On 23 January 2012 CommSec released their quarterly State of the States update analysing the economic performance of Australian states. Once again the Western Australian economy is clearly leading the other states and territories in a majority of key indicators for the September quarter.

Here are just some of the WA’s economic highlights from the report:

• Leading the rankings on economic activity with an output just over 28% higher than the state’s average over the last decade.
• Fastest annual economic growth rate in Australia at 5.6%.
• Strongest growth in retail spending (up 6.8% from a year ago).
• Leading the rankings on equipment investment with spending almost 80% higher than the state’s average over the last decade.
• Construction work done in the September quarter was 97% above the state’s average over the last decade.

The WA economy is expected to remain ahead of the other states and territories in 2012, especially if the global economy strengthens providing a further boost to resource industries.

But what does this mean for the distribution of GST revenue generated by the economic boom in WA?

The WA government estimates that from 2010-11 to 2014-15 the state will contribute 70% (approximately $12 billion) of its GST revenue to other states and territories through the process of Horizontal Fiscal Equalisation (HFE). HFE is the process by which “less financially well-off states have wealth transferred to them from more financially well-off states”. While the equitable intentions HFE are important, the pool of money being distributed has now reached historic proportions. The WA government believe that some of this $12 billion could be better spent on the capital that generates this wealth in the first place.

In March 2011 the Federal government commissioned a review of the distribution of revenue from the GST to the states and territories to ensure states have an incentive to invest in economic reform and aren’t being unfairly punished for success.

For more information on HFE see the links below:

• Radio National – States at War over GST Distribution
• GST Distribution Review website

We hear a lot about wages these days. Fresh union wage demands, waiters on $40 an hour on public holidays, and how much money some lucky people are earning up north on the mines, sometimes with no formal qualifications (why’d I bother going to uni?). While it may not feel like it for everyone, we live in one of the luckiest parts of the world right now in Western Australia. The latest ABS estimates are that the seasonally adjusted unemployment rate was 4.3% in November 2011, and average weekly ordinary time earnings grew by 11.3% over the year to August  – by far the highest of any state, and compared with the national average of 5.3% growth.

So, how and why is this happening? And is it sustainable? Well, the obvious answer to the first question would be high resource prices, and I won’t argue with that. The answer to the second question is a little less clear, however. In the long run, wages growth demands high productivity. So, how productive is WA?

The simplest measure of productivity is Gross Domestic Product (or Gross State Product, in this case) per capita. That is the total output of the economy, divided by the number of people. On this measure, WA’s productivity is pretty good. Higher than all of the states (although lower than the ACT), and roughly comparable to Switzerland, according to this interesting little Wikipedia article:

http://en.wikipedia.org/wiki/Australian_States_by_Gross_State_Product

I find the comparison with Switzerland quite interesting because Switzerland is one of the few places in the world with even less reasonable prices than Perth.* The staggering thing about the figures is that WA’s GSP per capita, at $80,858 per person is more than a third bigger than the national average.

The ABS also publishes estimates of the aggregate hours worked in each state. Using this data, we can calculate GSP per hour worked. This is arguably a better measure of labour productivity, as it adjusts for differences in the labour force participation rate and the number of hours people are working. On this measure, WA comes out as the leader of the pack, due to the unusually high participation rate in the ACT, as the centre of the federal public service. The news is not all rosy though. Growth in GSP per hour worked has been a bit patchy over the past few years, and in fact there was a fall in 2010-11 (see chart below). And this is at the same time as wages increased by 11.3%.

(Click on the graph to view)

So, what of the future? In the long run, growth in wages requires growth in productivity. However, our growth in real output per hour worked has been patchy, while wages have increased substantially, because of the resources boom. How do we improve on our productivity?

*Ten dollar pints – if not schooners– nuff said.

We are experiencing unprecedented changes in most aspects of urban life. The Commonwealth Government has rightly identified that our planning systems are poorly equipped to adapt to the pace of change and as such our cities are particularly vulnerable to energy and water shortages, transport crises and other consequences of urban sprawl.

The Western Australian Government have been developing a set of targets, initiatives and indicators over the past 8 years aimed at redressing the consequences of urban sprawl. Some of this work includes, setting the employment self sufficiency targets at the metropolitan sub-regional level and then creating employment targets and residential population targets for activity centres. However, this work has not progressed beyond the policy and target setting stages of development. (Refer to Diagram)

The employment targets and residential population targets by sub-region and activity centre have not specified the type of employment or underlying infrastructure required. The risk is that activity centres will continue to develop without the much needed high productivity, knowledge based industry jobs. The urban planning system must differentiate between low and high productivity jobs in order to drive planning decisions. Rather than building new cities on the urban fringe there is an opportunity to transform university and hospital campuses, which already contain the basic building blocks for quality employment, into high-density residential and commercial activity centres with the retail, entertainment and civic amenity to follow.

Australians are aware of how precious water supply is. The cost of water to the agricultural industries goes beyond a financial burden.

The announcement of the proposed 2,750 gigalitre environmental sanction from the Murray-Darling Basin Authority draft Basin Plan has stirred debate amongst environmentalists, irrigators, politicians and communities dependent upon the water supply. Check out these articles on the topic:

“River Murray Basin draft plan no one’s Darling”

“Murray-Darling plan wins no friends”

Is the sanction enough to protect the health and quality of the river? Or should the focus be shifted to alternative water sources and technologies? Check out a previous post on our blog:

“Sustainability: A higher stake game”

The WA State Government’s SuperTowns program was featured in the Sunday Times over the weekend. SuperTowns is a Royalties for Regions initiative to encourage the economic development of communities in the southern half of WA. With a lot of activity occurring in the north west of state some of the limelight is being shifted to other centres.

