At the Venetian Macao earlier this week
One of the best guides to the huge economic transformation that has taken place in China in recent decades is Shaun Rein’s The End of Cheap China. I’d agree with commentators who say it is compulsory reading for anyone wanting to do business in China or wanting to understand the contemporary Chinese economy. As I was exploring the Venetian Macao casino resort complex earlier this week, it was easy to see examples that would support one of Mr Rein’s main messages: that middle class Chinese consumers don’t see themselves as middle class, but rather as on the way to being rich, and their aspirations are reflected in their demands for luxury products – of which there is a dazzling array at the Venetian Macao.
The over-the-top brilliance in casino and resort operations that is the Venetian Macao – the world’s largest casino – also made me wonder about the business cases for the proposed new casino-resort complexes in Brisbane and Cairns. The project proponents must be incredibly confident in the quality of their proposed offerings, because I expect it will be hard to lure wealthy Chinese gamblers away from Macau, which offers a number of high quality casino resorts and is much closer for Chinese gamblers. The attraction of other destinations in Queensland, such as the Reef and beaches, must be an important factor in the business cases for the proposed Queensland casino resorts. The successful casino-resort proponents will need to work closely with regional tourism bodies to ensure the local product offering is at the quality required to help lure the wealthy guests they will need to make their casino resorts viable.
The March labour force data released yesterday by the ABS show the Queensland unemployment rate has stabilised at around 6.5%, which, while relatively high (see chart above), is not too bad from a historical perspective, as I’ve noted before (Don’t panic about unemployment just yet – still below long-run average). The Queensland economy is currently adjusting to the big shock caused by the end of the mining boom, but I expect the labour market will begin to strengthen later in the year and that, hopefully, the unemployment rate will fall to be closer to the national average.
I’m very optimistic about the prospects for jobs growth in the services sector, particularly in health and aged care, underpinned by the massive growth in the population of seniors (see the informative new Qld Treasury report Qld Seniors), and also in tourism, which is being aided by a lower exchange rate than in previous years. I’ll talk more about these factors in my upcoming presentation on the end of the mining boom.
Other commentary on the March labour force data is available from Queensland Treasury (Labour Force) and Pete Faulkner (Jobs data beats expectations).
Posted in Labour market, Population
Tagged agedcare, ageing, health, jobs, qld, queensland, seniors, tourism, unemployment, unemploymentrate
In addition to royalties revenue being lower than previously forecast, a major risk to the Queensland State Budget in coming years is lower than expected dividends from government-owned businesses. Currently government-owned businesses contribute over $2 billion to the Budget or 4-5 per cent of total revenue, and revenue of this broad magnitude is forecast by Treasury to continue over the forward estimates (see chart below). However, these forecasts may not eventuate due to the risk of unfavourable determinations from the Australian Energy Regulator (AER) regarding Energex and Ergon’s business plans for the next five years.
The AER’s draft determination for NSW network businesses from late last year (see AFR coverage) suggests the AER might force Energex and Ergon to cut its proposed charges, and this could mean lower dividends (and income tax equivalent income) from the businesses to the Queensland Government. In a worst case scenario, this may result in a reduction in revenue to the Budget of several hundreds of millions of dollars per annum, compounding an already large fiscal challenge for the Government. The AER’s preliminary determination for Queensland network businesses is due this month, and I expect a number of George St econocrats are nervously awaiting its release.
N.B. Income tax equivalent income is income paid to the State Government by government-owned businesses that would be equivalent to company tax income they would have to pay to the Commonwealth Government, if they were not Government-owned. This is done for reasons of competitive neutrality – i.e. to create a level playing field between private and government-owned businesses.
Lower coal prices have translated into a decline in the value of Queensland’s coal exports (by 5.5% in the year to February 2015), contributing to a 1.6% decline in the value of Queensland’s total commodity exports over the same period (see chart below based on Qld Treasury’s latest information brief on goods exports). It’s obvious from charts such as the one below that coal mining is very important to Queensland’s economy. With concerns over pollution in China and climate change, our economy’s significant reliance on coal mining is a substantial risk. The Queensland Government needs to think deeply about our education policy settings to ensure we have a highly skilled and productive workforce that can readily adapt to possible future changes in the structure of our economy.
It’s clear the mining downturn is having significant adverse effects, such as large increases in unemployment in regions that are more dependent on mining, such as the Mackay and Fitzroy regions (see chart above, and also see the Courier-Mail report Unemployment doubles in Mackay as mining meltdown hammers town, noting the report uses the volatile original ABS data). Given the profound implications of the mining downturn, it is timely that the Griffith APEC Study Centre has arranged an upcoming interactive panel discussion for Tuesday 5 May in Brisbane:
The end of the mining boom: What’s next?
The panel discussion is being supported by the Queensland branch of the Economic Society of Australia, of which I’m the Secretary. I’ll give a presentation at the event, as will my fellow ESA Qld Committee member Michael Knox, Chief Economist and Director of Strategy at Morgans. I’m very much looking forward to it, and I’d recommend it to anyone interested in the outlook for the Queensland and national economies.
Posted in Macroeconomy, Mining
Tagged abs, esaqld, fitzroy, griffith, mackay, mining, qld, queensland, resourcessector, unemployment, unemploymentrate
I was surprised by this view attributed to RACQ Executive Manager Michael Roth in the Brisbane Times article Brisbane drivers spend three days a year stuck in traffic:
Mr Roth said there were two ways to prevent worsening congestion rates – halt growth or build infrastructure.
Mr Roth notes that we certainly don’t want to halt growth so the only alternative is to build infrastructure, noting “congestion will increase unless we build infrastructure”. Unfortunately, the experience of cities around the world is that new infrastructure can provide temporary relief, but congestion returns in time, because the new infrastructure temporarily lowers the travel-time cost of driving and encourages more people to drive.
It has become obvious around the world in recent decades that it is desirable to consider demand management options such as congestion charges – e.g. as seen in Singapore and London – which are designed to manage demand in peak periods on busy roads. Congestion charging will discourage many people who are making low-value, discretionary trips during peak times.
Ideally, congestion charging on roads would be combined with bigger differences in peak and off-peak fares (and possibly a new super-peak-period fare) for public transport to encourage commuters to travel at less congested times. It may take some time to get the exact parameters right, but I’m sure transport demand management options would compare very favourably against the multi-billion dollar infrastructure projects that are typically proposed to deal with congestion.
I’ve previously posted on the desirability of considering transport demand options:
Govt should explore transport demand management options before committing to costly infrastructure