Tuesday, May 17, 2011

The day the music died

“Life is great in the Sunshine State” was a song written in 1958 by Clyde Collins, and became a sort of anthem which championed the low tax, pro-business and pro-growth attitudes of government and people that characterised Queensland for so long. Queensland’s economic reputation became a magnet for talent and capital, with net interstate migration peaking at over 1500 people per week in the early to mid 1990s, in turn fuelling more growth. But that’s now just a fond memory. Queensland’s population growth is slowing rapidly, its economy being outpaced by South Australia and even Tasmania. The wooden spoon economy that once was Victoria is now the envy of many in business in Queensland. If it weren’t for the resources sector, Queensland’s economy would be in the toilet. What went wrong?

If you’re part of a national business, it can be hard to explain – the idea that the Queensland economy is somehow limping along behind the rest of Australia is counter intuitive. Many interstate colleagues, after being subject to decades of economic bragging by Queenslanders, have accepted as an article of faith that somehow Queensland is immune to downtown. But it’s sadly true, and the evidence is mounting that Queensland’s performance has hit the skids.

One noticeable indicator has been the rapid decline in population growth. Net interstate migration was once the engine room of growth in Queensland, with cashed up southerners moving here with spare cash after buying a better house than the one they left behind, meaning money for the kids’ education, a boat, and a better lifestyle all round. But that trend has now slumped to its lowest levels since records began. From a peak of nearly 50,000 or 1000 per week in the early 1990s, last year the figure collapsed to 9,576 people, or 184 per week. Overall population growth was for a time held up by increasing numbers of overseas arrivals to Queensland, but even these figures are now falling, bringing overall population growth in Queensland to a relative standstill. It’s something The Pulse foreshadowed here and here.

(It’s ironic, isn’t it, that only one year ago the State Government was holding a population summit, arguably because Queensland couldn’t cope anymore. And now the problem is insufficient growth. So much for long term planning, and a cautionary tale about the dangers of governments waxing lyrical about the future, rather than focussing on the here and now. As The Pulse warned a year ago: 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.”)

For an economy which for so long has been reliant on growth, the slowdown is having dramatic effects. Construction starts are at record lows. According to the UDIA’s latest quarterly Development & Construction Industry Performance Report, some 17,000 construction jobs have been lost since 2008, with nearly 8,000 lost in the most recent quarter. Reports this week that housing finance approvals have fallen across the board but most dramatically in Queensland, will mean more bad news on that front is just a matter of time. Beyond construction, the broader economy doesn’t rate much better. In mid April, Commsec released it’s “State of the States” report, which revealed that “Queensland is at the bottom of the list in terms of economic performance, suffering from above-average unemployment and a poor housing market.”

That view was reinforced by a report from the Centre for Independent Studies earlier in the year, which claimed that Queensland’s financial performance rated amongst the worst of any state. According to reports at the time: “In the 2009-2010 period Queensland ties with South Australia for dead last, while Victoria and Western Australia are ranked as the best performers in terms of fiscal management.”

Rising costs, taxes and charges and increasing red tape are frequently blamed, and it seems with some justification. In February, the RACQ released research showing that Brisbane motorists are paying more for fuel than drivers in other major Australian cities. Hang on, didn’t we used to have some of the lowest petrol prices in the country? With petrol and transport forming a significant part of the average worker’s household budget, this becomes another nail in the Queensland growth coffin.

Of course petrol isn’t the only non-housing cost for average income households to grapple with. The whole cost of living equation, which used to be in Queensland’s favour, has somehow reversed. In April, ING’s Financial Wellbeing Index reported that consumers Australia wide were struggling with rising costs of living, but that Queenslanders were struggling the most. “Queenslanders, who are still recovering from disastrous floods and cyclones, suffered the biggest hike in living costs - 8.3 per cent over the past year, compared to 6.3 per cent in NSW,” the report said. And a leading factor in those costs of living are rapidly rising utility costs. Electricity and water bills are galloping well beyond many household’s capacity to pay. In fact, the rapid rise in utility costs now rates as more of a concern for consumers than interest rates, according to this report.

Once again, it’s a reversal of fortune for Queensland, which once (in what seems recent memory) boasted of low electricity charges (that’s history), the cheapest vehicle registrations in the country (now among the highest), among the lowest land taxes and stamp duties (no longer), a quick and efficient development approval system (that was good while it lasted), abundant land for growth and development (now artificially constrained without empirical justification), a solid tourism industry (now being beaten by Victoria – can you believe it?) and of course low cost, affordable housing. The sad reality is that it is now more expensive to buy a block of land in Brisbane than Melbourne, and that Melbourne’s western corridor has overtaken the Gold Coast as a growth region in Australia, according to this report.

