More than 140,000 skilled migrants are caught in an Immigration Department processing backlog of up to 28 months, as business leaders warn of a looming skills shortage and a wages breakout driven by a resurgent economy.

In a secret briefing to Immigration Minister Chris Bowen, the department warned of potential legal action by skilled migrants unable to get a decision on their applications. The department also said that, in order to offset the ageing of the workforce, migration would need to remain at levels that would lead to Australia having a population of 35.9 million by 2050 — the figure that sparked the “big Australia” debate and Julia Gillard’s promise of a sustainable Australia.

Despite cuts to migration levels that would cause net overseas migration to plateau at about 190,000 a year by 2012, the Red Book briefing said net overseas migration would still be above the 180,000-a-year level used by Treasury in the 2010 Inter-Generational Report, when it calculated the figure of 35.9 million by 2050.

The release of the briefing came as Reserve Bank director Graham Kraehe called for an increase to skilled immigration to avoid a broader wages breakout.

“I think skills shortages are a major problem and if we don’t increase the amount of skilled migration then we are going to have some real pressure on wages,” said Mr Kraehe, who is also chairman of BlueScope Steel and Brambles.

The departmental brief, obtained under Freedom of Information laws and compiled in September, also predicted further riots from the detained Indonesian crews of asylum-seeker boats and warned that immigration detention facilities were stretched beyond capacity, with 2646 people held for more than 120 days.

The briefing painted a picture of a department under “stress” from an influx of “irregular maritime arrivals” and a migration program facing a situation where “there are far more people seeking to migrate to Australia than the country wishes to absorb”.

The briefing said the influx of asylum-seekers had meant an extra 400 qualified staff would be required to handle the workload.

The department warned it urgently needed extra funding to house the asylum-seekers, after being overwhelmed by approximately 700 arrivals by boat a month last financial year, more than four times its budgeted estimate of 166 a month, and the average processing time from arrival to granting a visa stood at 147 days.

In a remark that places the government on a potential collision course with the Greens, the briefing foreshadowed the possible need for legislation to advance the East Timor processing centre, a measure flatly opposed by the minor party’s leader, Bob Brown.

The Red Book also revealed that the government:

* Screened 369 citizenship and visa applicants suspected of war crimes, crimes against humanity or genocide during 2009-10.

* Developed a contingency plan for an emergency evacuation of Australians from New Delhi in the event of a major incident at the Commonwealth Games and contemplated also bringing out South Pacific Island VIPs and athletes.

* Is examining using “advanced analytic software”, including data mining, pattern recognition and network analysis techniques to detect possible threats and fraud.

* Faces a backlash from tens of thousands of overseas students caught by the government’s reforms to international education visa programs who were facing a blowout in the overseas student queue for permanent visas and likely rejection, despite grandfathering provisions aimed at smoothing the adjustment.

In addition to the processing backlog of 140,000 applications in the general skilled migration category, there were 29,000 people seeking processing for partner places under the family reunion program.

The department warned the backlogs could spark legal action from disaffected people awaiting processing as, under the Migration Act, a person who lodged a valid application was entitled to a decision.

“The use of priority processing directions in recent years, so as to selectively target applications for skilled migration, in combination with high applicant numbers, has meant that some people are persistently at the bottom of the queue with their application unprocessed,” the brief said.

“It is possible that legal action may be launched by disaffected people in this group.”

In calling for an increase in skilled migration, Mr Kraehe said shortages were already emerging.

“We are already seeing that up in the northwest and that will just get worse,” Mr Kraehe told The Australian last night. “That will exacerbate the two-speed economy that we are facing and the issues related to it.

“Two things are critical: one is some measures to improve productivity, which has been very poor in the last three or four years and declining; and the second is to increase the skilled immigration quotas so we can address what is already a shortage and something that is putting pressure on project costs and more broadly will put pressure on wages costs in the community.”

Wesfarmers chief executive Richard Goyder — who oversees one of the country’s biggest employers spanning Coles supermarkets and Bunnings hardware stores — said he was keeping a “very close eye” on skills shortages.

“It’s something we are very aware of, particularly in engineering, both skilled and semi-skilled areas. In the industrial businesses we’ve got particularly, it’s something we are acutely aware of.”

Australian Industry Group chief executive Heather Ridout said skills shortages would only grow in the months and years ahead and were contributing to wages inflation.

“We are at the early stage of a very, very big investment boom in Australia and that would suggest these are going to get worse,” Ms Ridout said. “How these skilled migration systems and processes work is going to be really important over the next few years. They are certainly biting now.”

Australian Chamber of Commerce and Industry chief executive Peter Anderson demanded a more flexible skilled migration program.

“If the government puts hard and fast rules in place that create gaps in our labour market then we will suffer productivity losses,” Mr Anderson said.

“As a nation, we start this year with an already sluggish productivity rate and gaps in our labour market will exacerbate our productivity problems.”

Business Council of Australia deputy chief executive Maria Tarrant said it was crucial that the government “streamline and deal with some of the causes of the backlog”.

“There are some very immediate skills needs issues,” Ms Tarrant said.

“If you are thinking about how in the long term you deal with an ageing population, growing economy and skills gaps, skilled migration has to be part of the kit bag going forward.”