In August, according to the latest ABS Labour Force data, total hours worked were well below March 2020 levels in NSW (-11.1%), and they were 2.9% below nationally and 0.9% below in Queensland (see the chart below). Victoria was slightly above its March 2020 level of hours worked, but that could reflect sampling error. Overall, the data are showing what we’d expect, that lockdowns are restricting economic activity across the impacted states. While Queensland has been in lockdown less than other states, and only for around one week in August, we are still being impacted by the loss of interstate visitors from NSW and Victoria.
Hours worked in Australia, NSW, and Queensland have fallen to below March 2020 levels.
As others have commented, the unemployment rate has become a pretty useless indicator of the current state of the economy, given the falls in workforce participation (i.e. people are giving up looking for work) which are suppressing the official unemployment rate. Pete Faulkner has calculated that the effective unemployment rate for Australia is 7.3% (compared with a 4.5% headline rate) and the effective unemployment rate for Queensland is 6.0% (compared with a headline rate of 5.3%). Check out Pete’s post Zero hours and declining participation drive ‘effective unemployment rate’ higher for details.
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‘Given the better than expected economic recovery within the Australia housing sector in recent months, should the Federal Government look to implement measures (including those of a policy, regulatory, etc. nature) to lower the volume of new investment housing loans/credit to help improve housing affordability and assist in the achievement of more equitable housing and overall economic outcomes?’
This is an important topic given the strong growth in house prices we’ve seen since the end of 2020, and which have defied early predictions of a big pandemic-related crash in property prices (see chart below prepared by Adept Economics Research Officer Ben Scott). This growth is occurring in both capital cities and regional areas, which are attracting new residents seeking a “sea change” or “tree change” or realising they can now work remotely and buy cheaper properties than in capital cities.
Figure 1. Median property prices in Australian capital cities and regions, January 2020 – August 2021, CoreLogic estimates
The blurb for the event suggests the focus of debate will be on so-called macro-prudential measures to limit the growth of credit, particularly to property investors. Tim Lawless at CoreLogic has a recent post on the potential impact of such measures:
That we’d need to consider such an interventionist approach is a consequence of the RBA continuing to ignore the inflation of asset prices in its monetary policy decision making and its continuation of Quantitative Easing (QE) by which the RBA creates new money to buy bonds. There is a risk the RBA’s current monetary policy experiment ends badly eventually, in a repeat of the high inflation of the seventies and eighties, although the current downturn will probably prevent that happening anytime soon. The RBA seems unwilling to consider asset prices, including property prices, in its monetary policy decision making, and hence macro-prudential measures are once again under consideration.
Finally, I should also note that any discussion of housing affordability should consider various restrictions on housing supply (e.g. heritage and zoning rules) that increase the cost of housing. In his CIS Policy Paper, Planning restrictions harm housing affordability, CIS Chief Economist Peter Tulip observes:
Planning restrictions are estimated to raise house prices 73 per cent above these costs in Sydney, 69 per cent in Melbourne, 42 per cent in Brisbane and 54 per cent in Perth.
Of course, as with many economic policy issues, there is extensive debate about the influence of planning restrictions (e.g. see Cameron Murray’s article Land Banking: red tape and a dearth of housing supply are a myth). Peter Tulip acknowledges this in his CIS paper, noting that relaxing planning restrictions wouldn’t have much of an impact in the short-run, although it would have a substantial impact in the long-run. Peter observes that:
A shortage that was created by decades of under-building will take decades to unwind.
If these issues interest you, then I expect the ESA young economists debate will be worthwhile to watch.
Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.
The business R&D estimates published by the ABS last Friday reminded me of the limited economic impact of successive Queensland Government initiatives such as the Smart State and Advance Queensland, although there have been some successes such as the Biosciences precinct at UQ and the Ecosciences precinct at Boggo Road. In 2019-20, Business R&D as a percentage of Gross State Product (GSP) was 0.62% in Queensland compared with over 1.0% in NSW and Victoria, and a national average of 0.9% of GDP (see the ABS estimates and the chart below).
