This was a piece that ran earlier today in Crikey. It’s in the free section, so if you prefer to read these things with the green sidebars, please feel free.
Let’s imagine a world where utopia has arrived, where the most complex of problems can be solved by the most simple of actions – where we have change we can… well, you know the spiel.
No, I’m not talking about Barak Obama like everyone else is today, but a world where we flog NSW off to the Kiwis for some nice cheeses and a couple of rugby players.
When we cast our eye across the national economic data, the one thing that really stands out is the absolutely appalling performance of NSW on nearly every metric you care to look at. From retail turnover to building approvals, from unemployment to capital expenditure – NSW is behaving like another country.
To put this in perspective, if we look at those four measures and track not only the NSW performance against the broader Australian performance, but also against the performance of Australia without NSW included in the figures – our hypothetical utopia – the enormity of the economic drag that NSW is inflicting on the wider Australian economy should give us pause for thought.
The usual caveats apply here – we can’t actually disconnect the NSW economy from the national economy, nor would the Kiwis probably want to barter for it to begin with. But the point that the charts really highlight is how strong our economy would actually be if NSW merely became average. Not a powerhouse, but just something approaching barely average.
There are some reasonably good excuses for part of the NSW performance – the nature of their industrial portfolio compared to other states being one, where a number of sectors like finance that are caught in the broader global maelstrom, have a larger than average presence in NSW. The depth and breadth of their housing boom and the resultant hangover it’s created (especially on the consumer demand front, not to mention its sheer opportunity cost) is another issue that needs to be thrown into the mix.
Yet other States, most notably Victoria, have faced similar problems without following NSW into the economic toilet. That begs the question of whether the obvious factors alone can explain the poor performance of NSW, or is the State actually suffering from some broader set of issues that are relatively unique and which aren’t shared by the rest of the country? If that is the case, it also begs two additional questions; what are they, and what can be done about it?
A tired, panicky State government more concerned with rearranging it’s deckchairs than actually growing a pair and pulling their finger out doesn’t help, yet perhaps there is something of a silver lining in that fiasco – the absence of NSW government action may actually be better than the alternative considering their recent history.
We all expect a new stimulus package soon from Rudd – tax cuts, transfer payments, maybe something tailored specifically for the business sector to boot. That’s all good and well – add in a few more rate cuts and the accelerator will be flat to the floor. Yet the size of the drag that NSW is having on the national economy is this great elephant in the room. It’s the relative position of NSW compared to the rest of the country that is creating an enormous problem.
Maybe it’s worth considering a parallel package (or some specific component in any larger stimulus package) that is focused on and tailored to the circumstances of NSW, even if it required the Feds to push around that bunch of hobos currently pretending to run the joint. Especially since any relative increase in the economic performance of NSW would have a significant impact on the broader aggregate position of the national economy – the sheer size of NSW alone guarantees such a thing.
Being a Qld’er, I can’t believe I just said that.
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If anyone has any thoughts on why NSW is performing worse than the rest of the country, I’d be fascinated to hear them. Similarly, if the Federal government is about to launch a new stimulus package, is there anything you think could be done to focus on the predicament of NSW?
Another question – just how big an impact do you think the NSW government’s competency has had on the economic predicament that the State finds itself in?
Elsewhere: Larvatus Prodeo, Core Economics.
UPDATE:
Steve in comments has collected a rather spiffy bag of links to a number of documents on issues that might be related to the NSW predicament.
21 Comments
How about the proportion of income tied up in mortgage repayments? Is the drought affecting NSW more than other States?
It seems that the fall in Superannuation and Investment Funds due to the GFC hasn’t helped either. See page 33.
http://www.treasury.nsw.gov.au/?a=12934
GG’, Page 9 of this ABARE Crop Report December 2008 tells of the effects of drought in NSW last year.
http://www.abare.gov.au/publications_html/cr/cr_08/cr08_Dec.pdf
Interesting post Poss, love those graphs, while I can’t help with any sugestions as to the way NSW got itself so far in the toilet (beyond those already suggested) I reckon all us other-staters should head for the nearest NSW border with big saws to cut em loose cartoon style.
