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More signs that SA's "look at me" economic strategy is failing

Opinion

Recent statistics reveal a worrying picture of the declining South Australian economy, writes economics commentator Richard Blandy.

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Earlier this month, InDaily reported that the latest City of Adelaide Census of Land Use and Employment showed that the number of people employed in the city had fallen by 6,437 people over the past two years – a decline of 5.3%.

Ominously for the State Government’s ambitions for the transformation of the South Australian economy, there were more than 5,000 job losses in the “knowledge sector” – a decline of 12.5%.

Sadly, this is but the latest indicator that the state’s economy continues to head downhill. This is mostly due to the misguided economic strategy adopted by the State Government. We have had massive support from the Commonwealth through present and future promises of defence spending, and from the other states through a very favourable distribution of GST revenues.

It is wrong of Premier Jay Weatherill to lay the blame for our economic woes on the Commonwealth Government. The Commonwealth Government is not hostile to South Australia – the Commonwealth is rightly critical of the South Australian Government’s misguided economic and energy policies, which are doing long-term harm to South Australians’ interests.

Our continued economic decline is assured unless the South Australian Government changes from an electorate-hypnotising, “strong Government”, picking winners, approach, to a broad brush, grassroots-freeing focus aimed at increasing our international competitiveness, relying on the undirected genius of our citizens to carry us to success.

We must stop being a “company town” where the company is the South Australian Government.

The South Australian economy will stay in the slow lane that results from the “look at me” economic strategy adopted by the South Australian Government.

In the last few weeks, more evidence has come in of our continuing decline. (Unless otherwise stated, all data quoted are trend data.)

First, on March 1, the Australian Bureau of Statistics released the National and State Accounts. While both SA’s and Australia’s Final Demand growth were inadequate (up 1.8% and 1.7%, respectively, over the year to December 2016), Private Final Demand in SA grew by only 0.5%, while the corresponding figure nationally was 2.7%. In other words, last year, the domestic private sector grew nationally at five times the rate in South Australia.

South Australia’s growth came from the public sector. Public Final Demand in South Australia grew by 5.5% (more than 10 times the rate of growth of Private Final Demand). In case readers might think this is a one-off, over the last five years, Public Final Demand in South Australia grew by 2.1% p.a. – double the rate of growth of Private Final Demand (1.0% p.a.).

South Australian Private Gross Fixed Capital Formation actually fell by 7% over the last year, while SA’s Business Investment fell by 11%. For comparison, Private Gross Fixed Capital Formation in Australia as a whole rose by 4.6%.

Over the past five years, SA’s Business Investment has fallen at the rate of 3.1% p.a. In December 2016, SA’s Business Investment was only 85 per cent of what it was in December 2011.

South Australia’s recent economic growth has been essentially due to the growth of the public sector. The private sector is struggling in South Australia, far more than in Australia as a whole, and massively more so than in the private sector growth states of New South Wales and Victoria.

Second, on March 16, the Australian Bureau of Statistics released the latest employment and unemployment data. Over the past year, employment in South Australia increased by 12,700 people (1.6%). This was a remarkable achievement given that State Final Demand increased by only 1.8%.  Productivity growth was exceptionally low.

The fast employment growth was essentially due to the program of SA Government wage subsidies introduced in last year’s State Budget ($10,000 per full-time job). Employment increased by more than 10,000 people after the program took effect. This substantial impact shows that wages are too high in South Australia to allow fast employment growth – otherwise the wage subsidy makes no sense. A pause in wage growth in South Australia would be very positive for employment growth here. The Government should put this to the Fair Work Commission.

Before the wage subsidy, in the five years preceding February 2016, South Australian employment grew by only 4,700, i.e., by fewer than 1,000 people annually, or 0.01% p.a. This, in itself, is a condemnation of the economic development strategy that the South Australian Government has been pursuing.

Nevertheless, despite the wage subsidy program, South Australia’s trend unemployment rate (6.9%) was the highest of all the States and Territories. Australia’s unemployment rate was 5.8% – which was bad enough.

However, the unemployment data tell only part of the labour market story. The Australian Bureau of Statistics does not count as unemployed people who have become so discouraged that they are no longer actively looking for work, nor do they count as unemployed in any way people who are working short hours and who would like to work more hours.

The ABS has captured this broader idea of under-usage of labour resources in what it terms the “underutilisation rate” of labour. By this measure, South Australia’s labour force was underutilised by 16.8% in February 2017, the highest rate in any Australian state or territory. The average rate of underutilisation in February for Australia as a whole was 14.4%.

A decade ago South Australia’s labour underutilisation rate was 12.4%; five years ago it was 13.3%; and now it is 16.8%.

The South Australian economy will stay in the slow lane that results from the “look at me” economic strategy adopted by the South Australian Government. Gillman is the standout fiasco alongside the monstrous bill for the problem-ridden new RAH, not to mention the disruption to Hackney Road of the O-Bahn tunnel (where its users would have preferred more parking for a fraction of the cost). Etc.

At some point there will be no substantial Government-owned assets left to sell (except SA Water, which the Government is unlikely to sell, given the huge monopoly profit that it is already extracting from us), and the chooks will come home to roost.

As Greece discovered in Europe, the financial bailout terms for South Australia are unlikely to be pleasant – pour decourager les autres, as the French say (“to discourage the others”).

Richard Blandy is an Adjunct Professor of Economics at the University of South Australia, an Emeritus Professor of Economics at Flinders University, and a contributor to InDaily.

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