The Significant Investor Visa: A brave new world?

The Significant Investor Visa (SIV) was introduced recently by the Gillard government. Wealthy people who live overseas can apply for an Australian visa if they are willing to part with $5m for a specified period of time. After four years, this temporary visa can lead to permanent residency. They also have access to the money at a future date – it’s an investment, not a fee.

Since its introduction, significant investors have been few and far between. Less than 100 visas have been granted while over 900 are pending according to this take in the Australian yesterday (H/T Peter Mares). While the trend is improving (less than 20 were granted under the ALP governments) I’ve heard and read various calls from immigration specialists and lawyers to speed up immigration processing and tweak the regulation to encourage a more efficient process. One feels there is a fair amount of self-interest in this as I imagine the fees are hefty.

Should Australia operate a visa program such as this one and, if yes, what should it look like? These are valid questions to ask at the moment given Assistant Immigration Minister Cash has indicated the government is seeking to “reboot the program”.

$5m is a lot of money for most people. But not everyone. This piece from the SMH outlines how Canada have moved to shut down it’s equivalent visa program due in part to fraud and corruption allegations (as well as claims the benefits of the program do not justify its existence). Over 45,000 visa applications from Chinese citizens were cancelled in the process. Australia is marketing this visa directly to Chinese citizens at the expense of other countries where the the wealthy are less numerous.

The major issue in any of these ‘cash for visa’ programs, regardless of country of origin, is how people have earned or found the required money. I bet the AFP, Customs and intelligence agencies were none too pleased when the government introduced this visa. Substantial delays are likely given the extensive checks which presumably occur to ensure the validity of the money being transferred. I have no idea how to solve this problem. I imagine it is difficult to verify where money originates from and account for any discrepancies between visa applicants and other sources. If we accept this type of visa program is a positive, there will be issues with visa processing and efficiency which may be inevitable.

There is also an ethical question about these visas. Should we preference people just because they have cash? Personally, I don’t see a major problem as long as the places set aside are relatively small proportionate to the overall number of immigration Australia accepts. Others will disagree however I think its good policy to have a wide variety of avenues to attract people to Australia. The benefits of diversity – including diversity of income – are large. Therefore I see scope in Australia’s immigration framework for a limited number of these visas.

That said, there is an overriding theme of current policy. It is overly conservative, with a very large opportunity cost. This is in relation to the method of investment and the total dollar amount required for the visa.

Currently, visa applicants can invest their $5m in a range of products, including government bonds, managed funds and direct company investment. The problem is that investment in Australian government bonds is extremely safe relative to other forms of investment. If the main purpose of the visa application is simply to acquire Australian residency (which it is), why would you also risk the $5m investment in the form of less certain investments such as direct company investment, infrastructure or real estate? As Peter Cai raises here, Australian governments have access to cheap market loans due to their AAA or AA+ ratings and don’t really require relatively small $5m investments to be made by rich visa applicants. Even 1000 of these visas is the equivalent of $5bn. Sounds like a lot? The value of current Commonwealth Treasury bonds is currently over $260bn.

This presumably withdraws the incentive for visa applicants to invest in things such as start-ups, provide direct investment for jobs in existing businesses or even in infrastructure works. This is not to say investment in government bonds is bad – it isn’t – but that it is likely there would be similar demand for these visas in more risky investments. That is, the marginal benefit for Australian governments from these investments could be substantially higher.

This is because permanent residency is the real goal of these programs, not a safe return on capital. Further, it doesn’t matter if the Minister introduces a bevy of new investment choices, as she did last November, if the safest choices remain on the table. This is why the program as currently stands is inherently conservative and prevents true financial investment innovation.

One way to introduce both more dollar value per visa and induce more risky investment would be to establish streams of investment; infrastructure, government bonds, real estate, direct company investment etc. Then, instead of setting a standard price of $5m per visa, auction visas allocated to each stream. This would attract the market value and the greatest possible return on the allocated number of visas. Visa auctions are not a new concept and have recently been recommended by the British Migration Advisory Committee. However there is no current system in the world I am aware of that currently does this.

This would be a real innovation for Australian immigration while supporting a more varied investment environment. It would capture the fullest amount of possible gains for each visa. Further, by splitting the investment decisions into discrete categories, different types of capital investment would flow into Australia instead of simply sitting in state government bonds, unnecessarily replacing other markets.

Perhaps most daring, the government could introduce a category which wasn’t an investment but purely an auctioned visa, with the proceeds going into government revenue or replacing other visa fees; for instance family visas for humanitarian migrants.

This wouldn’t be easy to implement at first. However it is not impossible. An auction could occur, with winners being invited to apply. A similar process happens at the moment for skilled visas, but instead of money, points are attributed to qualifications and experience. The more points you get, the higher priority you are granted for your visa. Because this would be such a specialised service, the department could justify a select tender process and invite proven auction providers to provide the auction system. I’m looking at you Google.

Again, some might considered auctions unethical. However given we already sell visas for a set $5m price, I don’t understand why this would be any better or worse. I believe it is important to keep the total amount of places under this program limited to 1-5 per cent of the total visa program – something currently occurring. There is the remote but not insignificant chance that governments would steadily increase the number of auctioned visas to increase general government revenue. This would need to be watched carefully.

There is no question the changes introduced by the Gillard government were a step in the right direction. However instead of this inherently conservative program which delivers a very moderate benefit, the Abbott government could transform this visa policy into something truly innovative and world-leading, better achieving the stated aims of the program.

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