IMMIGRATION FEE AND LEVY REVIEW Purpose. Executive summary. Office of the Minister of Immigration

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1 Office of the Minister of Immigration Cabinet Economic Growth and Infrastructure Committee IMMIGRATION FEE AND LEVY REVIEW 2015 Purpose 1. This paper proposes increases to immigration charges to recover additional funding from third parties. The majority of additional funding to be recovered gives effect to Budget 2015 decisions to enhance border security and support the implementation of Vision Additional funding is also sought to meet other government objectives. The paper also seeks decisions on a range of design elements relating to the new immigration levy, which was introduced through the Immigration Amendment Act Executive summary 2. Immigration plays a key role in supporting the Business Growth Agenda objectives. Migrants bring with them skills, entrepreneurial capability, and investment capital that New Zealand needs to grow and prosper. Immigration also plays an important role for New Zealand s export markets through effective and efficient facilitation of international students and visitors. 3. Growth in the number of tourists, students, workers and residents (and the increased mobility of New Zealanders) has resulted in greater passenger flows across the New Zealand border in recent years. In addition to higher volumes, the composition of passenger flows has changed towards higher-risk emerging markets, which adds further pressure on existing resources. Therefore while this growth supports the achievements of the Government s strategic objectives, it has resourcing implications for government agencies with border functions. Volume growth also affects other Immigration New Zealand (INZ) functions, such as immigration compliance. 4. This paper proposes increased immigration charges to recover additional funding from users of the immigration system. Firstly, additional funding is required to be recovered to give effect to Budget 2015 decisions to enhance New Zealand s border security and support the implementation of Vision Both of these initiatives provide significant benefits to New Zealand in respect of making further improvements to customer experience and enhancing border risk management. Recovery of this funding will require a 7.3 percent increase in immigration charges overall. 5. Secondly, the paper seeks Cabinet decisions in relation to additional funding that could be made in respect of the following initiatives: enhanced marketing and attraction functions focusing on foreign investors, entrepreneurs, and highly skilled workers. This funding will directly support the government s objectives to fill skill gaps and attract investment. enhanced protection of migrant workers (including students) from exploitative employers who attempt to circumvent their lawful responsibilities. This funding would support government objectives to grow export education and reduce migrant exploitation. 6. If Cabinet agrees to make additional investment in these areas, as well as recovering Budget 2015-approved funding, immigration charges would increase by a total of 8.3 per cent overall. The paper proposes that these increased charges are implemented through a mix of immigration fee increases and the introduction of the immigration 1

2 levy. Immigration charges were last reviewed in 2012, when they were increased by an average of 16.7 per cent. 7. The paper seeks decisions on a number of design elements for the new immigration levy, which will replace the existing migrant levy. In addition to research and settlement services, which are currently levy-funded, some immigration functions which are currently fee-funded are proposed to be levy-funded (border, compliance, and marketing and attraction functions). This shift of funding source would be more consistent with cost recovery principles and is neutral in terms of the overall amount to be recovered from third parties. 8. The levy is proposed to be charged to principal applicants for temporary and resident visas, with some exemptions reflecting government priorities, international commitments and practical limitations around charging some visa applicants. Levy rates will be differentiated based on the immigration services each broad visa category generates the need for or benefits from. 9. The paper seeks a number of other decisions, including: changes to specific immigration fees to better reflect actual processing costs of these applications; and funding proposals to support the Migrant Settlement and Integration Strategy, to be funded by an existing surplus in the migrant levy memorandum account. 10. The impact of proposed increases in immigration charges will vary across different types of visa applicants, including international students and visa-required tourists. Visitors and students applying online will not pay any more than current charges. Increases in charges for visitors making paper-based applications will not take effect until the second year after implementation, which will allow time for the industry to move to steering visa required tourists to online channels. 11. Previous experience and international evidence suggest that the proposed cost increases would be unlikely to have a measurable impact on international visitor volumes or on international student numbers. It should be noted that around 80 per cent of visitors do not require a visa, meaning they will not be charged. 12. There are a number of other proposed government charges which would be applicable to travellers, including international students and visa-required tourists. Proposed charges include the Border Clearance Levy (BCL). The impact analysis relating to increases to immigration charges has not taken into account the additional impact of the BCL. However, even if the costs were considered together, the combined increase is considered unlikely to reach the tipping point where valuable travellers decide not to come to New Zealand. Some visa applicants will not be affected by combined charges: in particular, the majority of applications for work and resident visas (which would pay higher immigration levy rates) are made by people already in New Zealand, as are around 50 percent of student visa applications. 13. Some changes to immigration regulations will be required to give effect to the above proposals and a commencement order is needed to bring the new levy provisions into force. It is proposed that the changes be brought into effect by the end of November, in which case a waiver to the 28-day rule may be required. Context Immigration is important for New Zealand s economic growth 14. Immigration plays a key role in supporting Business Growth Agenda objectives. Migrants bring with them skills, entrepreneurial capability, and investment capital that New Zealand needs to grow and prosper. For example, the investor migration policy 2