The selected SuperTowns are:

• Boddington
• Collie
• Esperance
• Jurien Bay
• Katanning
• Manjimup
• Margaret River
• Morawa
• Northam

With $80m in funding up for grabs it will be interesting to see what projects the government chooses to invest in. The time frame for the submission of proposals is set for February 2012.

For more information check out the Department of Regional Development and Lands’ SuperTowns website.

The world population has reached 7 billion. Land is a finite resource. The Australian way of living is wide open space. A dream home consists of a backyard and wide veranda, but the reality is, that the population all around the world are moving towards the cities. Although it is hard to let go of the Australian ideal way of living, it is time to wake up to the fact that higher density living is a necessity. Check out the article ‘As Population, Consumption Rise, Builder Goes Smaller’.

The link below is a really interesting interview on the need to diversify the strategic industry profile of Australia.

http://www.abc.net.au/worldtoday/content/2011/s3349175.htm

When considered in the context of Pracsys’ definition of strategic employment it is clear that Professor Hausmann is projecting a lack of growth in ‘complex’ export oriented and knowledge intensive producer services jobs, in an era where Australia’s economic development is focussed on the export of raw commodities.

The economics of urban activation often intersects with transport planning. This picture is an insightful illustration of the activation impact of different transport modes. More people on the street means more wallets past windows’ and more opportunities for commercial and social transactions.

It’s also worth noting that from an economic perspective, congestion is generally a good thing. A blend of transport modes will result in better activation outcomes than just a single transport mode. Also, look at the built-form scale in true picture – 3 to four storeys and a mix of residential and commercial activities. This activity diversity is also an important driver of economic vitality.

Location: South Perth

Are you looking to:

• Work with key public and private decision makers on many of Western Australia’s major projects?
• Work for a highly regarded, growing urban economics consultancy that prides itself as a knowledge leader?
• Be a leader in your field?

Pracsys is a national urban economics firm that provides cutting edge analysis and solutions to a range of clients from the private and public sector. We specialise in services including economic activation and development strategies; sustainable development solutions; urban economic development and analysis; project feasibility; infrastructure and services modelling; economic and social impact assessment and business strategy.

Pracsys is seeking a self motivated Consultant who is willing to play a big part in our future growth. Based in our South Perth office, key responsibilities of this role include:

• Management of consulting assignments, new business development and client liaison
• Preparation of proposals, reports and presentations for our clients and associates
• Directing and supervising analysts to prepare quantitative inputs
• Performing business research and assessment
• Undertaking problem formulation and analysis
• Creating financial models
• Assisting in the development of new intellectual property

The successful candidate may come from a diverse range of backgrounds. They will be:

• Qualified in a business, planning or science related field
• Skilled with intermediate/advanced MS Excel knowledge and report writing capability
• Skilled with MS Word and Power Point
• An effective communicator of complex ideas
• Analytical and logical
• Attentive to detail
• Organised and able to meet strict deadlines

A rewarding salary and career path is on offer for the right candidate. For more information about Pracsys, visit www.pracsys.com.au

Please submit your covering letter and resume to Rita Baroni – Practice Manager, rbaroni@pracsys.com.au by Friday, 4th November 2011.

Applications received prior to the closing date will be highly regarded.

http://pracsys.com.au/employment/consultant-south-perth/

There has been much discussion around the fate of the Australian manufacturing industry recently, especially due to the combination of the current resource sector boom coupled with the declining US economy and the so called ‘Rise of China’. As Jamie Briggs, the Coalition spokesman on scrutiny of government waste pointed out “The nation can no longer throw good money after bad”, “It has been a long time since economic reform has been so critical to our future. The boom in the mining industry is a massive positive, but the repercussions of this boom for other sectors have some negative consequences.”

Briggs, like many others, makes the point that Australia cannot save jobs through government protection, despite billions spent attempting to protect jobs when the evidence says it is not sufficient. There is a role for government to assist industries to adapt to changing environments, but taxpayers funding a romantic attachment to a bygone era is not a position the Australian economy can afford or sustain.

The recently released Productivity Commission’s Trade and Assistance Review, makes the point that while net tariff assistance has declined in recent years, government assistance has increased by more than 20 per cent in real terms. In effect, the government has replaced one protective mechanism with another, at least with direct assistance, and that since 2004-05 the manufacturing sector has received $48.3 billion in government contribution.

The most prominent example would have to be the vehicle production facility for Mitsubishi in South Australia. For many years, South Australians were told that if Mitsubishi left it would be economic catastrophe for the local economy, thus the government had to intervene to save the jobs. While the local operations made losses every year after 1989, the taxpayer made up the shortfall. In the end, the patient refused treatment. While the end was sad on many levels, the closure of the vehicle manufacturing plant did not destroy the South Australian economy. It raises the question: why is it that some jobs are worthy of government subsidy while others are not? Ultimately, protection for one is at the expense of another.

The Productivity Commission put it best: “Although assistance generally benefits the firms or industries that receive it, it typically imposes costs on other sectors of the economy.” The cost of this assistance is a lack of funding for those industries that should contribute more to the international standing of Australia.

No one wants to see jobs lost and traditional industries leave, but providing false government hope is simply prolonging the cost to other productive sectors of industry. The Australian economy can little afford to be shoring up a politically contentious industry that currently contributes little to either the domestic economy or our regional or international significance.

There will be manufacturing in Australia. It will be smart and efficient and it should not require massive government assistance to survive. Now is not the time to return to our protectionist shell; rather, it is the time to be economically ambitious so Australia can take advantage of the enormous markets of the flat world, increasing Australian prosperity.