But seriously, it really does call out for a special fed interventoin I reckon, and if the FIGJAM state has to eat a bit of humble on the way, well that’d be fine with me
The 2006 census put NSW at the top of the Housing cost list.
http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/4130.0.55.001Main%20Features22005-06?opendocument&tabname=Summary&prodno=4130.0.55.001&issue=2005-06&num=&view=
The NSW Labor Party is the cause of NSW’s economic woes and its abolition/banishment would probably do a whole lot of good.
Glad you could solve such a complex problem so quickly and comprehensively, GP.
I think the ridiculously high housing prices and thus large mortgage debt are a large part, and the do-nothing, sell-every-public-asset-you-can state government, combined with the usual NSW ratbaggery couldbe the reason. Either that, or just that NSW is up itself and with little reason to be.
Steve,
There is an adage that goes something like. “To every economic problem. there is a quick, simple and easy to understand answer that is always wrong”.
GP proves the point!
GG, he’s probably just seen Table 10.7 here but is too lousy to acknowledge the source. It would seem to suggest that NSW is not a special case in this category.
http://www.abs.gov.au/ausstats/abs@.nsf/7d12b0f6763c78caca257061001cc588/37171eac4f4f016eca2573d20010f849!OpenDocument
Maybe the key to what is really happening in NSW is locked away in Subscription based research sites like IRIS.
http://www.iris.org.au/
At least the Hunter Valley Research Foundation work to September 2008 is freely available.
http://www.hvrf.com.au/pages/publications/economic_indicators.php
Here’s an interesting one on Transport services.
http://www.audit.nsw.gov.au/publications/reports/financial/2008/vol5/pdf/100_transport_services_overview.pdf
AS much as I dislike the state government, most credits to them for the current macroeconomic malaise only cite a generalised incompetence rather than many specific actions that should or should not have been taken to do better. To be specific, bad actions that other states didn’t take, and good actions that they did, since the important issue here is the diveregence between the states.
This is not to exonerate the state government, it’s just if we can’t identify just what they did that was wrong, how on earth can we fix it.
It could just be an aggregation of the little things that annoy, like hospitals and public transport, but this hypothesis does take a few leaps of faith to say that the slightly worse trains in NSW compared to elsewhere combine with other slightly worse things, or the blighting of places with Meriton and Mirvac to produce dramatically worse macroeconomic effects.
Around the place a few people have cited the number of recently arrived migrants. The adjustment required for new arrivals might make sense, but I can’t see that it differs dramatically from Victoria.
A major thing that the Federal government could do would be to adjust the GST revenues so that all GST revenue from NSW gets returned to NSW. The redistribution has the perverse affect that all consumption except basic foods is causing a macroeconomic leakage to better performing states. Do I need to throw up a Keynesian Cross to show what effect that has?
It might be politcally hard to reverse this little bit of pork barelling to Queensland, but I can’t see how the move could be opposed on genuine economic grounds.
Richard, check out this big Oops!
http://www.audit.nsw.gov.au/publications/reports/financial/2008/vol5/pdf/039_0392_rental_bond_board.pdf
pp 18 to 20 of this report is about where immigrants choose to live and the amount of interstate migration is also accounted for.
http://www.immi.gov.au/media/research/lsia/results_from_third_LSIA_body.pdf
Here is the NSW Health Patient Survey 2008 Statewide Report
http://www.health.nsw.gov.au/pubs/2008/pdf/patient_survey_2008.pdf
The New Car sales figures up until December 2008 are here:
http://www.abs.gov.au/ausstats/abs@.nsf/mf/9314.0?OpenDocument
Richard @ 15:
Just a note on GST distribution – Queensland and WA became net contributors to the GST pool in 2008. Only SA, Tasmania and the Territories are now net recipients.
While it’s a tough read, the info is in the Commonwealth Grants Commission’s 2008 Update available here: http://www.cgc.gov.au/state_finances_inquiries/2008_update_report/update_report.
From page 1: “Queensland joins New South Wales, Victoria and Western Australia in being assessed to have an above average fiscal capacity, requiring a less than average per capita distribution from the pool;”
Cheers,
T