Why hasn't Brisbane boomed?

I think it needs to be accepted that mining cannot be replaced, at least not in our lifetime.

In 2015 there was $735bn foreign direct investment in Australia. the 5 biggest contributors:

1. Mining and quarrying, $295bn
2. Manufacturing, $86bn
3. Real estate, $64bn
4. Financial and insurance, $60bn
5. Wholesale and retail trade, $52bn

Mining was 40% of all foreign direct investment, and bigger than the remaining top 5 industries combined.

Given the level of manipulation by the national government via GST and funding allocation, no state in Australia will ever be fully left behind. What seems to upset a state is sudden shocks to their direct investment or revenue, such as the fall in development. The way GST is calculated means that it will take several years for the effects of a downturn to be balanced out by re-allocation of GST and federal support, so the best thing for a state is to be as stable as possible. Given the major LNG projects in QLD and WA are now complete and investment cycles are over, these states should soon enough be re-balanced and provide stable returns.

In a slight Segway off topic, this same logic would mean that NSW and VIC coming to the end of a property construction boom will soon feel a similar shock. their allocation of federal support should soon enough fall, timing with the construction wind down resulting in some funding stress for each state. Whether or not Turnbull lets it happen when its in his own backyard however is another question.

 

The latest allocation of GST 2017 allocation
2017 Overview
[In this update, New South Wales and the Northern Territory’s GST shares decreased markedly. For New South Wales, this was driven by an increased revenue capacity, principally because of its strong property market. For the Northern Territory, this was the partly result of a fall in its relative population growth, which reduced its need to invest in new infrastructure. It also experienced a fall in its costs of providing services across most functions, notably schools, health and rural roads.

The other States’ GST shares increased. For Victoria, this is largely due to an increase in its share of national population growth, which increased its need to invest in infrastructure, and a relative increase in its costs of service delivery. For Queensland, its increased GST share is largely due to a fall in its capacity to raise revenue from property, land and payrolls. For South Australia and Tasmania, relative increases in their shares of national population growth acted to maintain their GST shares. The ACT’s GST share increased, mainly due to an increase in its assessed disability services expenses.]
=========================================

the relativity for WA looks pretty bad. At 0.34%, it really shows the fallacy of the current GST allocation system.

NSW / VIC share has already started to dip this year, which could be a trigger for economy and property markets to correct.

QLD is getting much more this year, but that just makes us look like a big state with below average performance economically. The extra billions will be needed though as mining companies and communities will need those funds for rebuilding damaged infrastructure from the Cyclone.

The GST system should probably be changed to a fixed amount per capita and then any surplus allocated evenly for more stability rather than a sudden drop in allocation for a state after a couple of boom years.

 

Perhaps, but the intention was that in a boom (any boom, not just mining) the government should be looking ahead and putting aside for the non-boom times, not frittering it away on their favourite (or mate's favourite) projects. Example is the Government Pension Fund of Norway.

 

Perfect example of this error - Perth government, yet we had a 7 year mother of all mining booms, now Perth is a ghost town

 

Does anyone know when Brisbane had its last boom cycle?

 

I'd say just few years back in 2013 when commodities like Natural gas prices / coal prices boomed and there was massive LNG investments into new mines. around the same time Perth boomed i think. but there was the 2011 flood overhang so not that big a boom as perth.

Back then population growth went up 6% a year, then 1%+ for 2014 and 2015 and 3%+ last year 2016.

think pop. growth will be less this year due to cyclone debbie last month and slowdown in coal mining resulting in less income and jobs. LPG prices not likely to go up much this year with overcapacity worldwide and oil/gas price capped by shale oil and shale gas. Dont think the commonwealth games in GC will boost jobs statewide much, though the increase in GST allocation might help.

 

You seem to enjoy putting a negative spin on everything... From the ABS figures for last year, it looks like QLD doesn't have any problem with population increases from either overseas migration and people moving from the other states...2nd only behind VIC.

The resources industry also employs less than 2% of Queensland workers - effect from Cyclone Debbie will be sweet fa

3101.0 - Australian Demographic Statistics, Sep 2016

All states and territories recorded positive NOM for the year ending 30 September 2016. Compared with the previous year, NOM increased in Queensland (up 19.0%), Victoria (up 12.8%), New South Wales (up 10.8%) and Tasmania (up 9.2%). All other states and territories recorded decreases in NOM when compared with the previous year.
....

In the year ended 30 September 2016, only Victoria, Queensland and the Australian Capital Territory recorded net interstate migration gains. Victoria continued a recent trend of recording the highest net gain with 17,200 people, up from 11,200 people in the year ended 30 September 2015. This was followed by Queensland (13,000 people) and the Australian Capital Territory (100 people). Net losses from interstate migration were recorded in New South Wales (11,700 people), South Australia (6,500 people), Western Australia (9,200 people), Tasmania (less than 100 people) and the Northern Territory (2,800 people).

 

FIrst chart: Sept2016 ABS data change from previous quarter in colour, long term average is the dotted line. Very clear that it is only NSW and VIC who are really performing in terms of population growth, with TAS and ACT both doing ok.

Second chart is total population change each quarter. Through 2007/08, QLD was reaching 30,000 people/qtr. Now it sits shy of 20,000. This fall isn't terrible, but it is a problem when developers have been building as if more people are still coming to the state. Annual increase is around 60,000 people/year. In 2016, there were 48,000 new dwellings commenced; 1.25 people per dwelling. To reach any kind of market constraint, this number needs to be more than 2 people per dwelling. I dont think there has ever been a boom in one of the big 4 states where this rule did not apply.