3 has already attracted over 1,600 applicants, who have now invested over $1.7 billion in New Zealand (and committed a total of $3.7 billion as part of the application process). 15. International students and visitors make a significant contribution to New Zealand s export markets. In the year to March 2014, total expenditure by international visitors was $10.3 billion. The international education industry grew strongly throughout 2014 and it is now valued at $2.85 billion per year. The immigration system supports these objectives by facilitating the entry of tourists and international students. but this is putting increasing pressure on the immigration system 16. Growth in the number of tourists, students, workers and residents (and the increased mobility of New Zealanders) has resulted in greater passenger flows across the New Zealand border in recent years. The number of passengers arriving in New Zealand increased from 4.6 million in 2009/10 to 5.4 million in 2014/15. In addition to higher volumes, the composition of passenger flows has changed towards higher-risk emerging markets, which adds further pressure on existing resources. Therefore, while this growth supports the achievements of the Government s strategic objectives, it has resourcing implications for government agencies with border functions. 17. As Crown funding for border agencies has not increased in proportion to growth in demand for border services, border agencies are pursuing more sustainable funding mechanisms for the future. Notably, Parliament has recently enabled the New Zealand Customs Service (Customs) and the Ministry for Primary Industries (MPI) to introduce a Border Clearance Levy to recover costs from users of border services. This levy does not recover border costs incurred by INZ. INZ is making savings where possible to manage cost pressures 18. To date INZ has achieved cost savings and efficiency gains ahead of the full implementation of the Vision 2015 programme and new operating model. These cost savings have been committed to mitigate cost and volume pressures and have resulted in a significant improvement in the deficit of the memorandum account. Savings initiatives include: introduction of additional offshore Visa Application Centres (VACs) to outsource customer facing services such as accepting applications and providing information; and changes to the global footprint of INZ, including closures of the Sydney and Dunedin offices. 19. In the 2014/15 Estimates of Appropriations, the Visas and Permits Memorandum Account was budgeted to reach a deficit of $30.6 million by 30 June As a result of strong volume growth, efficiency gains and cost savings, the final 2014/15 deficit was reduced to $15.8 million, an improvement of $14.8 million above forecasts. Government has committed further investment in the immigration system, which will require increases to immigration charges Budget 2015 approved additional investment for the implementation of Vision Evidence indicates that the ease of getting a visa is a key factor that influences travellers decisions. In response to high customer expectations, the government has invested heavily in a programme of work to improve the customer service experience. Vision 2015 is transforming INZ s system from a manual paper-based visa application system to an online system. Online application forms for work, student and visitor visas have already been delivered with further enhancements to be made over the next year. The aim is to ensure INZ has an operating model that is fit for purpose, including 80 per cent of applications being lodged online and 100 per cent digitisation of applications. Vision 2015 will also improve customer service and risk management. 3

4 21. Capital funding of $ million and an increase in operating expenditure of $74 million over four years was approved in Budget 2015 to support its implementation. The increase in operating expenditure will be funded by fees. This investment will make New Zealand more attractive to high value migrants, amidst rising global competition. and also additional investment to improve border security 22. An effective immigration system needs to facilitate genuine migrants, while creating barriers to those who pose risks. New Zealand is an attractive destination for people who wish to benefit from our high standards of living, our employment opportunities, and our public infrastructure and social services, including our generous health system. However, not everyone meets our high entry standards. New Zealand needs to protect its border from those who do not have genuine intentions, and who have the potential to cause harm. 23. Capital funding of $6.586 million and an increase in operating expenditure of $33 million over four years to build border security capability was approved in Budget 2015 to ensure INZ can effectively protect New Zealand s interests at the border. The increased operating expenditure will be funded through a mix of Crown (76 per cent) and fee funding (24 per cent)). The funding will increase staff numbers at the border to enable more flights to be profiled, and increase staff in the country research unit to increase risk management capability. This will prevent more high risk travellers from flying to New Zealand and less people being turned around at the border. In addition, it funds New Zealand s deterrence and prevention measures for a mass arrival. These Budget commitments require an increase in immigration charges 24. To recover the additional funding approved for the two initiatives through Budget 2015, an increase of 7.3 per cent to immigration charges is required. There are opportunities for further investment in the immigration system, supporting government objectives and maintaining high levels of service There are opportunities for investment to better attract and retain people with the skills and capital New Zealand needs 25. Immigration supports the Business Growth Agenda s objectives by attracting and retaining migrants with the skills, experience and connections to address New Zealand s skills shortages and support economic development. Global competition means New Zealand needs to effectively attract and retain skilled migrants, and ensure their skills are well-utilised. The Ministry of Business, Innovation and Employment (the Ministry) has developed strategies to engage employers in priority growth sectors who are seeking highly skilled migrants as part of their long-term workforce needs. There is an opportunity to increase capability, both in New Zealand and offshore, to support employers to find, recruit and retain talent, through initiatives such as Innovation Island, digital campaigns and the recent round of Australian job fairs. 26. Immigration also supports the Business Growth Agenda s objectives by attracting overseas investment and expanding New Zealand s pool of smart capital, by attracting individual investors and entrepreneurs to New Zealand. The investor migration policy has already attracted over 1,600 applicants, who have now invested over $1.7 billion in New Zealand (and committed a total of $3.7 billion as part of the application process). 27. As part of the Investment Attraction Strategy, Ministers have set a target to double this level of committed investment to $7 billion within three years [EGI (15) 15/2]. There is an opportunity to fund additional staff and activities to better match offshore supply with New Zealand demand, increase onshore activity, increase offshore activity in 4

