Across Western Australia many people are experiencing genuine economic hardship.
Since 2014-15, the WA economy has fallen off a cliff with the end of the mining boom. As a result, WA has been left with a swathe of underemployment, record high rates of youth underutilisation and anaemic wage growth.
According to State Final Demand (domestic economic income excluding trade), the WA economy has shrunk in the past 5 out of 6 financial years or 15.4% since its peak in 2012-13.
It is only WA’s international natural resources exports which has kept total economic growth is positive in recent years as measured by Gross State Product (GSP).
Annualised GSP growth in WA has been anaemic averaging 1.1% over the past 5 years, whereas WA’s long run annualised GSP growth rate has averaged 5.1% from July 1993 through to June 2014.
What ails Western Australia is an economy with too much debt (especially households), an over reliance on the mining and natural gas sector, a collapse in business investment, burdensome taxes and regulations, excessive immigration levels and a decline in employment opportunities that provide individuals with sufficient hours and income to meet cost of living and existing debt obligations.
For example, in FY2007-08, approximately 22% of economic income in WA was generated from the mining and natural gas sector whereas last financial year it rose to 33%.
The domination of this sector has come at the cost of WA’s manufacturing; electricity, gas and waste services; and professional, scientific and technical sectors which have been shrinking at an annual rate of 1.76%, 1.16% and 1.10% respectively over the past 5 years. WA’s agriculture, forestry and fishing industry has virtually experienced no growth over this same period.
The collapse in business investment is a major impediment to expanding economic opportunities in WA. Gross capital formation has been falling for six consecutive years and fallen by 48.1% since its annual peak of $AUD 102.5 billion in FY12-13.
Not only has business investment fallen significantly in sectors such as mining and construction which have coincided with the end of the mining and residential housing construction booms, but also in manufacturing which has seen investment fall by 6.4% per annum over the past 5 years.
Beyond weakness within the business sector, significant economic and financial problems can be found among WA households.
Too many Western Australians households are carrying excessive levels of mortgage and personal debt, experiencing rising underemployment, stagnant wages and rising cost of living pressures for basic goods and services such as transport, food, health care, education and childcare services.
The combination of these factors led to households last financial year experiencing the second slowest growth rate in consumption since 1989-90.
In key areas of WA, mortgage stress has reached acute levels. Moreover, according to the Reserve Bank of Australia, 15% of households in WA who hold a mortgage are underwater (i.e. negative equity).
Ultralow interest rates, scandalous bank lending practices and ponzi property schemes such as Keystart have been instrumental to luring Western Australians to borrow too much resulting in inflating property prices which have now crashed by over 20% in Perth and by 30% in Mandurah.
On the employment front, the lack of fulltime work not only from the contraction of the mining and construction sectors but also sectors such as manufacturing has resulted in underemployment more than doubling for both men and women relative to levels experienced in 2007.
Wages, especially for men, have remained stagnant and average weekly earnings on a total earnings basis has fallen for the two previous financial years.
Not only has business and consumer weakness played a role, but excessive immigration levels has also contributed to suppressing wages as recently acknowledged by the RBA.
In suburbs in my electorate, whether it be Ellenbrook or Armadale, our ailing economy is manifesting itself through an array of social problems whether they be rising violent crime, drug use, alcoholism or homelessness.
These problems are a consequence of a failure to plan for the lean years during the economic boom as well as due to a current set of misguided economic policies across all levels of government.
To boost the fortunes of the WA economy a radical different economic program is required. Policies are required which supports economic diversification, that facilitates business investment and boosts multifactor productivity and international competitiveness.
However, given that many of the major economic policy levers such as taxation, monetary policy, immigration, tertiary education, industrial relations, environmental approvals, climate and trade policy are controlled by Canberra, Western Australia, like much of its history, has limited scope to improve economic conditions.
A combination of federal, state and local government policies needs to work in unison if our economic ship is to be turned around. It appears the political establishment is fine with managing the decline of our economy.
The unspoken wrong-headed policy consensus between Australia’s two major parties at both the federal and state government levels means that Western Australians will likely go on experiencing economic hardship throughout 2020 and beyond.