Business R&D is 0.62% of GSP in Queensland compared with over 1.0% in NSW and Victoria.
In Queensland’s defence, I should note:
mining exploration spending is not included in these figures, and arguably that could count as R&D broadly defined, and
a major determinant of business R&D is an economy’s industry mix, as Graeme Davis and I demonstrated in some analysis we did of OECD data in the Treasury back in the mid-2000s (see International comparisons of research and development).
While business R&D has increased in Queensland over 2017-18 to 2019-20, that could just reflect the normal volatility and sampling error in the data. The ABS data set did not contain historical data, so I’ll need to track that down to analyse this more fully. I can say, however, that, since the early 2000s, the business R&D to GSP ratio does not appear to have budged. This Smart State Council working paper from 2006 reported business R&D was 0.60% of GSP in Queensland in 2003-04, which is roughly what it is today (see p. iii).
This goes to show how challenging it is to transform an economy, to create a Smart State or to Advance Queensland. So much is determined by resource endowments, the local skills base, and tax and regulatory policy settings. Arguably we should focus our efforts on improving our education and training system and our tax policies and regulations, rather than on flashy initiatives to encourage business R&D and innovation.
Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.
Last week, in responding to widespread business anxiety over the economic outlook, the Queensland Treasurer tried to talk up the economy by noting the June quarter National Accounts revealed a 5.7% increase in private investment in Queensland. Such strong growth is probably not sustainable, however, as discussed below.
We need to break the private investment growth down to understand just how excited we should be about it. On its face, 5.7% quarterly growth sounds like a great number, but let’s have a closer look. The state Treasurer referred to what the ABS labels Private Gross Fixed Capital Formation (GFCF) – i.e. fixed capital investment, rather than investments in shares, bonds, or even land (see the GFCF definition from the ABS). It includes capital investments in new houses and apartments, as well as business capital investments. If we exclude dwelling investments, we find the business Investment sub-component of private GFCF grew at 7.2% in Queensland in June quarter (compared with 0.8% nationwide).
So what drove such impressive growth in business investment in Queensland (see my previous post for a time series chart) and how much momentum is behind the upswing? In Queensland and nationwide, investment in machinery and equipment grew strongly at 7.4% and 3.4% respectively in June quarter. In Queensland, we also saw strong growth in non-dwelling construction (i.e. offices, shopping centres, infrastructure, etc.) in the June quarter of 8.7% compared with a fall of 1.9% nationally. Hence, Queensland massively out-performed national average business investment growth in the June quarter (Table 1).
Table 1. Growth rates and percentage point contributions to total growth of business investment categories, June quarter, ABS National Accounts estimates
Business investment type
Percentage change – Qld
Percentage change – Australia
Percentage point contribution – Qld
Percentage point contribution – Australia
Non-dwelling construction
8.7%
-1.9%
3.7
-0.8
Machinery and equipment
7.4%
3.4%
2.9
1.2
Cultivated bio. resources
-1.0%
-0.4%
0.0
0.0
IP products
4.4%
2.3%
0.7
0.4
Total
7.2%
0.8%
7.2
0.8
A table showing business investment growth in Queensland of 7.2% in June quarter was due to strong growth in non-dwelling construction (8.7% growth, contributing 3.7 percentage points to total growth) and machinery and equipment (7.4% growth, contributing 2.9 percentage points to total growth).
I don’t expect business investment in Queensland to continue to grow at such a strong rate.
First, consider that the strong growth in machinery and equipment investment in June quarter is probably related to generous accelerated depreciation or instant asset write off/temporary full expensing incentives. So some of it will be brought forward expenditure that would have been made in a future quarter. Also, some of the spending counted as business investment may reflect tax minimisation rather than genuinely expanding businesses.* Indeed, we’ve seen strong growth in the number of new businesses registered in the first half of 2021, which could be related to tax minimisation (e.g. by claiming home or lifestyle expenses as business expenses). Grady Wulff has a good story on this possibility at Grafa:
Second, in Queensland, we haven’t seen any significant expansion of the pipeline of private sector infrastructure investment (see Qld’s heavy CAPEX pipeline dominated by public sector projects) or non-residential construction (see the chart below) over the last few quarters, so we probably shouldn’t expect such strong growth to continue for long. Luckily for the heavy construction sector, there is a reasonable public sector infrastructure pipeline, including the ongoing Cross River Rail project (see the chart in the last QEW post linked to above).
