Dramatic immigration cuts would 'kneecap' economy

Slashing immigration overnight will "kneecap" business and send prices and interest rates skyrocketing, according to a new report.

Infometrics chief forecaster Gareth Kiernan told The AM Show on Friday while the present record-high immigration numbers need to be clawed back, it needs to happen slowly and carefully.

"When we're running at over 70,000 people coming into the country in net terms over the last year, yet even in that situation employers are crying out for skills, crying out for workers, if you're going to cut off that supply of labour that's potentially going to have repercussions for the economy," he said.

"Wage costs will be pushed up as businesses try to retain staff, that will flow through into higher prices for consumers.

"The Reserve Bank, if there's more inflation they'll potentially be forced into pushing up interest rates sooner and more quickly than people are expecting."

Last year ANZ economists said debt had reached a record-high 167 percent of disposable income, as people have been forced to borrow more and more to get on the housing ladder.

"People have leveraged themselves up pretty highly to get into that market over the last few years," said Mr Kiernan.

Labour, NZ First and the Greens have called for cuts to immigration, to varying degrees, largely to ease the pressure on the housing market and public services like health and education.

  • Labour: Cut immigration by between 20,000 and 30,000
  • NZ First: Cut by 60,000-plus to just 10,000
  • Greens: Cut to 1 percent of population (equivalent to a cut of around 30,000)

While Infometrics says there's "no doubt" immigration has "caused imbalances", particularly in Auckland, drastically slashing the intake would have a "lethal" impact on consumer confidence and GDP growth.

"Try to find a middle-ground, bringing migration back slowly so businesses aren't kneecapped overnight."

The ideal rate, he says, would be between 10,000 and 25,000 a year - a steady influx, without the kinds of fluctuations that saw a net outflow of Kiwis replaced by record immigration in less than five years.

"That way we're pursuing a migration number that is going to be getting us a relatively good calibre of migrants."