Queensland state and local general government capital expenditures increased 13% in March quarter, rising to $2.79 billion, helping Queensland to record 0.5% growth in State Final Demand, the second highest growth rate in Australia (second to Tasmania with 0.7%). Part of the increase in state and local capital expenditure was probably related to recovery from the floods in North Queensland earlier this year. Queensland’s State Final Demand increase of 0.5% was higher than increases of 0.4% in NSW and 0.2% in Victoria, according to the latest ABS National Accounts estimates, which have been widely reported as showing a sluggish Australian economy. My former Treasury colleague John Kehoe, now a Senior Writer at the AFR, sums it up nicely in his article Soft GDP needs consumer pick up:
Government spending and resources exports are keeping Australia afloat, but domestically the rest of the economy is pretty soft.
One of the problems the Australian economy is facing is the property market bust. We have seen falls in dwelling investment, and also in commissions for real estate agents and stamp duty, which are picked up in “Ownership transfer costs”. Queensland, luckily, never experienced the huge property boom that occurred in southern states, so we have managed to avoid much of the pain from the bust. While there was over-investment in inner city apartments, the state’s population growth has helped absorb any excess supply, and dwelling investment now appears to be picking itself up and is contributing to economic growth once more (see chart below). Both investments in new dwellings and in alterations and additions to existing dwellings increased in March quarter. Partly, increases in dwelling investment could be related to recovery from the floods, but I suspect that would only be a small part of the story.
While the dwelling investment story is an encouraging one for Queensland, we aren’t seeing any growth in capital spending by businesses (see the chart below), and indeed business investment fell 0.6% in the March quarter. Once again, the Queensland economy is demonstrating it is too reliant on government spending and population-growth-induced housing construction. The state government should review the full suite of its policy and regulatory settings that could be inhibiting business investment. I feel the issue is a broader one than simply the alleged opposition of some members of Cabinet and the bureaucracy to the Adani Carmichael mine.
For other commentary on the ABS National Accounts figures from Queensland econ-bloggers, see:
Pete Faulkner’s post GDP slows again in Q1-Qld relying on the public sector
Nick Behrens’s post Qld’s domestic economic activity-March quarter 2019