You've heard of a Goldilocks economy where everything is just right.
Well, when it comes to the states, welcome to the biblical economy,
where the last shall be first and the first shall be last.
We're still looking at a two-speed economy, but the fast lane is turning into the slow lane and the slow lane into the fast.
During
the 10 years of the resources boom to 2012-13, the West Australian
economy grew by 62 per cent in real terms, against 48 per cent in
Queensland, 30 per cent in Victoria and 23 per cent in NSW.
But,
in the year to March, the mining states' "state final demand" - not as
full a measure as gross state product - contracted, while NSW and
Victoria steamed on.
The Victorian budget papers last month said
the state was "well placed to take advantage of the national shift from
mining investment towards more broad-based drivers of economic growth.
"Lower
interest rates and a moderated exchange rate, compared with the highs
in 2011 to 2013, are expected to benefit Victoria's industry structure."
Whereas
the national economy (real gross domestic product) grew by 2.6 per cent
in the 2012-13 financial year, Victoria managed only 1.6 per cent
growth. And, in the financial year just ending, while the nation is
expected to have managed growth of 2.75 per cent, Victoria is looking at
an expected 2 per cent.
But the federal budget papers show the
nation's rate of growth is expected to slow to 2.5 per cent in the
coming financial year as Victoria's growth accelerates to 2.5 per cent.
It's expected to reach 2.75 per cent in 2015-16.
And this week's
NSW budget papers show its government expects its acceleration to be
even faster. NSW managed growth of just 1.8 per cent last financial
year, but it's expected to have accelerated to 3 per cent in the year
just ending, and to stay at that rate in the coming year and the
following one.
So, while Victoria is expecting to catch up with the
national average in the coming financial year, NSW believes it has
already exceeded it, and will continue growing faster than average in
2014-15. Only by the following year, 2015-16, will the nation have
caught up.
Well, that's all very lovely, but how's it supposed to happen? What changes will bring it about?
You
may already have noticed that whenever the economy improves, there's
always a politician on hand ready to take the credit. Well, here's a
tip: when they're at the national level, they're probably taking more
credit than they should; when they're at the state level, they almost
certainly are.
The truth is we live in a single, national economy.
The six states and two territories that make up our national economy
are different but highly integrated. So, to the - limited - extent that
what's happening to a particular state is influenced by politicians,
it's more likely to be federal politicians than state. Macro-management
of the economy happens at the most macro level.
State governments
don't do macro, they do micro. They manage their own financial affairs,
and make decisions about planning and the regulation of particularly
industries - how heavily we should tax companies developing new housing
on the outskirts of the city, for instance - that do affect the growth
of their state economies, but slowly and to a small extent.
So,
for the most part, differences in the rates at which particular states
are growing are determined by differences in the industrial structures
of their economies - for instance, some have a lot of mining, some don't
- and in their histories. NSW and Victoria are long established with
large populations; WA and Queensland have smaller populations with more
scope for development; they're frontier states.
This is why an
event such as the resources boom, which has essentially come to the
Australian economy from overseas, can affect states so differently.
The
point, however, is that the most spectacular stage of the resources
boom - the surge in construction of mining and natural gas facilities -
which did most to foster the rapid growth of WA and Queensland in recent
years, is going from boom to bust.
The rapid fall-off in mining
construction in the coming financial year and the year after will cause
those two states to grow far more slowly - maybe even contract in WA's
case - while NSW and Victoria steam on.
Victoria's big advantage
is that, since it has little mining, it has nothing to lose. NSW does
have some mining, mainly for steaming coal, but says its big advantage
is that its mining construction activity has already fallen about as
much as it's going to.
It's their knowledge that we have two years
of big falls in mining construction activity to come - along with the
dollar's failure, so far, to fall back as much as we'd hoped - that has
made the macro managers so obsessed by the need to get the "non-mining
sector" growing much more strongly.
They've done this primarily by
cutting interest rates to their lowest level in yonks, trying to
encourage any spending that also involves borrowing, but particularly
home building and home-related consumer spending.
Victoria will
get some stimulus from this, but not much because it has already had a
lot of building activity and may have some oversupply.
In contrast, NSW
has a big backlog of home construction - arising from problems on the
supply side that are the product of micro-economic mismanagement by this
state government's predecessors. Its home building activity has already
taken off, with much further to run.
Put all that together and you see why the last are about to start coming first.
