Monday, March 22, 2010

Don’t panic!

The population panic about hordes of invading immigrants might prove entirely misplaced. As we ready ourselves for the next wave of populist hand wringing over Queensland’s future population growth (the coming population summit) it is just possible that there won’t be much growth to worry about.

We all remember the graphs - the ones which showed Queensland enjoying a massive tax advantage over other states. ‘The low tax state’ was once almost synonymous with ‘the sunshine state’ as a means of describing Queensland in a sound bite. That tax advantage translated into a cost of living and lifestyle advantage for interstate migrants moving here in droves – especially in the 1980s and 1990s and into the early 2000s. Interstate migration was the driver of population growth until international arrivals took over that role in recent years – which has kept Queensland’s growth numbers pumping along. But for how long?

In fairness, it could have been economically impossible to maintain the low tax status of Queensland and at the same time maintain the population growth numbers we’ve witnessed. But the rapid change in our tax competitiveness is sure to have some impact on future population trends. The question, for almost every business in Queensland from aviation to development to retail, is how much that impact might be. If it’s sufficient to slow Queensland’s growth well below the trend line of the last 20 years, a lot of business plans will have to be changed.

State taxes

Comparisons of state taxes are notoriously tricky because each state has a different tax mix. But however you cut the cake, it’s undeniable that the ‘low tax’ status of Queensland as a competitive advantage has been eroded. According to a recent study by the IPA, Queensland’s business taxes now place us ahead of Victoria and West Australia, and only marginally behind NSW. Our business tax ranking dropped from second lowest in 2008 to mid field in 2009. The demise of the low tax state was lamented in an article in The Australian late last year, which opened with the following comment: Queensland has squandered its low-tax edge and become a public-sector spendthrift, putting at risk its long-term growth potential and ability to attract investment.”

The recent attempt by the Queensland Government to retrospectively change the method of land valuations to recapture potentially lost revenues was evidence that the willingness to reverse that trend is not there. (The decision was reversed, thankfully, but what damage the furore did to Queensland’s economic reputation only time will tell).

Cost of living

Comparisons of state business taxes are one thing but population growth numbers also depend on the many myriad decisions made by families and individuals. They are unlikely to consult league tables of business taxes (unless they’re business people) and are more likely to feel the hip pocket pressure of other cost of living features of a region, weighed against opportunities presented by the economy or lifestyle. And here too, Queensland’s comparative advantage is slipping.

Vehicle registration costs were until recently some of the lowest in the country. Queensland now has the highest rego costs in the country (see Table 3.5 of this IPA summary). Rego costs are one of those household expenditures which are amongst the lumpiest of many for average working households with a couple of cars needed for work commutes and family. So an extra few hundred dollars does mean a lot to people on tight budgets.

Fuel costs too, used to be proudly amongst the lowest in the country. But the scrapping of the fuel subsidy scheme means that Queensland motorists are now paying the same – and often more – than their counterparts on the east coast. Fuel costs for families on average incomes are a significant weekly expense, so major increases hurt.

You could add to this the costs of electricity, which under a range of reforms to power generation and retailing, have risen substantially and will continue to rise. Low cost electricity was once a Queensland boast. Sure, power costs are rising in all states but it does look unfortunate for Queensland that after handing the market over to deregulation in 2007, and despite promises to the contrary, consumer energy bills have since headed north.

The same seems to be happening across other utilities (for example water) to which we once felt entitled as part of our general tax burden but which are now separately levied.

And then there’s housing.

This point hardly needs to be laboured. House prices throughout the state, in almost any centre, were within recent enough memory so much more affordable than similar styled houses in similar city or regional locations in other states. No more. This huge price advantage in interstate competitiveness has been lost. The median house price in Brisbane, according to some reports, has passed the $500,000 mark and according to other reports could start to catch up to Sydney’s (Brisbane housing prices were around half those of Sydney as recently as 1999. Today, they are 80% of Sydney prices).

The days of moving your family from Victoria or Sydney because you could buy a better home for less, are over. It was regarded as a key driver of population growth at the time. It is no longer.

Advantage lost

In short, the ‘low tax state’ meant more than just low business taxes: it covered a range of living costs and charges and levies which were typically lower in Queensland and which contributed to the strong argument in peoples’ minds that Queensland was the place to be. Hence the population growth, especially from interstate. But if you start to think carefully about each item on the menu of Queensland’s comparative advantages, the menu is getting smaller.

This starts to become especially important when you factor in that household budgets in Queensland have the lowest level of disposable income (other than Tasmania) of any of the states. (A paper presented by Saul Eslake at the recent PCA Population Summit in Brisbane in early 2010 is worth obtaining from the PCA). In short, higher taxes, higher housing costs plus lower incomes aren’t much of an appealing lure to potential migrants.

But the sun’s still shining, right?

Yes, Queensland’s climate continues to feature in marketing messages about the ‘sunshine state.’ But you can’t rest your population attraction on just that, and if you do, you’d be making a big mistake. A lot of people, especially interstate, think Brisbane is simply too hot. Which (let’s face it) it is for almost three months of the year. That message isn’t helped by a tourism industry that can’t think beyond clichés of climate and baking suns and brown tans and white beaches. Other than for holidays, our climate is actually a turn off for a significant proportion of people. And if it’s too hot here, imagine what they’d think of living and working in regional centres further north? After all, if climate was a major motivator, we might find a number of Pacific Island nations inundated with prospective immigrants. Which they’re not.

No, I’ve never been a fan of the ‘Florida’ argument about climate and population growth in Queensland. There’s been more to it than it.

So what if …

So what if the changed competitive position of Queensland relative to other states is a long term phenomenon? What if this starts to translate into even lower interstate migration numbers, and what if Queensland’s lure to international migrants starts to lose its lustre? Worse still, what if the Feds close the immigration tap a turn or two – Queensland’s current reliance on overseas migrants to make up the numbers could collapse.

Importantly for so many businesses, and for the economy of Queensland, it’s been a reliance on those numbers that has underwritten growth. It would be the ultimate irony if, in the midst of a debate about future population numbers outstripping our capacity to deal with them, that this turned out to be the least of our worries.


  1. Thanks, Ross, good post. I recall some research (maybe by Ed Glaeser?) that looked at the causes of growth in the US and concluded that climate/weather had very little to do with so-called 'sun belt' migration; the real cause was affordable land and housing. Cheers, GG.

  2. Interstate competition is a reality. In the 70's, all those Victorians cashed in their super + headed north to Qld which had 10% death duties, then 0% death duties. Victoria had 30% death duties. If you stayed in Victoria and died, the Vic gov't got (taxed) 30% of your wealth, your kids got the remaining 70%. You could cash up, give your kids the 30% and live it up in 1/2 price Qld back then. Straight competition between states.

    2010 - Victoria offers low taxes + incentives + big companies like Boeing have closed up in Sydney + moved to Victoria. Queensland with its higher taxes is not competitive and companies + people are moving south to Victoria. Good article Ross.