Gov’t and renewables making disproportionate contributions to demand growth in Qld

The September quarter National Accounts published by the ABS yesterday revealed that the general government sector made a disproportionate contribution to Queensland state final demand growth that quarter, suggesting a strong pick up in the hiring of public servants, contractors, or consultants (see chart below).* 

A chart showing government consumption spending contributed 0.6 percentage points to Queensland’s state final demand growth of 1.8% in September quarter 2021.

This was one reason, though not the only reason, that Queensland’s economy saw strong growth in state final demand in September while NSW and Victoria’s economies were adversely affected by lockdowns (see the chart below). I should note that government consumption spending grew even faster in NSW and Victoria than in Queensland (5.0% and 3.4% vs 2.8%), but total state final demand in those states fell due to big falls in household consumption spending.

A chart showing state final demand growth by state, with positive growth across states expect in NSW and Victoria where the prolonged lockdowns had large adverse impacts.

As noted above, in Queensland, total government consumption spending increased 2.8% in the September quarter. In its National Accounts writeup, the ABS observed this increase was “led by increased frontline services including police, fire and emergency services and hospitals due to ongoing border closures and COVID-19 responses.” Based on the data, it must have been more than this, however, as there was a large increase in federal government spending, too. For state and local governments, the increase was 2.1% and for the federal government the increase was 3.6%, quarterly growth rates which are obviously unsustainable I should add. Certainly there was some additional ADF activity in Queensland which could explain a fraction of the increase in federal spending (see e.g. Troops to be deployed to Queensland border to counter ‘real and present’ threat of NSW COVID-19 Delta variant outbreak). But federal consumption spending in Queensland increased by $336 million in September quarter, much more than could be attributable to ADF personnel being used to help enforce state border restrictions. Possibly the federal government has boosted spending to bolster its election prospects in Queensland.

In contrast to fast-growing government consumption spending, household consumption spending grew at only 0.3% in September quarter, much lower than the pre-COVID average of around 1%. Even considering Queensland’s reduced rate of population growth during the pandemic, this strikes me as a sub-par result on household consumption, and isn’t encouraging. 

What is encouraging, however, is that business capital investment in Queensland was up 3.7% in September quarter, and it added nearly 0.4 percentage points to state final demand growth. Total private sector capital investment, including investments in dwellings, was up 4.6%. In its commentary on the Queensland data, the ABS observed this was related in part to the “increased expenditure on renewable energy projects.” Solar PV and wind farms don’t tend to provide a lot of ongoing employment, alas, so they may not be such a boon for the economy as one would hope. Also, we still need to resolve the big challenge of integrating so much renewable energy into the grid without threatening the reliability of electricity supply. 

*SFD measures domestic sources of demand in an economy. It does not account for net exports. That is, it does not add exports attributable to a state to the figure, nor does it subtract imports into that state, as would be done in a Gross State Product measure.

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