Long term e conomic and demographic projections Industry structure ..... 13 2.5 Key challenges and...

Long term economic

and demographic

projections

ADF Posture Review

24 November 2011

Economic and demographic projections

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© 2011 Deloitte Access Economics Pty Ltd

Contents Glossary ...........................................................................................................................................i

Executive Summary .........................................................................................................................i

1 Background ......................................................................................................................... 6

2 The national outlook ........................................................................................................... 7

2.1 Population growth ................................................................................................................. 7

2.2 Labour force and output ........................................................................................................ 9

2.3 The mining boom as key driver ............................................................................................ 11

2.4 Industry structure ................................................................................................................ 13

2.5 Key challenges and opportunities ........................................................................................ 14

2.6 Regional growth ................................................................................................................... 17

3 Western Australia ............................................................................................................. 19

3.1 State overview ..................................................................................................................... 19

3.2 Perth .................................................................................................................................... 21

3.3 Gascoyne and Geraldton (including Exmouth) .................................................................... 23

3.4 Pilbara (Karratha and Port Hedland) .................................................................................... 26

3.5 Kimberley ............................................................................................................................. 29

4 Queensland ....................................................................................................................... 32

4.1 State overview ..................................................................................................................... 32

4.2 Far North .............................................................................................................................. 34

4.3 Cairns ................................................................................................................................... 37

4.4 Townsville ............................................................................................................................ 39

4.5 Northern SD ......................................................................................................................... 41

4.6 Mackay and Fitzroy .............................................................................................................. 43

4.7 Gladstone and Rockhampton............................................................................................... 46

5 Northern Territory ............................................................................................................ 49

5.1 Territory overview ............................................................................................................... 49

5.2 Darwin .................................................................................................................................. 50

6 New South Wales .............................................................................................................. 53

6.1 State overview ..................................................................................................................... 53

6.2 Sydney, Newcastle and Wollongong .................................................................................... 54

7 Victoria .............................................................................................................................. 56

7.1 State overview ..................................................................................................................... 56

8 South Australia .................................................................................................................. 58

8.1 State overview ..................................................................................................................... 58

9 Bibliography ...................................................................................................................... 60

Deloitte Access Economics

Appendix A : Major towns in regions .......................................................................................... 62

Appendix B : Region maps ........................................................................................................... 63

Appendix C : Major Projects ........................................................................................................ 71

Appendix D : Forecasting methodology ...................................................................................... 75

Appendix E – Current and projected climate .............................................................................. 79

Limitation of our work..................................................................................................................... 83

Charts Chart 2.1 : Population forecasts .................................................................................................... 9

Chart 2.2 : Employment and GDP forecasts ................................................................................ 10

Chart 2.3 : Mining projects across the nation ............................................................................. 12

Chart 2.4 : Business investment and the unemployment rate ................................................... 13

Chart 2.5 : Structure of employment by industry, 2010 and 2040 ............................................. 13

Chart 3.1 : Population growth ..................................................................................................... 20

Chart 3.2 : Employment growth .................................................................................................. 20

Chart 3.3 : GRP growth ................................................................................................................ 20

Chart 3.4 : Employment by industry, Perth, 2010 ....................................................................... 22

Chart 3.5 : Employment by industry, Gascoyne and Geraldton, 2010 ........................................ 24

Chart 3.6 : Employment by industry, Pilbara, 2010 .................................................................... 27

Chart 3.7 : Employment by industry, Kimberley, 2010 ............................................................... 30

Chart 4.1 : Population growth ..................................................................................................... 34

Chart 4.2 : Employment growth .................................................................................................. 34

Chart 4.3 : GRP growth ................................................................................................................ 34

Chart 4.4 : Employment by industry, Far North, 2010 ................................................................ 35

Chart 4.5 : Employment by industry, Cairns, 2010 ...................................................................... 38

Chart 4.6 : Employment by industry, Townsville, 2010 .............................................................. 40

Chart 4.7 : Employment by industry, Northern SD, 2010 ........................................................... 42

Chart 4.8 : Employment by industry, Mackay and Fitzroy, 2010 ................................................ 44

Chart 4.9 : Employment by industry, Gladstone and Rockhampton, 2010................................. 47

Chart 5.1 : Employment by industry, Darwin, 2010 .................................................................... 51

Chart 6.1 : Employment by industry, Sydney, Newcastle, Wollongong, 2010 ............................ 55