5 lower risk, high value markets, and develop and execute a targeted strategy for China, to ensure that INZ is able to meet the $7 billion target. 28. The paper seeks additional funding of $2.2 million for 2015/16 and $3 million for 2016/17 and outyears to resource this activity. and enhance the protection of migrant workers and students from exploitation 29. The Government has made a number of recent changes to protect migrant workers from exploitation, including several measures contained in the Immigration Amendment Act However, the current staffing engaged across the business in compliance, intelligence and risk profiling functions is not sustainable in terms of meeting the increased demand and mitigating heightened risk factors. 30. Increased funding for compliance would increase staff numbers (an additional nine to ten full-time employees) and ensure more migrant workers (including students) are protected from exploitative employers who attempt to circumvent their legal responsibilities to migrant workers, who are more likely to be vulnerable. This funding will contribute to the Government s goals of supporting the export education sector and reducing migrant exploitation. It would do this by enabling more compliance activity, fraud investigations and prosecutions targeted to students, education providers, workers (including student workers) and employers. 31. The paper seeks additional funding of $750,000 for 2015/16 and $1 million in 2016/17 and outyears to resource this activity. Immigration charges would need to increase further if this additional investment is agreed 32. Cabinet has already agreed to a set of principles in relation to Crown and third party funding of immigration services, which means that funding being sought for the additional proposals would be fully third party recovered [EXG Min (06) 3/8]. If Cabinet agrees to make further investment in these areas, as well as recovery of Budget approved funding, immigration charges would need to increase by a total of 8.3 per cent. It is important for the changes to immigration charges to be progressed now 33. The timing of the changes is driven by: the need for INZ to start recovering additional third party funding to fund the agreed Budget 2015 initiatives and reduce the deficit in the memorandum accounts. INZ is currently forgoing $1.1 million per month in third party revenue, which means that the memorandum account position will worsen the deadline of 6 May 2016 to implement the immigration levy, as this is one year after the Immigration Amendment Act 2015 gained Royal assent the need to schedule implementation around INZ s ability to operationalise them, in light of the significant IT changes required, and other IT changes required to implement Vision If decisions on the additional initiatives were deferred until Budget 2016, this could compromise the achievement of the government s objectives, particularly around the investment attraction target. Current funding of immigration services 35. The proposals in this paper specifically affect funding, including sources of funding, relating to the provision of immigration services. Table 1 outlines the various immigration services that are currently funded and the relevant source of revenue. 5

6 Table 1 Current sources of revenue for immigration services (2015/16) Source Revenue Paid by Immigration services funded Crown 18% Fees 78% Migrant levy 4% $42m The Crown Border functions for non-fee payers (i.e. people who do not need visas or who are waived visa fees), compliance for refugees, and some settlement services, government relations, international security and foreign relations functions, and some policy advice. $180m Visa applicants, employers, companies seeking accreditation $10m Most successful applicants for a resident visa Direct and indirect costs of visa processing, compliance activities associated with non-refugees, border functions for fee payers, immigration marketing and attraction, and some settlement services. Migration research and certain settlement services, including some delivered under other Votes. Introduction of a new immigration levy The immigration levy will replace the existing migrant levy 36. The Immigration Amendment Act 2015 replaces the migrant levy with an immigration levy, and expands the functions the levy can fund. Proposals for the design elements of the immigration levy are discussed below. Migrant levy revenue represents a small proportion of overall funding of immigration services. Under the Immigration Act 2009, the migrant levy funds settlement and research, which currently receive annual levy allocations of $7 million and $2.2 million respectively. 37. Given the broader scope of the immigration levy, a review of the current sources of funding for immigration functions has been undertaken to assess the appropriateness of current third-party funding sources of immigration functions i.e. whether a particular immigration function should be fee-funded or levy-funded. 38. While this review focuses on third-party funding options only, a broader funding review is planned in This could assess potential funding options for the immigration system over the medium term, including the appropriate balance between Crown and third-party funding. It could also take into account the developments of the wider work on border sector charging. Any proposed changes resulting from this review would be implemented as part of the next immigration fee and levy review, which is planned to be undertaken in 2017/18. Moving charging for some immigration functions between fee- and levy-funding does not in itself impact on the total charged Third-party funded activities are appropriately charged to either fees or levies 39. A fee is normally an appropriate charging mechanism where a service or function is provided to an individual, it provides the individual with a benefit, and the service or function is provided on request. Within the immigration context, applicants request INZ to assess and process their applications. Visa applicants receive the benefit of this service, which may result in the approval of a visa which they can use to travel to or stay in New Zealand. 40. A levy is usually compulsory to pay, charged to members of a certain group or industry, and used for a particular purpose, rather than specific services provided to an individual. A particular member of the group may have little direct contact with the service provider and may not benefit directly from the service, but it is desirable that they contribute to the cost. This is because, as a group, they generate the need for or benefit from the services (e.g. some visa holders will not abide by their visa conditions and will generate compliance costs). 6

