Increasing TSMIT from 1 July 2023 – What does it mean for you and your business?

We recently tuned into Home Affairs Minister, Clare O’Neil’s speech at the National Press Club on 27 April 2023 on Australia’s Migration System and found ourselves talking about our thoughts and commentary on the impacts of the proposed reforms of the immigration system, both on our clients and Australia as a whole.

Brief background

In January 2022, the Government temporarily relaxed the allowable work hours cap for student visa holders to help alleviate the pressures of workforce shortages.  This flexibility allowed those on a Student visa (subclass 500) to work more than 40 hours a fortnight in any sector of the economy during the COVID-19 pandemic.

Last Thursday, the Minister for Home Affairs, Clare O’Neil announced that the Albanese Government will conduct a “once-in-a-generation” reform of the Australian migration system, with the purpose of fixing our “broken” migration system.  The Government’s review of Australia’s migration system proposes a plan to overhaul the broken system and address some of its failings.

The address follows the release of a 200-page report which includes the following key points:

  • Increase the Temporary Skilled Migration Income Threshold (TSMIT) from $53,900 to $70,000, or the annual market salary rate, whichever is higher, from 1 July 2023;
  • Restructure the temporary skilled migration program into three tiers:
  • A ‘light touch’ high salary cohort;
  • A ‘mid-level cohort’ (above the TSMIT, below the high-salary threshold of cohort 1); and
  • Subject to further consideration across government, a lower wage cohort in sectors experiencing persistent shortages and who are most at risk of exploitation and displacing Australian workers with similar skills; and
  • Pathways to permanent residency for current skilled temporary visa holders by the end of 2023.

In this article, we will be focusing on the possible increase in TSMIT and our analysis of how this would potentially affect businesses, existing visa holders, different industries and regions.

Temporary Skilled Migration Income Threshold increase

The Temporary Skilled Migration Income Threshold (TSMIT) was introduced in 2009 as a base salary threshold used by the Subclass 457 visa program, which was subsequently replaced by Temporary Skilled Shortage (TSS) subclass 482 visa.  The dual purpose of TSMIT is to act as an indicator that an occupation is skilled and to ensure that a visa holder has reasonable means of support while in Australia.  From 2009 to 2013, TSMIT was reviewed and raised from $45,220 to $53,900 gradually.  However, it has been frozen at $53,900 since 2013, after successive Coalition governments chose not to raise it.  According to the Minister’s speech made last week, around 90% of all full-time jobs in Australia are now paid more than the current TSMIT, which means the mechanism of TSMIT has not been working for Australia’s skilled migration system and current labour market.

In response to the inconsistency between TSMIT and the changes in market salary, the Government has decided to increase TSMIT from $53,900 to $70,000, or the annual market rate, whichever is higher, from 1 July 2023.  The new $70,000 income threshold is approximately where the TSMIT would have been if it had been properly indexed over the previous 10 years.  Although the Australian Council of Trade Unions (ACTU) calls for the threshold to be increased to around $90,000, the Minister addressed that the figure of $70,000 is inevitable to attract and retain younger people in our labour market who bring in skills Australia needs.

Whilst we agree that TSMIT should be increased to meet the current economic challenges, we are concerned that the significant increase will impact regions and industries where the median wage and award rates are considerably below $70,000.

Potential impacts

While the changes are aimed at attracting and retaining young skilled workers in the Australian labour market and protecting migrant workers from underpayment or lower-paid local workers from international competition, it has also sparked concerns about the impact it may have on temporary visa holders and sponsors in regional areas or certain sectors dominated by low-paid professions.

Regional areas

One of the key impacts of the increase in TSMIT will be on skilled workers in regional areas. To reflect this difference in wages and costs of living between regional areas and metropolitan areas, concessions to TSMIT in regional areas are provided through ​​​Designated Area Migration Agreements (DAMA).  However, the report released last Thursday suggests that the current regional migration visa programs are too complex and unattractive.  Whilst recognising the challenges facing regional Australia, the report points out that regional development is a whole-of-government issue and cannot be addressed solely by migration.  One possible direction for the upcoming reformation would be removing existing regional concessions in mainstream permanent visas to ensure those programs are strongly focused on selecting migrants who will best meet national economic objectives.  This could potentially make it more difficult for skilled workers in regional areas to access permanent visa pathways due to the lower average salary.