Final note, current number of real estate listings in each state:

• NSW: 49,055
• VIC: 53,284
• QLD: 89,758
• SA: 20,834
• WA: 40,623

Not trying to put a negative spin here, just presenting the data.

 

Great chart.... yellow bars show what's really happening. Thanks for the analysis and share.

 

This morning:

Brisbane house prices fall: Largest quarterly drop since 2011

 

WA's/QLD's issues are more complex than just poor economic management at state government level. There needs to be structural change nationally in the way we manage our natural resources and the companies in the industry. While yes there was an influx of revenue during the boom most Australians would be unaware of how much of that was then paid back in subsidies to the mining companies.

Miners handed billions in state subsidies: report

Mining booms if not managed correctly can also cause severe damage to other sectors of the economy, known as "Dutch Disease". This lesson was learnt in Norway and in response as mcarthur has suggested they implemented the "Norway pension fund".

Dutch disease - Wikipedia

During the peak of the boom PM Rudd saw the damage this was causing in the non mining sectors of the economy, his idea was to implement the "super profits tax". The intention of which was not to increase tax revenue, but to cool the boom and place a safety net under the rest of the economy. The mining industry responded with a very successful multi million dollar campaign that ultimately unseated the prime minister.

To rub salt into the wound it has come to light that certain companies involved in the campaign have now been known to be involved in "BEPS" (base erosion profit shifting, a fancy name for tax avoidance in which the company shifts profit to a lower tax rate country). Thankfully there is now a push from the G20 to close up this loophole.

Base Erosion and Profit Shifting (BEPS) Action Plan

 

Interesting, that's not supported by the Corelogic quarterly index for houses.
Daily Indices | CoreLogic

 

My understanding is that Domain simply average their reported sales over the period, so the number is likely a reflection of say 70% of actual selling results (based on the proportion of auction results they generally obtain).

CoreLogic is essentially an estimate of current house prices, but their process aims to remove the fluctuations of things like seasonal sales variations, outlier sales, and similar effects that may influence data by only analyzing recent sales in isolation of their broader context.

They have a hefty process to produce their Hedonic index, so I'm hoping to get some time soon to really understand what they do. Ultimately the way I think of it is the difference between "Raw" ABS data and "Trend" ABS data - one is a direct measure of what actually happened, the other is a modified dataset to remove biases.

 

According to corelogic MoM change was only 0.08% for Brisbane itself at end march 2017. Which is basically flat. If domain numbers are good, we could be seeing a negative inflection for corelogic figures at end of this month.

@gman65 :
Queensland’s Resources Sector (Queensland Treasury)
Resources accounted for 64% of exports in 2015. I would think that even if they only hired 1.9% of workforce, they account for more than half of export volume and 7.4% of economy which IMHO is pretty significant. Its from exports decreasing below imports that you get a trade deficits which aren't that good for an economy in the long term.

 

I don't quite understand... how come adl get more than Perth even Perth has more population?

 

coz the GST distribution is based on how well the state has been doing economically in the past. SA did badly economically previously compared to WA so got a much higher relativity multiple for their GST allocation so got much more than WA. Just like QLD less population than Vic but got allocated more as well.

As you can see, there is some problem with their relativity multiple. No way a state with less population should get so much more funding. It should be a deviation of max 10% more or less per capita to be fair.

This current system to a certain extent will just be rewarding an incompetent state gov and does not provide any incentive for a state to improve its economy. IMHO the overallocation per capita to NT every year is just not justified.

 

Who invented this system? although I do wish it to keep as it is to save ADL from falling further behind lol....

 

I agree that terms of trade will put less money into the state coffers, and may have some flow-on affect on Government spending in later quarters. In terms of employment though, I don't think there will be a direct impact.

QLD is going to have to wean itself off coal income though pretty quickly, because in a decade or so the rest of the world will not want what we are selling. Short-term spike in coal prices seems to be over:

Coal, Australian thermal coal - Monthly Price (Australian Dollar per Metric Ton) - Commodity Prices - Price Charts, Data, and News - IndexMundi

 

Yes that seems to be the case but i dont think we can wean of coal that easily.

Coal is on a big downtrend now as China ceased the cap on working days at mines last Nov and restarted many of its own coal mines. And just last month they announced a steel production reduction target of 50million tonnes which caused coking coal and iron ore to start correcting.

Iron ore is not so flash as well, has just crashed down from $90+ to $60+ levels now. So more bad news for Perth.

Iron ore price collapse puts pressure on miners and budget
[A 2.2 per cent rebound on Wednesday to $US64.20 a tonne only clawed back a bit of the 8 per cent slide of the previous two days trade.]

[Iron ore stockpiles at Chinese ports are reaching mountainous proportions, at last count a record 130 million tonnes, or enough to build around 13,000 Eiffel Towers.]

Natural gas has also fallen quite a bit from december highs.
Natural Gas - Monthly Price (Australian Dollar per Million Metric British Thermal Unit) - Commodity Prices - Price Charts, Data, and News - IndexMundi

I do not think it is a coincidence that QLD unemployment has ticked up recently just as our core commodity prices are coming down. And unemployment improved towards the end of last year just as those same commodity prices went up. Mining might not be a big direct employer, but the money it brings in definitely has flow on effects to all other sectors and will affect our unemployment rates and economy in a big way.

It will be interesting to see the effect on unemployment as the apartment building boom ends towards the second half of this year.