Tables Table 2.1 : Migration assumptions ................................................................................................ 8

Table 2.2 : Australian average population growth rates ............................................................... 9

Table 2.3 : Public services employment share of total employment .......................................... 18

Table 3.1 : Western Australian forecasts .................................................................................... 19

Table 3.2 : Vital statistics, Perth .................................................................................................. 21

Table 3.3 : Economic forecasts, Perth ......................................................................................... 21

Table 3.4 : Vital statistics, Gascoyne and Geraldton, .................................................................. 23

Table 3.5 : Economic forecasts, Gascoyne and Geraldton .......................................................... 24

Table 3.6 : Vital statistics, Pilbara ................................................................................................ 26

Table 3.7 : Economic forecasts, Pilbara ....................................................................................... 26

Table 3.8 : Vital statistics, Kimberley .......................................................................................... 29

Table 3.9 : Economic forecasts, Kimberly ................................................................................... 29

Table 4.1 : Queensland forecasts ................................................................................................ 32

Table 4.2 : Vital statistics, Far North ........................................................................................... 34

Table 4.3 Economic forecasts, Far North .................................................................................... 35

Table 4.4 : Vital statistics, Cairns ................................................................................................. 37

Table 4.5 : Economic forecasts, Cairns ........................................................................................ 37

Table 4.6 : Vital statistics, Townsville .......................................................................................... 39

Table 4.7 : Economic forecasts, Townsville ................................................................................. 39

Table 4.8 : Vital statistics, Northern SD ....................................................................................... 41

Table 4.9 : Economic forecasts, Northern SD .............................................................................. 41

Table 4.10 : Vital statistics, Mackay and Fitzroy region .............................................................. 43

Table 4.11 : Economic forecasts, Mackay and Fitzroy ................................................................ 43

Table 4.12 : Vital statistics, Gladstone & Rockhampton ............................................................. 46

Table 4.13 : Population characteristics, Gladstone and Rockhampton ...................................... 46

Table 5.1 : Northern Territory forecasts ..................................................................................... 49

Table 5.2 : Vital statistics, Darwin ............................................................................................... 50

Table 5.3 : Economic forecasts, Darwin ...................................................................................... 51

Table 6.1 : New South Wales forecasts ....................................................................................... 53

Table 6.2 : Vital statistics, Sydney, Newcastle & Wollongong .................................................... 54


Table 6.3 : Economic forecasts, Sydney, Newcastle, Wollongong .............................................. 55

Table 7.1 : Victoria forecasts ....................................................................................................... 56

Table 8.1 : South Australian forecasts ......................................................................................... 58

Table A.1 : Major towns in the regions ....................................................................................... 62

Table C.1 : Major investment projects from Investment Monitor .............................................. 72



Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its

network of member firms, each of which is a legally separate and independent entity.

Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited

and its member firms.


Glossary ABARES Australian Bureau of Agricultural and Resource Economics and Sciences

ABS Australian Bureau of Statistics

ADF Australian Defence Force

AE-DEM Access Economics Demographic Model

BITRE Bureau of Infrastructure, Transport and Regional Economics

BREE Bureau of Resources and Energy Economics

CAPEX Capital expenditure

DAE Deloitte Access Economics

FIFO Fly In Fly Out

GDP Gross Domestic Product

GFC Global Financial Crisis

GRP Gross Regional Product

GSP Gross State Product

IM Investment Monitor

LNG Liquefied Natural Gas

R&D Research and Development

RBA Reserve Bank of Australia

SD Statistical Division

SLA Statistical Local Area

SSD Statistical Subdivision

WAPC Western Australian Planning Commission

i Deloitte Access Economics

Executive Summary Deloitte Access Economics (DAE) have been commissioned to provide a study of likely

longer term demographic and economic trends in Australia, with a particular focus on

northern Australia, as input into the ADF Posture Review.

The Australian economy is currently subject to strong countervailing forces:

• The key positive has been the strength of China’s economy, and the industrialising

Asian region in general. Strong industrial demand has seen commodity prices surge,

delivering a torrent of income to Australia from resources exports and propelling a

further mining investment boom.

• Against that, the global financial system remains fragile, with major concerns over the

sovereign debt of several European economies, and with a United States economy

which is struggling to develop any momentum.

Across Australia, those forces are playing out differently to different States and regions. In

particular, Queensland and Western Australia are on the right side of the resources boom

at present, receiving very high prices for their resources exports, and those same high

prices have propelled a boom in new investment.

