Australia’s two-speed economy is a myth – it’s just NSW dragging us down: Gottliebsen

The power farce in NSW makes it time to face a concealed truth about Australia – our biggest problem is NSW. That means we must explode one of the myths of the Australian economy – that we have a divide between the resource-rich states of Western Australia and Queensland and the so called non-resource states.

It is certainly true that WA is receiving a significant resource boost, but to convert that into a ‘resource’ versus ‘non-resource’ divide is at best misleading and at worst totally wrong.

What we really have in Australia is four states that are performing well given the high interest rates – Queensland, South Australia, Victoria and Tasmania plus one that has resources – WA. Against that we have NSW which is the largest centre of population, the wealthiest state and the home to our global city, Sydney, performing way below its potential. We conceal the bad management in NSW by lumping it with Victoria, South Australia and Tasmania and declaring the lot non-resource states and classifying Queensland a resource state.

Many of the people who are concealing this truth from Australia and the world live either in NSW or in the Australian Capital Territory, which is surrounded by NSW, and has become close to being a Sydney suburb.

What woke me up to NSW’s underperformance was the lunch conversation I had with Queensland premier Anna Bligh and her treasurer Andrew Fraser.

They have based much of their state strategy on embracing techniques to attract from NSW young people who want to escape from what appears to them to be a morass. Queensland wants NSW to stay down for as long as possible. Queensland also attracts Victorians, but the Victorian outflow to Queensland is swamped by an inflow from other states and overseas migrants. Bligh and Fraser point out that resources and farming contribute only about 12% of the Queensland economy.

I also spoke to a number of Queensland CEOs who found doing business straight forward in all eastern states except NSW, which they said was a simply “a joke”. These Queenslanders either came from NSW or had spent time living there.

Since then I have spoken to a wider range of Australian executives who all complained about the difficulty of doing business in the NSW culture. Then we have NSW Treasurer Michael Costa and he strongly disagrees with me and says the problem in NSW is about high interest rates. He is partly right, but if the NSW problem was only high interest rates then Victoria would also be in a mess. Instead it is outperforming NSW by a significant margin.

Employment in NSW is off the pace but it’s certainly not a basket case and there is a shortage of skills. But then look at the struggle many of its residents are having paying their mortgages. This is because bad NSW local and state government created artificial shortages of land and horrible development regulations that pushed dwelling prices too high. NSW companies are not sufficiently prosperous, outside the big professional areas in the CBD, to pay their employees enough to service their debts. (Interestingly, Sydney’s international status has not so far been affected by the domestic problem).

The Fitch Rating Survey graphically sets out the domestic NSW problem. Communities around Australia are suffering from higher interest rates, but in the ten worst mortgage problem post codes in NSW an incredible 5.6% of mortgage holders are 30 days or more in arrears before the latest two interest rate rises.

The next worst state is Queensland, but there only 3.6% of those with mortgages in the 10 worst post codes are 30 days or more in areas – substantially less than NSW. Then follows Victoria (3.4%) and WA (2.8%). South Australia is less than 2%. We don’t have reliable figures for Tasmania and Northern Territory.

It’s now nearly half a decade since the largest dwelling owner in NSW, Harry Triguboff, declared in The Australian newspaper that Sydney was dying. He predicted that it would not die because, before the coffin was rolled out, the residents of the state would wake up and elect people to fix the problems. At the time, no one took Triguboff very seriously. Today it is clear for all to see (except many of those in NSW/Canberra governments and media) that he was right.

And because of NSW’s enormous inner strength, the state can struggle on for another five years and still recover. But eventually it will require a leader like John Brumby, Anna Bligh, Jeff Kennett, Alan Stockdale or Nick Greiner to take the hard decisions. To illustrate what, in my view, causes the NSW problem, here are some straight-forwarded decisions that need to be quickly taken – I would call them “low hanging fruit”. I am sure there are many harder decisions that are also required.

– Do an Andrew Fraser (Queensland) or Jeff Kennett (Victoria) and completely reform NSW local Government which is holding back countless developments and wealth generating activities. In some areas the NSW local government mess is likely to be caused by corruption – in other areas it’s either incompetence or vested interests.

– Free up land around Sydney in a similar fashion to Victoria and Queensland so that young people can buy houses.

– Realise that the NSW industrial relations system creates a culture of mediocrity in many industries and is holding the state back. NSW is not competitive with the rest of Australia in many areas and so should cede industrial relations powers to the Commonwealth.

– Abandon the French-style system of occupational health and safety where employers are regarded as guilty and must prove their innocence. The easiest way is to adopt the Victoria’s British-style rules, but if that is too hard, follow Queensland which achieves the same outcome as Victoria still using the French-style system as a base.

– Slash the outmoded work practices in the NSW power authorities which will increase the amount raised in the privatisation by a substantial amount. I believe it is about one third, but Michael Costa challenges that figure. There is no doubt it is substantial. Spend that extra money on rail transport from the outer areas that must be opened up.

– Make the infrastructure from the NSW coal fields the best in the country instead of the worst.

If these decisions were taken, then NSW would resume its place as the clear national leader. It would mean that the greater efficiency created would lessen the need for such a long period of high Australian interest rates.

But before anything can happen, the country has to stop saying that Australia is divided between resource-rich and resource-poor states. Australia is divided between the special problems in NSW and the rest of the country.

This article first appeared on Business Spectator.