7 Some immigration functions would be more appropriately funded by the levy rather than fees 41. A review of the current sources of funding for immigration functions indicates that some functions would be more appropriately levy-funded rather than fee-funded based on cost recovery principles discussed in paragraphs 39 to 40. I propose that the feefunded components of the following functions be funded by the immigration levy: a. Marketing and attraction ($6.0 million): Current fee-funded appropriation plus a proposed baseline increase of $2.2 million for 2015/16 and $3 million for 2016/17 and outyears as described in paragraphs 25 to 28. b. Border ($4.5 million): Current fee-funded appropriation for border, plus the baseline appropriation increases from Budget 2015 as described in paragraphs 22 to 23. c. Compliance ($4.6 million): Current fee-funded appropriation plus a proposed baseline increase of $750,000 for 2015/16 and $1 million in 2016/17 and outyears as described in paragraphs 29 to With the additional functions to be funded by the immigration levy, the total amount proposed to be recovered through the immigration levy will be $24.3 million (refer Annex A). This shift of third-party funding source is neutral in terms of the overall amount to be recovered from third parties. Crown funding for border and compliance functions remain unchanged under this proposal. The Immigration Advisers Authority is also likely to need funding in the future 43. The immigration levy can fund the Immigration Advisers Authority (IAA), to the extent that it is not otherwise funded. 1 A recent organisational review has allowed the IAA to operate within a revised appropriation of $2.4 million for the next two years. However, increasing demands for compliance and enforcement activity, any changes that may be made to the regime as a result of its current legislative review, and normal inflationary cost pressures are likely to require this baseline to be revised within the next two to three years. Visa applicants who should pay the immigration levy 44. The current migrant levy is charged to most successful residence applicants. In 2014/15, 37,000 successful residence applicants paid the migrant levy. Under the Immigration Amendment Act 2015, the new immigration levy will be charged to visa applicants. As the immigration levy will fund a broader range of services than the migrant levy, including some services that are currently fee-funded, it is appropriate that a wider group of visa applicants contribute to the funding for these services. 45. I propose that applicants for the following classes or categories of visa be subject to the immigration levy: a. temporary visas b. limited visas c. residence class visas, except subsequent and permanent resident visas 1 New section 399(2)(e) of the Immigration Act 2009, which will be inserted by the Immigration Amendment Act 2015 when brought into force. 7

8 46. Within these classes of visa, I propose that visa applicants should pay the immigration levy unless there is a good reason for exempting them. Good reasons for the exemptions are: a. there is no practical charging point at the present time b. there are international or humanitarian grounds for not charging c. visa applicants are funded by the Crown. 47. These exemptions will apply to: a. people who do not require a visa to travel to New Zealand (as described in schedule 2 of the Immigration (Visa, Entry Permission, and Related Matters) Regulations 2010). This includes Australian citizens and residents, and nationals of countries who have a visa waiver to travel to New Zealand b. diplomats, officials, and certain accompanying family members (as described in schedule 5 of the Immigration (Visa, Entry Permission, and Related Matters) Regulations 2010) c. nationals of countries applying under the visa categories for which New Zealand has a reciprocal fee waiver agreement d. Samoan citizens applying for a residence class visas (they are currently exempt from paying the migrant levy under the Samoan Quota and family categories). The exemptions are in relation to the 1982 Protocol to the Treaty of Friendship e. visa applicants under humanitarian grounds, namely: i. people claiming or granted refugee or protected person status ii. iii. people applying for a resident visa on the basis of their relationship with a refugee or protected person victims of domestic violence or people trafficking. f. Skilled Migrant Category Job Search Visa applicants. The new levy will be charged at the point of application and differentiated immigration levy rates are proposed 48. The Immigration Amendment Act 2015 requires the immigration levy to be charged to visa applicants. This contrasts with the current migrant levy, which is charged once to successful applicants (limited to the oldest four people in an application 2 ). 49. I propose that the immigration levy be instead charged to the principal applicant on each application (i.e. the same levy rate would apply irrespective of the number of applicants per application), rather than once per lifetime. Where secondary applicants may be included (visitor and resident visa applications), the proposed levy rates factor in the average number of applicants for that type of application. 50. I further propose that levy rates be differentiated based on the immigration services each broad visa category generates the need for or benefits from. Table 2 sets out the categories of visa applicants, and indicates whether they generate the need for or benefit from the proposed levy-funded services, and the proposed levy rates. 2 The current migrant levy rates are $310 per approved applicant, or $155 for those approved under the Pacific Access Category or aged under five years. 8