A chart showing the value of non-residential approvals in Queensland peaked in early 2020 and have trended down since then, in contrast to NSW and Victoria where they have been increasing.
The June quarter National Accounts data were good news for Queensland, but the good news won’t last obviously, given the lockdowns in southern states, a likely lockdown in SEQ any day now, and ongoing border closures. It’s a shame that the strong growth in business capital investment we saw in June quarter probably won’t be sustained, because the Queensland economy will need all the help it can get over the rest of 2021.
*Hat tip to Dr Marcus Smith from Brisbane West Chamber of Commerce for him pointing this out to me.
It’s no wonder many in the Queensland business community are anxious and desperate, as the Courier-Mail is reporting, given the Premier’s apparent abandonment of the national plan on reopening the economy (see Queensland business suffering mental and financial health crisis made worse by Covid uncertainty). Alas, we are living in a new age of irrationality. COVID is coming, and based on recent incidents is probably already here in Queensland, and the last thing we need is hysteria and panic when our leaders should be calmly and methodically planning for our public health response.
Regarding the June quarter National Accounts that were released by the ABS on Wednesday, the Queensland Treasurer has been fulfilling one of his duties by talking up the economy, pointing to the strong growth in business investment (e.g. see charts below). He’s right to celebrate that, but June quarter seems like ancient history now given the lockdowns-and-border-closures-afflicted September quarter we are currently in. Terry McCrann had the best take on the June quarter data in his column Earth to idiots: We are in recession:
The core idiocy is of course the fixation on “two successive quarters of negative GDP” as proof of a recession – sometimes, equally idiotically modified to being proof of a “technical recession”.
There’s nothing “technical” about a recession. There is only basic reality – businesses going broke, large numbers of people losing their jobs.
The whole country is in recession right now.
I would disagree with Terry McCrann on one thing, though, when he says “Queensland is being hit hardest because of the importance of tourism and with its two main domestic sources (self) cut off with its own border closure.” While tourism-dependent regions such as Cairns and the Gold Coast are no doubt very badly affected by border closures, at this stage I suspect the whole state hasn’t slumped as much as NSW and Victoria which have experienced longer lockdowns. After all, Queensland coped with the initial round of lockdowns and border closures better than southern states (e.g. see my post from August last year Mining & Ag have partly shielded several Qld regions from COVID shock).
Private capital investment in Queensland grew strongly in June quarter 2021.
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One thing that has really shocked me during the pandemic is just how heartless, inconsistent, and hypocritical government policy can be, even when it is directed at promoting the greater good. The latest example of that is obviously the Queensland Government’s indefensible inconsistency between shutting Queenslanders out of Queensland for two weeks but letting in NRL officials and WAGs and other family members.
Maybe the harsh measures our governments have imposed have been for the greater good, particularly considering a counterfactual in which more people die from COVID and economic activity is supressed to some extent by people staying home voluntarily. That’s quite possible, but I can’t see how our governments can be so confident that is indeed the case and that such authoritarian measures have been justifiable.
Researchers will be analysing and debating the merits of measures imposed during the pandemic for decades to come. There’s a reasonable chance they will conclude we’ve made a huge policy error. The net benefits of lockdowns and border closures are becoming less clear by the day, particularly if one accounts for the mounting economic and mental health costs of these harsh measures.
Last week I had an engaging and thought provoking conversation with Queensland Senator Malcolm Roberts about the economic and social costs of lockdowns and border closures, as well as about the breakdown of decent public policy processes and planning during the pandemic. You can listen to our conversation here:
Here’s the blurb from the show notes for Malcolm’s podcast:
I’m sure many are wondering just how much longer can we continue to survive, economically and emotionally, in this never ending unpredictable environment of lockdowns.
