Regional rescue packages have a poor record

Regional_employment_growth_Jan16

The Sunday Mail reported this morning that Queensland Federal Government MPs are “at odds over federal relief funding for Queensland” in response to the economic downturn in much of the State outside SEQ (e.g. note the large job losses in the Mackay and Queensland outback regions over the last twelve months in the chart above). It appears that Herbert MP Ewen Jones is opposed to a $100 million rescue package being proposed by Dawson MP George Christensen, noting “Queenslanders need to be better than just putting out their hand.’’ Nicely said. I sense that Mr Jones understands that any assistance package would not provide any long-term sustainable benefit to regional Queensland.

Rescue packages, or structural adjustment packages as they are referred to in policy circles, are typically found to be ineffective. Rather than trying to prop up faltering regional economies, it is usually better to allow the playing out of the natural economic adjustment mechanisms, which could include people migrating out of some regions to find employment in regions with more favourable conditions.

It is widely acknowledged that Australia’s record across all levels of government in structural adjustment policy has been poor. Clearly, structural adjustment packages are challenging to design well. Research by the Grattan Institute (see Investing in regions: Making a difference) has found that structural adjustment packages across a range of industries typically (p. 26):

  • “have a high cost per job;
  • do not appear to have significantly affected overall long term employment trends in the region; and
  • did not result in the regions performing any better than other regions that lose a major employer but did not receive any government assistance.”

It appears pointless to devote funds to trying to promote new job opportunities, as ultimately economic fundamentals in the region will determine industrial and employment growth. As noted by the Grattan Institute (in the report cited above on pp. 26-27), regarding substantial amounts of structural adjustment assistance provided to Adelaide following automotive plant closures:

“…unemployment rates in Adelaide persisted above the national average for the last decade despite significant structural adjustment funds. Grants paid out under job attraction schemes introduced following automotive plant closures appear to have only temporarily reduced the region’s unemployment rate. Overall, local unemployment rates seem primarily driven by national economic factors and the lack of economic diversification and vibrancy in the area rather than individual plant closures or specific job attraction and retention programs.”

Generally, the view from many authorities, including the Productivity Commission, the Grattan Institute and CSIRO, is that government policy should not try to prevent the natural adjustment of regions to economic shocks from occurring, and should indeed facilitate that adjustment occurring, while managing any adverse consequences using other means. Hence so-called exceptional circumstances assistance would be undesirable. Instead, a range of policies designed to expedite adjustment, such as re-establishment grants or loans and assistance to obtain professional business advice, may be desirable.

Clearly, a significant part of regional adjustment is expected to occur through migration flows. A 2001 study by Paul McGuire, then at the Queensland Department of Employment and Training, found that a large part of a region’s adjustment to declining employment opportunities occurs via migration flows. Governments should accept that this is natural and desirable and not waste money on regional assistance schemes. As John Daley from the Grattan Institute has wisely observed:

“…governments should put development funds where people and jobs want to go.”

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5 Responses to Regional rescue packages have a poor record

  1. Glen says:

    Gene whilst the economical argument against funding regional developement to offset failing or collapsed industries is sound and the numbers clearly identify this, the political argument is totally the opposite. A return at the ballot box for targeted identifiable programs in regional areas is without question, in fact it is the key focus of most back room party officials. In amongst the bulk of spending in the capital cities most is lost in translation. Most constituents in large cities fail to identify which level of govt funded any particular project or infrastructure, in fact many cant even identify if the spending is taking place in their actual electorate. In regional areas local members ensure the variety of media outlets and others are fully aware of who funded what, and that they are responsible for it, you essentially get twice as much bang for your buck in regional towns than you do in the city. The ALP in Qld have done this in Townsville, the Premier and Treasurer I dont think have any particular love for Townsville or its people, but they do have an understanding that after the redistribution this year Townsville is worth 5 seats in the parliament, effectively 6% of the floor of the house for 3% of the vote, Ewen Jones comment is an interesting one, with Bill Shorten offering $100 million to match the state govt for the stadium, Ewens fate is a simple one, fund the stadium or look for another job. It will be interesting to see if his new found ” economical rationalism” remains with him throughout the election campaign, I have a feeling it won’t.

    • Gene Tunny says:

      Thanks Glen, yes, I expect the political considerations will dominate. Good point about the local MPs maximising the PR of infrastructure funding in local media. When I read yesterday’s report I wondered whether Ewen Jones was caught by surprise and didn’t realise exactly what he was responding to!

  2. Jim says:

    Gene

    Good post. It is worthwhile having a look at the small area unemployment data as well to get a bit of perspective (https://docs.employment.gov.au/node/34693). There are differences across the regions to absorb the job losses. Mackay is a bit of a basket case.

    The current job losses come as no surprise as they were primarily temporary jobs for the construction phase of the mining / energy / port developments in the first place (the regional jobs boom was always temporary). There is now a fundamental supply and demand imbalance for those skill sets in regions like Mackay, the outback and the Fitzroy. Any structural adjustment should probably be focussed on helping those workers shift to where the long-term work prospects actually are, rather than some hopeless make work program in the regions.

    In addition, the State could do a lot worse than scrapping some of their inefficient taxes that actually reduce labour mobility (e.g. stamp duty on house purchases).

    And next time there is a boom (a big if), perhaps the State and local government sector should be a bit more accepting of FIFO workers for the construction phase. It avoids the inevitable need for structural adjustment and other legacy liabilities that always occur ofter the construction sugar hit is over.

    • Gene Tunny says:

      Thanks Jim. Great point about stamp duty reducing labour mobility.

    • Glen says:

      Jim a very good point. I have been doing business in all these towns for over 20 years and the towns hit the hardest by downturns are the ones where real estate prices rise well above the market averages by some large margin. It effectively creates an artificial inflation that would be in the double digits, existing residents are effected negatively by the situation as well. We have been saved from a desire situation by low interest rates which have allowed a soft landing for many as they have been able to afford losses on housing without sending them broke. The FIFO siutation is an interesting one that the govt always wants to temper, as you point out “if” another boom ever occurs it will be interesting to see what happens, my view is the next rounds of FIFO won’t be filled by Brisbane, Townsville or Sydney workers but from Manilla, Jakarta, China, India and others, the public may have trouble accepting this, but a free market needs to be just that and protecting jobs for Australians is not helpful in any way.

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