Queensland Economy Watch

Queensland Transport Minister and MP for Ipswich Rachel Nolan will be disappointed that Ipswich City Council isn’t helping her achieve the ambitious targets for cycling in the Government’s Draft Connecting SEQ Strategy.  The Queensland Times reports today (Riders to rally at bridge opening):

THE fight for the right to cycle over the Bradfield Bridge is far from over, with Ipswich cyclists planning to rally at its grand opening tomorrow.

Ipswich cyclist Cassie McMahon stirred up a heated debate when she slammed a directive that requires cyclists to dismount and walk across the bridge.

The Bradfield Bridge will provide a link between the Riverlink shopping centre and the Ipswich Mall.

With the health and greenhouse gas reduction benefits associated with cycling, it’s disappointing the Council isn’t doing all they can to promote it, including allowing cyclists to ride over the new bridge.  Obviously they are worried about public liability issues.  The record of fatal collisions and serious accidents on Brisbane’s Bicentennial bikeway wouldn’t give councillors in other jurisdictions much faith in the capacity of pedestrians and cyclists to interact safely and peacefully with one another.

It was probably a tough call for the Council, which would have had to consider the cost of enforcing the directive as well, although no doubt there is a fine for disobeying it.

Prime Minister Julia Gillard deserves applause for her tough stance on corporate welfare, which she announced in Brisbane yesterday:

Gillard says she won’t be hurling money at business

The PM is keen to boost our productivity performance, which has been modest in recent years.  A great way to do that, and save big dollars on corporate welfare (which helps inefficient firms cling to life), would be to get Treasury and Finance to draw up a hit list of dubious industry assistance programs, based on the Productivity Commission’s excellent annual Trade and Assistance Review.

In 2008-09 the Australian Government provided industry with assistance of $3.7 billion in budget outlays (e.g., investment subsidies for textile, clothing and footwear manufacturers) and $4 billion in tax concessions (e.g., the R&D tax concession) – i.e., $7.7 billion in total budgetary assistance.  That’s $350 for every Australian, every year, and most Australians probably don’t realise they’re paying it.

There could be more economic turbulence ahead according to the latest OECD leading indicator data, which combine a number of leading indicators of economic activity (e.g., building approvals, share prices, terms of trade) into a single indicator for each of the OECD economies:

The outlook given by the CLIs [Composite Leading Indicators] for Canada, France, Italy, the United Kingdom, Brazil, China and India points strongly to a downturn. Stronger signals of a peak are emerging in the United States. For Germany, Japan and Russia the CLI points to a continuation of the expansion phase.

The downturn in China may cause some concern, but China analysts actually welcome it, as the Chinese economy was over-heating and hence at risk of an even more severe downturn if it didn’t start to slow.  See, for example, this piece in the Business Spectator by  Stephen Bartholomeusz, in which Mr Bartholomeusz notes China will still grow at a decent clip, if not at the double-digit rates we have seen in the past:

The upside of China’s downturn

Still Mr Bartholomeusz notes slower Chinese growth will have implications for commodities demand and prices, and hence the profitability of our resource companies. This confirmation of the Chinese downturn by the OECD may mean that hopes of the Australian dollar reaching and significantly exceeding parity with the US dollar have been dashed.

It remains to be seen whether the Chinese downturn has major implications for the pace of our economic recovery.  The OECD CLI for Australia has remained roughly steady over the last few months, so our recovery should continue according to this indicator.

Today’s Courier-Mail reports:

Fewer than 100 people have applied for the State Government’s $4,000 Regional First Home Owner Grant, leaving a question mark over the scheme’s future.

A 12-month trial was launched in June to entice first-home buyers to settle outside the congested southeast.

But just 97 people have taken up the scheme in its first four months.

With just 97 first home buyers taking up the grant so far, the program is unlikely to make a noticeable impact on congestion in SEQ.  Furthermore it’s unclear that the Grant actually caused these 97 first home buyers to leave SEQ and buy in a regional area because, under the eligibility criteria for the Regional First Home Owner Grant, you don’t need to prove you previously lived in (or were considering buying) in SEQ.

So some (perhaps most) people taking up the Grant would have bought outside of SEQ anyway.  For these people, the Grant is a gift from the Government which achieves no public policy benefit.  Of course, this is an empirical question which the Government will need answered as it weighs up whether to continue the program beyond its 12-month trial.

The longest-serving Chairman of the US Federal Reserve (from 1951 to 1970), William McChesney Martin, Jr, once observed that the role of the Federal Reserve – the equivalent of our Reserve Bank of Australia (RBA) – is “to take away the punch bowl just as the party gets going”.

By leaving interest rates on hold today, and going against the weight of market opinion, the RBA has signalled it isn’t sure the party has started yet in the Australian economy.

This is a wise decision and good news for the Queensland economy, given the latest building approvals data from last week show the outlook for Queensland’s construction sector remains pretty ordinary.

In addition to its likely concerns over the state of the Australian economy, the RBA Board is probably worried about the ongoing weakness of the US economy, which has remained in an economic slump since late-2007.  The International Monetary Fund (IMF) is pessimistic about the prospects for recovery in the US (and Europe, too):

IMF admits that the West is stuck in near depression

While the US is no longer the sole engine of global economic growth, it remains the world’s largest economy, and a prolonged economic slump in the US contains risks for growth in China, which exports a lot of manufactured goods to the US.

Clearly it’s wise for the RBA to tread carefully.

Premier Anna Bligh is currently in Delhi lobbying to bring the 2018 Commonwealth Games to the Gold Coast.  The ABC (Bligh pitches Gold Coast bid to Games federation) reports Ms Bligh as commenting:

“The Commonwealth Games has the capacity to transform the cities that it is held in and we want this to be a transforming experience for the Gold Coast – one of Australia’s fastest growing cities.

“We think the games are very important to taking the Gold Coast to the next stage of its development.”

We may end up grateful if we lose out to Hambantota in Sri Lanka, the only other city bidding, however.  With the Gold Coast one of Australia’s fastest growing cities, there is already strong demand for infrastructure, and the opportunities forgone (e.g, building hospitals or schools), by diverting funding and resources to building and upgrading sporting venues, need to be considered.

There is also the cost burden of having to maintain new sporting facilities which may be excess to requirements following the Games.  Of course, the Queensland Government may benefit from the lessons coming out of Melbourne’s Commonwealth Games experience.  As Age journalist Kenneth Davidson noted (prior to the Melbourne Games) in 2004 (The real cost of our Games):

The strategic mistake of the Bracks Government was that it didn’t have the sense to see that the Commonwealth Games are an event that should be organised around the city – making use of existing facilities and only undertaking new capital works that fit in with the long-term sporting and infrastructure needs of the city. Why build an athletes’ village on public parkland when, with a bit of foresight, the accommodation could have been provided at a fraction of the cost in university residential colleges (a la Manchester) or cruise ships (Athens)?

Melbourne 2006 has made the classic mistake of Olympic host cities by building sports facilities that, apart from the MCG refurbishment, are likely to become post-Games white elephants because local sports groups can’t afford the cost of keeping them open.

Overall, considering the experiences of different cities across the globe, major sporting events typically don’t bring the economic benefits their promoters expect.  A good read on the costs and benefits of hosting major sporting events is here:

Estimating the Cost and Benefit of Hosting Olympic Games: What Can Beijing Expect from Its 2008 Games?