At the same time, negative factors associated with Australia’s mining boom (high interest

rates, a high $A, and rising wages) are constraining regions more exposed to manufacturing,

tourism and consumer demand. That sees differences in projected employment growth

over time, as highlighted in Chart i.

Chart i: Projected average employment growth by State, 2010 to 2040

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

South Australia New South Wales Victoria Total Australia Northern Territory Western Australia Queensland

% growth per annum

ii Deloitte Access Economics

Queensland and Western Australia are the Australian States which are likely to see the

strongest rates of employment growth over the next 30 years. That outperformance may

be more pronounced over the next decade where a big lift in mining investment and output

can reasonably be predicted, thanks to:

• a large number of major mining projects are underway or have been committed to

start soon;

• those projects typically have constructions phases of several years, supporting

economic activity over that time; and

• the macroeconomic environment remains supportive of resources investment for

now with strong demand emanating from China and elevated prices for

commodities.

But over time we do expect to see a decline in mining commodity prices (thanks largely to

greater sources of supply opening up around the world), so the broader economic

environment is likely to become less supportive of future mining activity than it currently is.

That would also mean a likely medium term decline in the value of the $A, taking the

pressure off sectors such as manufacturing, tourism and international education. In short,

beyond the next few years we might see a shifting of growth prospects away from the

current two-speed economy to one which is more balanced.

Over the longer term, Australia’s economic prospects will also be guided by how we

perform on the supply side of the economy. This is encapsulated in the 3 Ps as drivers of

long term economic growth – population growth, (labour force) participation, and

productivity growth. Chart ii shows that Australia’s population growth rate is expected to

moderate over time (and, in particular, the working-age population growth rate), placing a

speed limit on broader economic growth.

Chart ii: Population forecasts

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1980 1990 2000 2010 2020 2030 2040

Total Working age

Change on year earlier

Forecast

iii Deloitte Access Economics

Much of the focus of this report is on the prospects of particular regions in northern

Australia. Similar themes to those seen at the State level will also be apparent:

• Over the next decade, strongest growth prospects are in those regions where there is

expected to be a large amount of mining investment;

• That growth will be seen more so in output growth, less so in employment growth,

and even less so in population growth;

• Over the longer term more broadly based regions may perform better in terms of

overall employment growth prospects; and

• High growth regions in Queensland may perform better than Western Australian

regions, benefiting from continued migration unrelated to employment prospects.

Chart iii shows that for regions of interest in this report, average employment growth over

the next three decades is expected to range between 2.1% per annum for Cairns to zero for

the Northern SD region.

Chart iii: Projected average employment growth by industry, 2010 to 2040

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

% growth per annum

Table ii compares our economic forecasts for the northern regions of Australia - including

all of the Queensland regions analysed for this report; all of the Western Australian regions

analysed for this report with the exception of Perth; and the Northern Territory – with the

aggregate Australian figures.

iv Deloitte Access Economics

Table ii: Economic forecasts, Northern Australia v Australia

10 yrs to 2010 10 yrs to 2020 10 yrs to 2030 10 yrs to 2040

Northern

Australia

%

change Level

%

change Level

%

change Level

%

change Level

GRP 3.95% 79,821 3.53% 112,908 3.11% 153,431 3.04% 206,995

Population 2.13% 1,230,250 1.71% 1,457,449 1.56% 1,701,343 1.32% 1,940,146

Working age

population 2.41% 959,899 1.96% 1,165,281 1.67% 1,375,165 1.40% 1,580,031

Employment 3.24% 649,945 1.97% 789,829 1.42% 909,052 1.27% 1,031,421

Australia

GDP 3.16% 1,283,571 3.08% 1,738,118 2.95% 2,325,112 2.70% 3,036,259

Population 1.55% 22,299,775 1.41% 25,642,412 1.22% 28,947,313 1.00% 31,985,490

Working age

population 1.78% 18,081,351 1.52% 21,017,317 1.30% 23,916,047 1.09% 26,664,950

Employment 2.25% 11,056,539 1.65% 13,018,012 1.19% 14,652,881 0.91% 16,040,868

Note: % changes are average annual changes. Levels are figures as at the end of the period.

