A jurisdictional debacle: New migrants and the NSW Government foreign resident surcharge

The main gripe from state governments concerning migration is a lack of agency. Before the 2019 state election, Premier Gladys Berejiklian called for a halving of net migration to NSW. Unhelpfully for the NSW Government, Section 51 of the Australian Constitution means the Premier is unable to do much about this except jawbone. The jurisdictional intersection between state and federal government is basically a one way street. This has real and abiding consequences, particularly for the process of how migrants settle into Australia.

Federal Governments of both persuasions have transformed Australia’s migration policy framework in recent decades without any material input from their state counterparts. While there are visa categories allowing state governments some oversight, in reality, what state governments are able to do is mostly tinkering at the margins.

Recently, it feels like there is an increasing awareness about how migration policy has changed. You can see this in more substantial public debates about how many migrants come to Australia and when various policy debates around temporary visas make a splash, such the English proficiency of international students in higher education.

However this general awareness has yet to seep into a generally agreed set of social norms in relation to how migrants should be treated by the State (governments of all jurisdictions). Perhaps it is simply too contemporary to grasp. But in the meantime, big decisions are being made, that have a myriad of effects, not least the signal we send to new migrants in terms of how they settle into our shared society.

A prominent example is taxation. Migrants pay income tax and GST like everyone else. But increasingly, some migrants are paying more tax than others because of the visa they hold. In the 2016-17 Budget, the same NSW State Government now calling for a large reduction in migration, introduced two revenue measures to be paid by ‘foreign residents’. These measures were:

  • a four per cent ‘surcharge purchase duty’, for residential real estate, to be paid in addition to stamp duty, and,
  • a 0.75 per cent ‘surcharge’ residential land tax.

The following Budget in 2017-18 increased the surcharge purchase duty to eight per cent and the residential land tax to two per cent. To give some idea of what this is worth, a quick google uncovered this two bedroom apartment near Blacktown station in Sydney going for $499,950. To purchase this apartment, a “foreign” buyer would need an additional $39,996 for the surcharge purchase duty and then an ongoing two per cent payment on whatever land entitlement is attached to the apartment.

Who pays these surcharges? The definition of ‘foreign resident’ becomes central and as stamp duty is a state government tax, state governments decide. In the past, before Australia’s migration framework was upended from the mid-1990s onwards, this was a relatively straight forward process. Anyone in Australia who was not a citizen or permanent resident was generally classified as a ‘foreign resident’.

Today, this definition largely remains in NSW, with a couple of exceptions for partner visas and New Zealand citizens. But as at 31 March 2019, there were about 1.6 million people who hold a temporary visa in Australia excluding the Kiwis. A strong majority do not intend to settle in Australia long-term. This figure includes tourists, students, backpackers and others. But a minority do intend to settle in Australia and transition to a permanent visa in due course. We can see evidence for this as about one in two people who gain a permanent visa are already in Australia.

Take someone who is sponsored by their employer as a skilled migrant. When my family migrated to Australia in 1989, we gained permanent visas on entry courtesy of an employer sponsorship. Today, we would have almost certainly been offered a temporary visa, the Temporary Skill Shortage visa (formerly the 457 visa). Historically, about 50 per cent of people who gain a temporary skilled work visa have transitioned to some form of permanent residency in the future [recent policy change is likely reducing this proportion].

These people are not ‘foreign residents’ in the traditional sense. All are meant to have permanent, skilled employment with a salary above $53,900 [noting there are clear issues in certain industries for this visa category]. They are not here on tourist visas surveying the investment property landscape. Yet according to the NSW State Government, people who hold temporary skilled visas are ‘foreign residents’ because their visa has a end date.

I assume the introduction of these fees will dissuade people living in Australia as ‘foreign residents’ but who intend to gain a permanent visa in the future from purchasing a house. And while not purchasing a house will not raise any revenue for the NSW Government, there will be effects. There are currently about 70,000 people who hold some form of temporary skilled work visa in NSW at the moment, all of whom are liable for these new surcharges. My family bought a house almost immediately, a decision allowing us to settle in a part of Melbourne which linked me to a school and a broader community. Placing severe financial barriers in place upends this process.

To go along with a more precarious employment situation (being tied to a single employer, with limited ability to move), new migrants who intend to settle in Australia but hold a temporary visa in Australia’s ‘global city’ are now second-class non-citizens in relation to housing.

[A couple of caveats here. (1) I don’t have anything against taxes and levies on housing investment for genuine foreign residents. My personal belief is housing should be for people to live in, not an investment vehicle for speculators to make money from. But the current situation in NSW points towards a jurisdictional intersection that is broken when it comes to new migrants and how they settle into Australia. And (2), this intersection of policy should not tied up with general support or opposition for these types of visa categories. Those decisions need to be focused on employers given they are the source of labour demand generating the visa in the first instance.]

A number of recent policy decisions will exacerbate these types of challenges. The Morrison Government’s introduction of two new regional visas from November 2019 is the most obvious example. Both of these visas, an employer-sponsored and independent skilled, will be provisional. A provisional visa is not a permanent visa but puts the person who holds it on a defined track towards a permanent visa. People who hold these visas will, under the current regulations, be required to pay the eight per cent stamp duty surcharge, despite not being able to settle in Sydney. I imagine it will be difficult for regional NSW towns to hold onto new arrivals if they are precluded from purchasing a house because of their visa status. In addition to additional waiting periods for welfare support and citizenship, a provision visa in NSW will mean an additional waiting period to buy a house.

To me, this relatively small policy issue sums up a central theme emerging across Australian migration policy: migration has changed but everything else hasn’t, driven mostly by self-interest from a range of actors that is harming the social bonds which hold together our community.

I hope to write more about these types of policy quirks in the future, about how migration rules and regulations are not the only, or even the primary, factors influencing how migrants settle and live in Australia today. If you have a suggestion for a topic, please let me know either by email (henry.sherrell[at]gmail.com) or tweet me @henrysherrell.

3 thoughts on “A jurisdictional debacle: New migrants and the NSW Government foreign resident surcharge

  1. If Gladys wanted to halve migration she could have stopped nominating people for Subclass 190, 489, 187 and the business visas. What she says before the election, and what the reality is, are two different things

  2. Good content. I hope there are journalists receiving these? Are you also posting them on LinkedIn? I reckon there’d be a good audience on there

    Sent from my iPhone


    1. Thanks Cam – good idea about LinkedIn. A few journos follow but not heaps. I send stuff to people when I think it’s relevant to their patch.

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