9 Table 2: Visa applicants use of levy-funded services and the proposed levy rates Temporary Resident Visa Type Levy rate Border Compliance Settlement Research Visitor $14 Group Visitor $10 Student $17 Marketing/ Attraction Worker $38 Recognised Seasonal Employer $10 Skilled / Business $580 Family $280 International / Humanitarian $ A broader levy means that the costs of certain immigration functions are spread across a wider range of visa applicants than is currently the case. For example, migration research is undertaken into some types of temporary visa holders so it is reasonable for them to contribute funding (temporary visa applicants do not currently contribute any funding to this function). 52. Conversely, some immigration services for which temporary applicants currently pay (e.g. visitors and students currently contribute to marketing and attraction through overheads on immigration fees) will no longer be charged to them. Instead, these costs will be attributed to the classes and categories of visa applicants that benefit from the services (e.g. work visa applicants and skilled/business applicants for residence will pay for marketing and attraction costs as those are targeted at them). 53. A new memorandum account will monitor immigration levy revenue and expenditure. Immigration fee changes are driven by cost adjustments while specific changes are proposed for some individual fees 54. Immigration fees are set at a level that recovers the costs of the funded services, and are calculated on forecast volumes of applications. Immigration fees are reviewed periodically to ensure they reflect the actual cost of processing visas. The last fee review in 2012 resulted in an overall increase in fees of 16.7 per cent. An immigration fees memorandum account manages over and under recovery of fee revenue, with the aim over time for to be roughly in balance. The immigration fees memorandum account had a funding deficit of $15.8 million as at the end of 2014/15. There are three immigration fee bands; New Zealand, Pacific, and rest of world. Fees for some types of applications may differ across the immigration fee bands. Immigration fees are proposed to increase by 4.4 percent overall 55. To recover the funding for Vision 2015 approved through Budget 2015 (refer to paragraphs 20 to 21), I propose an overall fee increase of 4.4 per cent (with the exception of the specific fees identified in paragraphs 56 to 61, which would be set at the rates described). At this revised level, immigration fee revenue is expected to clear the deficit in the memorandum account by 2020/21. Forecast memorandum account balances for immigration fees are contained in Annex B. A revised fees schedule reflecting the 4.4 per cent increase is contained in Annex C. 9

10 An increase in the Approval in Principle (AIP) fee under Essential Skills Policy is proposed 56. AIP fees are paid by employers seeking to hire migrant workers under Essential Skills policy. AIPs apply where the employer has a skill shortage that is unable to be filled locally, and is seeking permission to recruit a migrant worker. I propose that the fee for AIPs under Essential Skills Policy be increased from $250 to $400 to reflect the costs of processing these applications. While modelling indicates the fee should be closer to $500, I propose a slightly lower amount in order to minimise the impact on employers. This will not have an impact on the overall appropriation. The Silver Fern Job Search Visa fee will be revised 57. The Silver Fern Job Search policy provides 300 visas each year to enable highly skilled young people to search for work in New Zealand for up to nine months. Applications for the visa can only be made online. The current fee is $230 and is based on the estimated costs of processing these visas when the policy was introduced in I propose that the fee for the Silver Fern Job Search visa be set at the same rate as the proposed fee for online applications for work visa other (New Zealand band). This is because the work required to assess a Silver Fern Job Search visa application is similar to a work visa other application. This change would increase the Silver Fern Job Search Visa fee to $260. Including the levy, the total cost would be $298. New fees will be set for more online applications 59. A key focus of Vision 2015 is the move towards online applications. Initial modelling indicates a modest reduction in work for INZ in processing online applications compared with paper-based applications. I propose that new fees be introduced for online visitor visa applications ($19 discount), student applications ($27 discount) and work visa applications ($20 discount). These discounted fees will also incentivise applicants to use the online channel and will thus enable the efficiency benefits of Vision 2015 to be realised. Current levels of charges for paper-based visitor applications will be maintained for one year 60. To ensure that the tourism industry is not negatively impacted by the proposed increases to paper-based visitor applications, I propose that, for a one year period, the fees for these applications are set at rates which impose no additional cost above current prices. Taking account of the proposed levy rates for these applications as noted in Table 2 above, fees would be set at the following rates for the first year: for paper-based visitor visa applications ($151 New Zealand band and rest of the world band, $116 Pacific band), $70 for group visitor, and $40 for Approved Destination Status (ADS). Including the immigration levy, the total prices for these paper-based applications would be $165 for visitor, $80 for group visitor, and $50 for ADS. 61. After one year, these fees would change to reflect the 4.4% increase in fee levels as follows: for paper-based visitor visa applications ($170 for New Zealand band and rest of the world band, $135 for Pacific band), $85 for group visitor, and $50 for ADS (no change to ADS due to rounding). Including the immigration levy, the total prices for these paper-based applications would be $184 for visitor, $95 for group visitor, and $60 for ADS. Fees will be set for offshore applications for confirmation of immigration status 62. INZ is progressively rolling out e-visas (passport-free applications and label-less visas), beginning with an initial cohort of temporary visa applicants in mid-june To recover the costs generated where applicants seek to have physical evidence of 10