Continued strength of our minerals sector, combined with the burgeoning LNG sector, is

expected to generate considerable growth for the northern regions of Australia. In the

decade to 2020, Northern Australia’s output and population is expected to grow by some

0.4% more than the Australian average every year. Or, to put it another way, by 2020,

Northern Australia’s total output will be 45% higher than in 2009-10, while Australia’s

output will be 35% higher, than in 2009-10.

That outperformance for Northern Australia is expected to continue over the decades to

2030 and 2040, though the differential is a little smaller.

Against these projections, opportunities and challenges for Australian economy and its

regions include:

• Australia’s proximity to the dynamic Asian region offers significant opportunity, and

in the short term at least, this is being capitalised on. The challenge for Australia is

to continue it.

• There is considerable potential for Australia to improve its productivity

performance. More can be done by government to improve efficiency, while

Australia’s business R&D performance is modest and therefore offers the potential

to improve and become a growth driver.

• The extent to which Australia can capitalise on current investment opportunities may

be severely constrained by inadequate infrastructure.

• A lack of skilled workers in the right areas could also pose significant problems to

Australia’s future economic prospects.

• Many developed economies are now saddled with large public sector debts. The

risk of default may trigger financial consequences for the rest of the world,

including Australia.

v Deloitte Access Economics

These opportunities and risks affect the Department of Defence both directly, and

indirectly. The Department is likely to be subject to savings cuts if they are required in

order to return the Federal budget to surplus. At the same time, the Department is finding

itself competing with the mining industry for a range of skilled workers.

Given the current pipeline for engineering construction projects, competition for

occupations such as engineers, project managers and tradespeople is likely to be fierce,

which will put considerable upward pressure on wages for these occupations.



6 Deloitte Access Economics

1 Background The ADF Posture Review is a high level strategic examination of the geographic positioning

of Defence to meet Australia’s modern and future strategic and security challenges.

Deloitte Access Economics (DAE) have been commissioned to provide a study of likely

longer term demographic and economic trends in Australia, with a particular focus on

northern Australia, as input into the Review.

This report provides forecasts of expected population, labour force and economic growth

for Australia, for six of Australia’s States/Territories, and for a number of key regions in the

north and north-west of Australia. The forecasts are model based assessments, utilising our

in-house demographic model (AE-DEM), and our in-house employment forecasting

capability. Forecasts are reported on a yearly basis up to 2040.

The structure of this report is as follows:

• Chapter 2 provides the outlook for the Australian population and economy, and

includes a discussion of key drivers, opportunities and challenges. The current mining

boom is discussed, along with structural change in the Australian economy over time.

• Chapter 3 outlines expected trends for Western Australia, and then discusses the key

regions of Perth, Gascoyne and Geraldton (including Exmouth), Pilbara (Karratha and

Port Hedland), and Kimberley in turn.

• Chapter 4 outlines expected trends for Queensland, and then discusses the key regions

of Far North, Cairns, Townsville, Northern SD, Mackay and Fitzroy, and Gladstone and

Rockhampton in turn.

• Chapter 5 outlines expected trends for the Northern Territory, and then discusses the

key region of Darwin.

• Chapters 6, 7 and 8 then profile the major southern state economies of New South

Wales (including the Sydney/Newcastle/Wollongong region), Victoria and South

Australia respectively1.

• Maps, some further tables, and the forecasting methodology are then shown in the

Appendices.

It should be noted that the forecasts presented in this report are best considered as a

central tendency around which unexpected (or unprojected) events will produce different

outcomes. Forecasts shown are of long-term growth paths. Economic cycles are likely to

continue to occur around these growth paths over time.

1 Note that the ACT and Tasmania have not been included in this assessment for a variety of reasons, including

(but not limited to), geography, size of region, potential mining and other business investment and population

growth.



2 The national outlook Through 2011 the Australian economy has been subject to strong countervailing forces:

• The key positive has been the strength of China’s economy, and the industrialising

Asian region in general. Strong industrial demand has seen commodity prices surge,

delivering a torrent of income to Australia from resources exports and propelling a

further mining investment boom.

• Against that, the global financial system remains fragile, with major concerns over the

sovereign debt of several European economies, and with a United States economy

which is struggling to develop any momentum.

Both these factors (industrialising Asia, and developed economies weighed down by large

debts) are likely to be continuing features for some time.

Yet over the longer term, Australia’s economic prospects will also be guided by how we

perform on the supply side of the economy. This is encapsulated in the 3 Ps as drivers of

long term economic growth – population growth, (labour force) participation, and

productivity growth.