In November 2022, the Permanent Residence (Skilled Regional) visa (subclass 191) was introduced to allow people who have lived and worked in designated regional areas of Australia on an eligible visa, to live and work in Australia permanently.  This visa is a potential permanent residency pathway for both Skilled Work Regional (Provisional) visa (Subclass 491) and Skilled Employer Sponsored Regional (Provisional) visa (Subclass 494) holders who comply with their visa conditions to remain in regional areas for 3 years.

One of the requirements of this Subclass 191 is to have a taxable income of at least as much as TSMIT for the last 3 years. According to the “Employee earnings statistics” released by the Australian Bureau of Statistics in August 2022, outside the capital cities, the highest median weekly earnings were in regional Western Australia ($1,356 per week), and the lowest was in regional South Australia ($1,000 per week).  The statistics indicate that there is still a reasonable amount of people in regional areas normally earning less than $70,000, including those Subclass 494 visa holders who have their salaries nominated based on the old TSMIT ($53,900).  As such, the recent increase of TSMIT may subsequently affect some provisional visa holders’ eligibility to make their Subclass 191 visa applications and we can only hope the possible grandfathering arrangement to address this issue for current regional temporary visa holders

Hospitality and Healthcare industries

Another impact of the proposed changes will be on certain sectors dominated by lower-paid professions, such as the hospitality and healthcare industries. While the report released by the Government indicates that healthcare and hospitality workers earn nearly $70,000 to $75,000, this may not reflect the reality on the ground.  Restaurant & Catering Australia chief executive Suresh Manickam recently referred to the new TSMIT as “unworkable”, pointing to the fact that the highest salary in the restaurant industry award was less than $70,000. Based on our observation, most hospitality workers are not able to meet the new TSMIT, including those who work in reputable fine-dining groups as chefs.

Similarly, the market salary for health and aged care workers has not yet reflected the demand despite our ageing population requiring more workers in these sectors than our domestic population can supply.  For example, the minimum wage of a level 7 direct care employee in the aged care sector will only be $1,200.10 per week which is equivalent to $62,405.20 annually, even after the Fair Work Commission increase wages by 15% from 30 June 2023.  To this extent, raising TSMIT means most migrants working in certain industries may not be able to meet the requirement under the new migration system.  This could potentially shut the door of permanent residency for them and keep skilled workers out of Australia in the industries that need them most.

Whilst we may expect to have a new visa pathway to address labour shortage in particular sectors with lower wages (for example, the aged care industry labour agreement introduced on 5 May 2023), the process of identifying sectors and other requirements is still unclear, which leaves current workers of low-paid industries in a difficult position during the transitional period.

What does this mean for visa applicants and their employers?

For current visa holders, a grandfathering arrangement is likely to be available when their visa expires, and the new visa application will have an income threshold of $70,000, the annual market salary rate, whichever is higher.  However, for new visa applicants and their employers, they should note that subclass 482 applications lodged on 1 July 2023 onwards will only be approved if the applicant’s guaranteed earning is at least $70,000.  Employers who are unable to offer salaries at this level may need to consider alternative visa pathways or consider increasing their salary offerings to attract and retain young skilled workers in the Australian labour market.

Our thoughts

There are concerns with the proposed reform to the TSMIT being increased from $53,900 to $70,000 or the annual market salary rate (AMSR), whichever is higher because:

  • under the skilled migration program, both the AMSR and the guaranteed annual earnings paid to the employee must be at least as much as TSMIT – which means that AMSR can never be higher than TSMIT
  • under the skilled regional program, the employee’s taxable income must be at least as much as TSMIT for the last 3 years
  • most salaries in industries that operate under an award are below $70,000 which means these positions may not be sponsorable

Based on the recent news, we would recommend businesses who may be affected by the above reasons, commence Labour Market Testing for their required positions as soon as possible and ensure nominations and visas are lodged before 1 July 2023.

While the proposed changes to the Australian migration system aim to attract and retain young skilled workers in the Australian labour market, it is important that any reforms are made in consultation with all stakeholders to ensure that they meet the needs of both the regions and the migrants.  Employers may need to consider alternative visa pathways or increase their salary offerings to attract and retain young skilled workers in the Australian labour market.

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