Crisis stimulus needs better focus

14th July 2021

The West Australian has highlighted some critical issues in relation to this state’s economic response to the COVID crisis this week, and two articles on Wednesday are of particular importance.

The first was a front page story telling us that it can now take up to three years to build a house because of shortages in workers and building supplies. The heat has been on the housing construction sector thanks to generous federal and state grants, which have made the purchase of a new house more affordable.

 Last year, when COVID was having its greatest economic impact, home buyers could get $20,000 from the state and $25,000 from the Commonwealth if you signed up by the end of December 2020.  

And if you were also a first homebuyer, you could add in the $10,000 first homebuyers grant in WA, and up to another $15,000 in stamp duty relief.

Which meant that first time buyers could get close to $70,000 in benefits and existing owners $45,000.

No wonder there has been an explosion in people signing up, and in that sense the grants have been successful.

But the major impact of the COVID crisis has already been felt, and both the Australian and Western Australian economies have rebounded strongly. Our mining sector is going gangbusters, and agriculture is having its best year in memory. West Australians can’t travel overseas much so our local tourism sector is firing back up.

In fact, the economy is doing so well that almost all these sectors can’t find enough workers to do the jobs that already exist.

The current high iron ore price isn’t just making the McGowan Government rich, with an impending $5 billion surplus adding to the mountain of cash it is rolling in, it has also got our miners on the move and looking for staff.

Thanks to huge construction stimulus packages around the world that need our iron ore, the Western Australian Government is one of the only jurisdictions in the world making a profit out of COVID. 

So much so that on April the 15th this year the Premier put out a media release in which he suggests   –

• WA's growing economy has resulted in jobs surging by a record 32,610 in March 2021

• Unemployment rate falls to 4.8 per cent in March - the lowest of all the States and the lowest unemployment rate in WA since December 2013

• 100 per cent of jobs lost due to COVID-19 have now been recovered

Which brings me to the second vital story in Wednesday’s paper – a business story with a prediction of iron ore staying over US$200 a tonne until the end of 2022. If that comes true, the mountain of cash  the State Government will be sitting on would make Scrooge McDuck blush.

It will also mean that the mining sector will be pushing up wages and attracting many of the people that construction, agriculture, tourism, contracting and manufacturing will need in their own industries.

This is exactly what happened in the last mining boom of 2003-2014, and we can expect it to happen again. 

And once again Government spending on infrastructure will be in direct competition for workers and resources with all of those industries, because the State Government is also using state infrastructure spending as a COVID response. 

 Its website says it is accelerating major projects at the same time that the private sector is rebounding, however anecdotally it appears that many of these projects are falling behind time and blowing out in costs because of the competition that has been created for labour and materials.

Nearly half the new homes being built by the private sector are also blowing out in cost.

We have to get better at crisis stimulus, because the current example is not fixing the boom and bust economy we are stuck in in WA; in fact it is adding to it.

Perhaps now when there is a shortage of trade workers the Government could focus not on current and next year’s projects but instead start helping the private sector get ready for the next decade’s ones. The ones that will be needed as the economy comes out of this boom and enters the next downturn.

When world stimulus spending slows and the iron ore price inevitably corrects to normal, what industries will step up and expand? 

Support for the housing construction industry is important, and it is perhaps the easiest one to “stimulate” by handing out cash, but it is not the only one. Other industries need a fair go as well from a Government that has more free money than any of its predecessors to throw around.

And now is the time to start planning for that diversification and investing accordingly.

The Government could start by focussing on making the planning and approvals processes easier to use and more efficient; it could start reining in the bureaucracy rather than empowering it!

That might make the next generation of projects more deliverable, and provide the smoothing out our economy needs.

Otherwise we are doomed to repeat the boom and bust cycle we can’t manage properly now.