11 their visa, I propose to amend the Immigration (Visa, Entry Permission, and Related Matters) Regulations 2010, to enable fees to be charged to offshore applicants who apply for confirmation of their immigration status (for all visa types). The fee for offshore applications for a confirmation of immigration status would be set at the same rate as the existing fee for onshore applications ($110). Certain country-specific group visa fees will be removed 63. Immigration regulations currently prescribe a fee of $80 for group visitor visas (except those for approved destination status) on a per person basis, made offshore. For historical reasons, there are two separate fees for group visitor visa applicants from (a) Beijing, Shanghai and Taipei; and (b) Bangkok (Thai citizens). However, as these group visitors all pay the same fee, I propose to remove the country specific fees and list one fee that would apply across all group visitor visa applications. The $92 settlement information discount will be removed 64. Prior to 2003, some applicants for residence and long term temporary work visas paid a $92 settlement information fee. It covered the cost of a printed package of settlement information. The fee was later incorporated into visa application fees and a corresponding discount was offered to visa applicants who had paid the $92 fee in a previous application and to Samoan citizens. As the printed settlement information is no longer supplied, I propose to remove this discount. 65. Removing the $92 discount would bring the policy up-to-date and remove complexity in the processing of visa applications. However, it would increase visa application fees for those who currently receive the discount. This would include some Samoan citizens (who are eligible for the discount without having paid the $92 previously) who receive the discount on residence applications (1,071 applications in 2013/14) and some work visa applications (549 applications in 2013/14). Future fee and levy reviews 66. I propose that, to ensure that cost recovery principles continue to be met, fee and levy reviews will continue to be undertaken periodically. This provides opportunities to regularly review revenue and costs against forecast volumes and adjust fee and levy rates, as required. Changes to sources and amounts of funding arising from the proposals 67. The following table shows the changes to revenue sources for immigration services as a result of the proposals. Table 3 Proposed sources of revenue for immigration services Source Revenue Paid by Immigration services funded include Crown 17% Fees 73% Levy 10% $42m The Crown Border functions for non-fee payers (i.e. people who do not need visas or who are waived visa fees), compliance for refugees, international security and foreign relations functions, and some settlement services, and some policy advice. $179m Visa applicants, employers, companies seeking accreditation Direct and indirect costs of visa processing, and some settlement services. $25m Visa applicants Migration research and certain settlement services, including some outside Vote Labour Market. The immigration levy will also contribute to compliance activities, border functions, immigration marketing and attraction. 11

12 68. Currently, $190 million is recovered from third parties ($180 million fees, $10 million migrant levy) to fund immigration services. This will increase to $204 million ($179 million fees, $25 million immigration levy) by 2016/17, based on these proposals. Impacts of fee and levy proposals on specific categories of visa applicants 69. Given that increased costs are proposed to be recovered through a mix of fees and levy, it is important to consider the changes together to assess the impact on visa applicants, particularly under categories which have not previously paid a levy. Table 4 compares the current and proposed costs for the main visa categories. Table 4: Current vs proposed costs for specific categories of visa applicants Current Proposed Impact Fee*** Levy* Total Fee*** Levy Total Increase % Temporary Visitor (paper) - first year $165 $0 $165 $151 $14 $165 $0 0% Visitor (paper) - second and $165 $0 $165 $170 $14 $184 $ % subsequent years Visitor (online) - - $165 $151 $14 $165 $0 0% Group visa - first year $80 $0 $80 $70 $10 $80 $0 0% Group visa - second and subsequent $80 $0 $80 $85 $10 $95 $ % years Approved Destination Status - first year $50 $0 $50 $40 $10 $50 $0 0% Approved Destination Status - second and $50 $0 $50 $50 $10 $60 $ % subsequent years Student (paper) $270 $0 $270 $280 $17 $297 $ % Student (online) - - $270 $253 $17 $270 $0 0% Work (paper) $270 $0 $270 $280 $38 $318 $ % Work (online) - - $270 $260 $38 $298 $ % Working holiday $165 $0 $165 $170 $38 $208 $ % Residence Skilled migrant** $3,050 $651 $3,701 $3,185 $580 $3,765 $64 1.7% Family $1,600 $372 $1,972 $1,670 $280 $1,950 -$22-1.1% * Migrant levy amounts based on average number of applicants per residence application (2.1 applicants per application in the Skilled / Business; 1.2 applicants per application in the family stream). ** Fees include the cost of an Expression of Interest and the residence application. *** Fees shown are the highest fee possible for each category (noting applications are cheaper if made in New Zealand, and most residence and work applications are made onshore) 70. The impact of increased charges varies across visa applicants, with the biggest cost increases applying to work and group visitor visas. Visa applications that are made online will face a comparatively smaller increase compared to paper-based applications. The rollout in June 2015 of enhanced online application functionality (including the ability for agents to apply on behalf of applicants) means that more 12

