Government policy is now allowing businesspeople who will make a business investment of $5m in Australia to gain entry to Australia as an immigrant. Critics have described the policy as an immoral sale of entry rights. It isn’t really. The policy in the main provides a signal of the applicant’s entrepreneurial or business skills which are difficult things to identify. Since the $5m investment remains the property of the applicant, interest income from the investment proceeds to him or her. Australia then gets effectively zilch, at lerast from the investment - preexisting Australian residents get nothing and all income goes to the new entrant so it is a policy of seeking to signal skills and hardly a policy of “selling’ visas. To the extent that capital markets are perfectly mobile internationally the $5m investment will induce a capital outflow of $5m so there is no net addition to the local capital endowment either. All investment gains – apart from business skill externalities – accrue to the newcomer and australia does not end up with a larger capital stock.
One qualification to this story is that State Government’s have the opportunity to direct where the $5m is invested and they might well choose local public projects which yield a lower rate of return than private sector projects. This does represent a transfer to the state – if the implied subsidy was 1% of the investment it would amount to $50,000 annually. In addition the Federal Government does collect income taxes on any interest earned although some of this one would expect is returned to the migrant as public goods.
In addition skilled entrepreneurs will generate jobs for others and will have income distributional impacts that fall on the well-heeled rather than the unskilled end of the workforce. They will also buy other nontraded goods and assets from residents providing further gains from trade.
I am not particularly concerned about such a program. I’d certainly prefer it to the wholesale recuitment of low productivity, low education entrants who either live on Australia’s social security system (or in our jails) while simultaneously despising our democracy and resenting the fact that their religious fanaticism is only one of many myth systems allowed to operate in Australia. (1912)