Australia will increase its permanent immigration numbers by 35,000 to 195,000 in the current financial year as it looks to shift its focus toward long-term migrants, bringing some relief for businesses battling widespread staff shortages.

Australia closed its borders for about two years during the height of the COVID-19 pandemic but those strict rules and an exodus of holiday workers and foreign students left businesses struggling to find staff and keep their businesses afloat.

"COVID is presenting us, on a platter, with a chance to reform our immigration system that we will never get back again. I want us to take that chance," Home Affairs Minister Clare O'Neil told a government jobs summit on Friday.

"Based on projections, this could mean thousands more nurses settling in the country this year, thousands more engineers."

Australia's unemployment rate is now at a near 50-year-low of 3.4% but soaring inflation means real wages are down.

Businesses have been urging the government to raise the cap on annual immigration from 160,000, prompting it to make temporary changes to fill the labour gap.

The recently elected centre-left Labor government convened the two-day summit in Canberra, the national capital, inviting business groups and unions to help find solutions to key economic challenges.

Australia has been competing with other developed economies to lure more skilled employees from overseas with many countries looking to ease immigration rules.

But a blowout in visa processing times in Australia has left about a million prospective workers stuck in limbo, worsening the staff shortage crisis.

"We understand that when people wait and wait, the uncertainty can become unmanageable," Immigration Minister Andrew Giles told the summit. "This is not good enough, and reflects a visa system that has been in crisis."

In a bid to speed up visa processing, Giles said the government will spend A$36.1 million ($25 million) to beef up its staff capacity by 500 people for the next nine months.

($1 = 1.4725 Australian dollars)