13 applications for all classes of visa are being made online. This will contain the impacts of the cost increases for a large and growing proportion of applicants. 71. The Current columns in Table 4 factor in the current average number of applicants for residence visa applications. For applications with a higher than average number of applicants, the cost impact of the proposals would therefore be lower or net positive. For applications which have only a principal applicant, the impact of the proposals would be higher than indicated in the table. A skilled migrant applicant, with no secondary applicants, would face a cost increase of $405 (a 12 per cent increase) compared to what they currently pay. 3 A principal applicant under the family stream, with no secondary applicants, would face a cost increase of $40 (a two per cent increase) compared to what they currently pay As indicated in paragraph 17, MPI and Customs are introducing a BCL, which does not fund any INZ border costs. The comparison in Table 4 does not include the additional impact of the BCL. Initial modelling indicated that it is likely to add no more than $22 to the cost of a return air ticket to New Zealand. Cabinet is expected to consider the design of the BCL later in September Sensitivity of temporary migrants to immigration cost increases 73. When assessing the impacts of the fee and levy changes on migrants, it is important to ensure that any short-term revenue gains do not have negative longer-term economic impacts for New Zealand, particularly its export sectors. This section provides an international comparison of costs and outlines some of the available evidence for tourists, students and workers. The Regulatory Impact Statement has further detail. International comparisons 74. One way of assessing the impact of the new fee and levy rates is by comparison with New Zealand s competitor countries. Annex D compares rates in Australia, Canada and the United Kingdom (UK) against the most expensive New Zealand rates possible for a range of visas (visitor, student, work and residence applications). The rates are however indicative, as differences in visa systems 5 make it difficult to provide direct comparisons, and currency shifts also impact on comparative prices The analysis indicates that Canada has the cheapest fees across all visa types considered. New Zealand s proposed charges are in most cases much cheaper than the UK charges, with the exception of skilled migrant residence applications where the UK is slightly cheaper. New Zealand s proposed charges are generally cheaper or in line with Australia s charges, with the exception of the Australia s visitor visa charge which is slightly cheaper. Overall, New Zealand s immigration charges will remain competitive with other countries even with the proposed increases. There is concern that tourists may be deterred from travelling to New Zealand if the costs exceed a threshold of what they are willing to pay 76. Around 20 per cent of visitors to New Zealand require a visitor visa and would therefore be affected by the proposals, in addition to the BCL. This includes 3 Current charges for a single person as skilled migrant: fees $3,050 + migrant levy $310 = $3,360. The proposed charges equate to $3,765, which would result in an increase of $ Current charges for a single person under family category: fees $1,600 + migrant levy $310 = $1,910. The proposed charges equate to $1,950, which would result in an increase of $40. 5 For example, the proposed immigration levy will be paid once per application irrespective of the number of people. In contrast, an additional charge is made for each secondary applicant in Australia, Canada and the UK for most residence applications. Further, the comparison includes the proposed immigration levy, but does not factor in any third-party fees or other compulsory charges as part of making an application (e.g. most UK visa applicants pay a health surcharge of 200 per year). 13

