 years under the status quo immigration plan. Of this growth, only five per cent is attributed to immigration.^[2] Thus any realistic policy change in immigration is likely to have an effect on living standards which is some fraction of this already small number. Guest and McDonald (2002) therefore conclude that future levels of per-capita consumption are approximately independent of immigration policy. That is, the effects of ageing are long-term effects and over the relevant time horizon they will be dwarfed by productivity growth.

An alternative view of the skilled migrant expansion, expressed recently by Birrell (2003), is that it is a response to lobby groups that favour immigration, particularly real estate, property development and construction sectors. According to Betts and Gilding (2006) these groups did increase their lobbying activities during the lull in the late 1990s, and they suggest that the increase in immigration was then a direct response to this lobbying.^[3]

As discussed further below, an attractive aspect of the interest-group theory is that it squares with the standard economic model of immigration. As observed by the Reserve Bank of Australia (2007), however, the pattern of immigration in Australia is pro-cyclical. Hence, given the former government’s stated focus on skilled immigrants, the recent expansion of skilled-visa entrants might be simply understood as typical expansion in terms of numbers. This does not necessarily contradict Birrell’s (2003) interest-group theory but may help in understanding the direction of the changes in total migrant flows over the last decade.