So what went wrong? Everyone will have a theory, mine traces the roots of this downturn to a few things. First, the series of planning initiatives which sought to constrain urban growth within artificially imposed urban growth boundaries had the immediate effect, combined with the introduction of upfront development levies, of raising the cost of land, which rose relatively fast compared to other major centres. Housing is the biggest single cost for most new families, and once the costs of new housing supply in Queensland were pushed to the brink of people’s capacity to pay, the market – along with our competitive position – slowed dramatically. We can’t blame the GFC, or interest rates, as these have the same effect nationally. These don’t explain why Melbourne, for example, has experienced solid supply growth in new housing supply, at lower costs, than south east Queensland.

Promoted under the guise of ‘sustainable growth’ these land use policies have failed the aspirations of average workers on average incomes of around $60,000 per annum, who can no longer afford new housing product, without considerable financial pain. The phrase ‘growth management’ has become a byword for ‘growth control’ and reflects an outdated and unsupported view (on the evidence at least) that our rates of growth need containment. A state which once sought and promoted growth has become a state which fears it, and we are paying the economic consequences.

Another major contributing factor has been the disconnect between public policy and the people it is designed to serve. Policy initiatives which have sought to direct consumer behaviour through pricing models have not been subject to affordability tests, or financial impact tests. So whether it’s been the raft of new building codes which have added thousands to the cost of building a basic home, or what’s happened to electricity prices, water prices, or any of a number of ‘user pays’ initiatives, it seems few have asked the obvious question: ‘can the user (ie the consumer) afford to pay?’ The combined effects of multiple cost increases have eroded Queensland’s economic advantage, with workers on average wages feeling it most. They have responded with belt tightening – something the denizens of Brisbane’s inner city coffee shops, or upper echelons of the bureaucracy, may be unfamiliar with.

Finally, we seem to have lost sight of a simple reality: there can be no public sector without a profitable and healthy private sector. The latter generates wealth, the former collects it, and spends it, redistributing wealth according (in theory) to democratic decisions made by the people. But rather than supporting and promoting private sector growth and development, an attitude appears to have taken root which derides wealth creation and which assumes the public sector can do better. That’s most visible in development, where ‘greedy developers’ (who actually provide many times more houses than government, and who pay considerable taxes) are attacked as a group for daring to question the imposts on their industry. It has become a thought crime to challenge planning policies which promote lovely images of future urban growth without a single reference to consumer needs, aspirations or capacity to pay.

Developers aren’t alone – witness the furore on South Stradbroke Island, where sand miners defending their industry against planned closure have been marginalised and attacked for having the temerity to point out the economic value they bring to that community. (This reached a point of high farce when the Premier and Climate Change Minister were pictured on some supposedly pristine sand dune, talking to media about the importance of the natural environment on Stradbroke, except the very dune they’d been pictured sitting on was a former mine site which had been rejuvenated by the miners).

Economic growth and private sector wealth creation are what will pay for the public hospital beds, school classrooms and expanded infrastructure. Private developers, given the chance, will provide Queenslanders with the types of housing they want, in locations they want, at prices they can afford. Farmers will provide food efficiently if allowed to manage their land without instruction from environmentalists and policy makers. And the taxes paid by miners and farmers and other businesses will also pay for the national parks and environmental standards the community says it wants. This is a pretty fundamental thing to understand, but are we living in a state anymore where this is clearly understood?


  1. Interesting post. First time I have come to this blog. Why Oh Why do you use a white font on a black background. Good and all as the post is I gave up trying to read it. I copied and pasted it into a word docuemnt. I then found the font was light grey on white. I changed the fone colour to black and I could then read it comfortably and easily. I don't think I will bother trying to read your blog in future. It is just too difficult.

  2. It is North Stradbroke Island where mining is being closed down, not South Stradbroke. I live in Redlands "City" and I can assure you that North Stradbroke Island will be a sad and embarrassing sight to see after 2019. Every service and business will jump ship and leave. Also, the transport services to the place now existing will be unable to survive and will shift operations to ports elsewhere either here or overseas. This will be another ghastly social experiment by the current government. Good blog just the same!

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