14 New Zealand s second-biggest tourism market, China, as well as two priority growth markets India and Indonesia. 77. International literature suggests that the effort and cost required to obtain a visa can influence tourists travel decisions. As noted from paragraph 20 above, INZ is implementing Vision 2015 specifically to improve the customer experience. 78. There is very little domestic evidence to suggest that tourists would be deterred from visiting New Zealand as a result of the relatively small increase in charges proposed for some visitors from year two. In particular, previous increases to visa fees have not had any measurable impact on volumes, although it is difficult to isolate the impact of fee increases from other relevant factors, such as economic conditions in source markets, consumer confidence and exchange rates. New Zealand s currency has dropped to under 70 US cents, from almost 90 cents at the end of Increased visa costs are unlikely to have a significant impact on export education 79. There is very limited evidence on the impact of visa costs for international students wishing to study in New Zealand. The available evidence does suggest, however, that it is not a major influence. In addition, this charge is a very small proportion of the cost of paying international student fees and travelling to New Zealand. A recent international survey across 195 countries identified ease of getting a visa as the fifth most important factor when considering study abroad 6, although the ease and cost of a visa are not synonymous. 80. Under the proposed changes, the cost of a paper-based student visa application will increase by 10 per cent. However, this relatively high increase is mitigated by the zero cost increase for online applications as well as the currency drops referred to above. While the proportion of students applying online currently is relatively low, it is expected to grow significantly in future, particularly now that the apply on behalf online functionality has been rolled out. 81. The international comparisons in Annex D do not include the United States (US) due to difficulties in making a direct comparison; however it is one of New Zealand s key competitor countries. Education New Zealand research suggests that the US costs for students would be around NZ$228, which is cheaper than New Zealand s total proposed charge of NZ$297 for a paper-based application and online student application fee of NZ$270. It is not clear to what extent the differential would be factored into student decisions, or what impact American tuition fees or scholarships would have. 82. Direct comparisons with Australia are also difficult because Australia offers multiple course visas and INZ generally grants a one-year student visa (although a pathway visa is currently being scoped). The proposed total charge for a New Zealand visa (NZ$297 for a paper-based application) is around half the cost of an Australian student visa (NZ$593). The impact on skilled workers is unknown but is unlikely to be significant 83. There is a dearth of research on whether increased costs would influence skilled migrants decisions to work in New Zealand. Industry responses to fee increases in other countries, including Australia, have suggested fee increases could impact on the ability to fill skill shortages. However, there is an open question as to the relative impact of visa changes, versus other costs associated with relocating between or within countries, and the relative attractiveness of job offers and living conditions. An equivalent temporary Australian visa (the 457 visa) costs more than $1,100, compared 6 Hobsons (2014). Beyond the data: Influencing international student decision-making 14

15 with the New Zealand proposed charge of $318, while the permanent skilled migrant charges are similar, at $3,765 for New Zealand and around $3,900 for Australia. Management of settlement funding allocations under the immigration levy 84. Migrant levy funding for settlement initiatives is spread across five government agencies, which collectively receive $7 million per annum in appropriations (refer Annex A). In 2015, the Ministers of Finance and Immigration agreed that the current allocations would be rolled over for 2015/16, noting that work would be done to decide how these allocations would be made in the future under the immigration levy. Realigning settlement services to Government outcomes 85. In 2014 Cabinet agreed to the Migrant Settlement and Integration Strategy [EGI Min (14) 15/8], which sets out the Government s outcomes for settlement (the Strategy is to be implemented across agencies, including those funded via the immigration levy). I propose that officials report back to the Minister of Immigration by early 2016 on the design of a funding allocation process to fully implement the Strategy from 2017/18. I propose that the funding design includes advice on multi-year allocations, given the existing one-year allocations create difficulties for agencies in terms of business planning. To minimise disruption to existing services, and ensure a robust funding process in the interim, I propose to roll over existing appropriations of $7 million for current initiatives for 2016/17. An interim funding process would start to give effect to the Strategy 86. In 2007, Cabinet agreed that an annual contestable fund would be created from any uncommitted forecast revenue from the migrant levy [EDC Min 907) 10/6]. I propose to rescind this decision. Instead, to start giving effect to the Strategy in the interim, I propose to fund some small-scale initiatives in 2016/17 from the accumulated surplus of migrant levy revenue (estimated to be between $1.8m and $2.0m by November 2015), based on a set of priorities agreed by the Settlement Senior Officials Group I propose that final decisions on the initiatives and the level of funding be delegated to the Minister of Immigration and the Minister of Finance. Additional decisions requiring Cabinet agreement Rescind an earlier Cabinet decision to include VAC fees in regulations 88. VACs were established in 2012 to handle the administration involved in receiving paper-based visa applications offshore. In July 2013, in anticipation of VACs opening onshore, Cabinet agreed to include VAC service fees in the immigration fees schedule [CAB Min (13) 24/7]. However, INZ is not currently planning to open onshore VACs and these fees do not need to be prescribed in regulations as long as lodging an application at a VAC is not compulsory. I therefore propose to rescind the earlier decision to include the VAC fee in the fees schedule. Enable VACs to accept applications for confirmation of a visa 89. Immigration regulations require applications for a confirmation or transfer of a visa to be lodged at an office of the Department. Some applicants may want to lodge their application with a VAC for a confirmation or transfer of a visa but this is not possible under the current regulations because a VAC is not an office of the Department. I propose that the regulations be amended to enable applicants to lodge applications for a confirmation or transfer of a visa at a VAC. 7 A committee of senior officials from agencies that support the Migrant Settlement and Integration Strategy. 15