Human beings need to be able to plan for the future and have predictability about their world to be okay. At the moment many of us are not okay and our border communities are in a dark tunnel of turmoil that seems to have no end in sight.
The health of our economy is also not okay. Each time another lockdown demands we close our businesses our economy gets weaker. Our focus has to be on getting Australia, particularly small business, back to work. Small business is dying at the hands of the prime minister and our premiers, because their narrow focus excludes our economic security and surety for the future.
Federal COVID financial support packages finished up a few months ago so in some quarters we are yet to feel the real economic pain. There have been many business arrangements put in place that have created a mountain of IOUs and that avalanche is yet to hit us, such as property leasing payments put on hold. Our CBDs are still too empty and the For Lease signs are all around town.
Big business may well be declaring profits at the moment but the same can’t be said for small business. Small business is at the heart of the Australian economy and when it dies so does our economy and our communities. There is much economic pain that has not been captured in the data yet.
Small business needs real support that makes a difference. At this point the most useful contribution that any government can make is to stop these lockdowns and allow Australians to go out and earn a living.
Many thanks to Malcolm for inviting me to appear on his podcast.
At the moment, with a two-week pause on people coming into hotel quarantine in Qld, unless you’re associated with the NRL, you can’t get across the Qld-NSW border (image above), even if you’re a Queenslander.
Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. My podcast Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.
I expect the Queensland Government will find it very hard to resist the pressure to end border restrictions once we reach the 80% vaccination target, but the report in The Australian today reminds us that even that isn’t guaranteed: Jab won’t equal freedom as Queensland goes rogue. We should be asking whether our increasingly authoritarian COVID response is determined by a rational and scientific assessment of the risks from COVID versus the costs of restrictions, or is it driven by fear? Increasingly, and paradoxically given how far we are into the pandemic, I think it’s being determined by the latter. Could the state government ignore the scientific modelling of the Doherty Institute? Doesn’t the state government trust the science?
Incidentally, why trust science is the topic of my latest podcast episode, EP101 How do we know what we know or why trust science? In these times of intense debate over COVID-19 and climate change policies, it is important to ask what theories and evidence we can trust – i.e. how do we know what’s true or why trust science? I am a great believer in science, and in the podcast discussion I talk about what constitutes a rigorous scientific method and good evidence. In the discussion, I borrowed heavily from the classic text What is this thing called science? which UQ economics students of the eighties and nineties will no doubt recall, and Naomi Oreskes’s excellent 2020 book Why trust science? Also, worth reading is Andrew Leigh’s paper What evidence should social policymakers use? which he wrote during his secondment to the Treasury in the first year of the Rudd Government.
Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. My podcast Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.
The ongoing economic fallout of the Delta outbreak continued this week, regardless of the statistical anomaly, due to people leaving the workforce, that was the reported 4.6% national unemployment rate for July. Queensland had the highest unemployment rate (5.2%) among the states but that can be considered an anomaly, too (see the ABS Labour Force data). Hours work fell sharply in NSW, less so in Queensland, but rebounded in Victoria in July, with Victoria’s figure obviously a quirky result due to the timing of lockdowns affecting that state relative to others (see chart below). The August ABS Labour Force figures will no doubt be awful for Victoria, too.
Hours worked fell sharply in NSW, less so in Qld in July 2021
Overall, Queensland should fare better than southern states, unless we have a Delta outbreak and lockdowns, too. Even if we don’t have an outbreak, we will suffer due to a lack of interstate visitors and reduced interstate state, and our tourism regions such as the Gold Coast and Cairns will suffer acutely. Pete Faulkner has a very concerning chart on Cairns airport passengers in his excellent post Far North tourism on the brink. Pete nails it here:
There is now genuine concern within the sector that many operators, who managed to hang on through 2020 with significant Government support, are now teetering on the brink of collapse in the face of the present lockdowns.
Without increased Government support, probably along the lines of JobKeeper, we are likely to see a major hollowing-out of the sector in the Far North which will make a recovery, when domestic and international borders finally open, all the more difficult to sustain.
Another concerning bit of data was featured on ABC News last night, a chart showing a big drop in the volume of invoices since JobKeeper ended (see A sharp fall in the number and value of invoices being created). The rest of 2021 is looking very bad at the moment.
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Governments around the world are experimenting with various incentives such as cash and free beer to encourage vaccinations against COVID-19. In episode 100 of my Economics Explored podcast, I chat with Melbourne-based economist and regulatory economics expert Isaac Katz about his clever proposal to incentivise vaccinations and to overcome vaccine hesitancy. You can read all about Isaac’s plan in his discussion paper Incentives for achieving COVID 19 herd immunity through vaccination.
Key features of Isaac’s plan are:
1. Rewards (incentives) could be in the form of payments to each vaccinated individual, and eligibility to win a significant lottery prize and smaller prizes.
2. The incentives would only be payable if a specified national vaccination rate is met by a specified due date. Incentives would not be paid prior to the due date. This approach creates a focus on the objective – which is to maximise the national vaccination rate. Rewarding individuals for being vaccinated without recognising the national objective will fail to promote community based actions to increase vaccination rates.
Tying the level of incentives to the overall vaccination rate and setting a cut-off date is a clever way of encouraging people to pressure their family and friends to get vaccinated as soon as possible (given the supply constraints). One of the problems with the Albanese plan was that the Government could end up spending billions of dollars but not achieve a vaccination rate that gets us close to herd immunity.
For info, Isaac is a Director of Harding Katz Pty Ltd, a small consulting practice based in Melbourne specialising in utility regulation, energy market reform, business strategy and applied economics. He has provided economic and regulatory advice to regulators, Government and regulated businesses on a wide range of strategy and policy issues. Prior to moving to Australia, Isaac worked as a senior economic assistant for the UK electricity regulator (now Ofgem); and as a pool price analyst for a regional electricity company. Isaac also worked as an economist for Railtrack plc, focusing on aspects of the regulatory framework prior to and immediately after privatisation. He has a Master of Arts, Economics, from Cambridge University and a Master of Science, Business Economics, from Strathclyde University.
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What an awful month it’s been so far. For the first time in 12 months, the Gold Coast airport had no flights one day earlier this week, as reported by the Courier-Mail. Businesses across the country are pleading for help. Restaurants are closing for good because of one lockdown too many, and shops on high streets are in trouble. It was all foreseeable in an economy without JobKeeper and with state governments committed to lockdowns as means of eliminating COVID-19 community transmission (e.g. see my April post More action, less talk needed on vaccines). Lockdowns are costing jobs (see the ABS payrolls jobs estimates) and reducing business confidence across the country, most noticeable in NSW.* Surely confidence will have fallen again from July, the latest data point in the chart below, to August.
Not only has the Queensland economy been buffeted by our own lockdowns, but by the indirect impacts from lockdowns in other states, through reductions in interstate travel and trade. Among the Australian states, the indirect linkages are probably the strongest with NSW. The scatterplot below shows a reasonable positive correlation between quarterly percentage growth rates in state final demand in Queensland and NSW (with a correlation coefficient of 0.47).
There are also important linkages with Victoria’s economy, although the strength of correlation is slightly lower (with a correlation coefficient of 0.43).
Queensland will likely experience adverse indirect economic impacts from ongoing NSW and Victorian lockdowns over the next couple of months at least. Thankfully Queensland cities are not locked down at the moment and that means our economic prospects are better than NSW’s and Victoria’s. Of course, that could change if it turns out the Indooroopilly cluster wasn’t fully contained, or if an infected person comes in to Queensland from NSW.
*Of course, the no-lockdown counterfactual would involve adverse economic impacts, as people would stay away from cafes and restaurants if COVID-19 infections were growing quickly, but I suspect an increasing number of Australians are starting to question whether lockdowns deliver net benefits.
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