The following sections provide the expected outlook for the Australian economy over the

coming decades.

2.1 Population growth

Australia’s population growth remains one of the key factors which continues to set us

apart from many other rich nations around the world. Australia’s population gains have

been considerable, and that underwrites more demand strength in Australia than in many

other nations around the world. Population growth in 2009 reached 2.1%, which

represents an additional 450,000 people, (which is around the best this nation has recorded

since the late 1960s), though it has since moderated amid a fall in migrant numbers

(primarily international students).

Western Australia and Queensland have been the main beneficiaries of Australian

population growth, while South Australia, Tasmania, and to a lesser extent NSW have not

fared as well, experiencing population declines, or very slow population growth.

Higher population growth tends to occur in periods of stronger economic growth –

governments, businesses and unions are more receptive to migrants when there are skill

shortages, while expatriates and New Zealanders (who don’t have to meet the same

residency requirements as other migrants) are more likely to come here too.

However, and as is usual in downturns, political pressure to cut the migration intake

mounted in 2009. The argument of ‘why do we need foreigners when there aren’t enough

jobs to go round for Australians?’ seems appealing, but it is not good economics. That is

because migrants earn incomes, and they spend them. In spending them, they create

demand for more workers. Or, in other words, the higher supply of workers thanks to



migration is matched by a higher demand for workers thanks to the spending done by

migrants. Cutting migration targets therefore cuts job growth but it doesn’t have much

impact on the unemployment rate.

The Federal Government announced a 20% cut in the skilled migration intake (from

133,500 to 108,100 a year). This has contributed to a fall in total migration numbers over

the past two years (see Table 2.1), with a sharp drop in temporary migrants (primarily

international students) another key factor.

However DAE believes this will be the low point in the cycle – even though developed

economies are still struggling, developing economies are not, and this should add to

demand for population growth in Australia for many years yet. DAE forecasts have a

recovery of net international migration to 190,000 per year after 2012-13 for the remainder

of the forecast period.

Table 2.1: Migration assumptions

Year Net migration Year Net migration

2003-04 100,000 2008-09 298,900

2004-05 123,800 2009-10 215,600

2005-06 146,800 2010-11 180,000

2006-07 232,800 2011-12 185,000

2007-08 277,300 2012-13 and thereafter 190,000

Even with this recovery in migration numbers, overall population growth is forecast to slow

from here, and working age population (those aged 15-64 years) will slow by even more –

as Chart 2.1 shows. The resultant fall-off in gains in working age population will be steady,

but by 2012 the population-driven growth in Australia’s production potential might drop

back to 140,000 people a year, close to the lows we last saw after the recession of the early

1990s.

The widening gap between total population and working age population growth over the

next few years is driven by an ageing workforce, with more and more Australians turning 65

in the next few years.

That is a well known negative for the supply side of Australia’s job markets through to 2020.

In effect, those increased numbers of retirements will be evident in Australian job markets

long before the lift in birth rates evident in recent years shows up as new entrants to the

workforce. The latter lift in student numbers (currently reaching the bottom end of primary

school) won’t enter the workforce until sometime in the early 2020s at best.

This demographic hole (between the retirement surge starting now and a pickup in new job

entrants which is still more than a decade away) is one which will be important to

Australia’s wider economy as well as to the specifics of developments in its job market.



Chart 2.1: Population forecasts

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1980 1990 2000 2010 2020 2030 2040

Total Working age


Forecast

Source: Australian Bureau of Statistics, Deloitte Access Economics

A look at the table below shows that population growth among the over 65s will be more

than three times faster than growth rates in the other age groups through to 2020. Or, in

other words, the greying of Australia’s workforce is already well advanced, and it will pose

an increasing challenge.

Table 2.2: Australian average population growth rates

Age group 10 years to 2020 10 years to 2030 10 years to 2040

% change Level % change Level (m) % change Level (m)

0-4 0.7% 1,557,551 0.7% 1,765,975 0.5% 1,765,975

5-14 1.0% 3,068,038 0.9% 3,555,629 0.6% 3,555,629

15-64 1.1% 16,779,537 0.9% 20,006,646 0.9% 20,006,646

65+ 3.5% 4,271,613 2.8% 6,679,696 1.8% 6,679,696

Source: Deloitte Access Economics

2.2 Labour force and output

The ageing workforce will have a large impact on labour force participation, as more and

more Australians turn 65 and consider retirement. Increasingly, those over 65 will choose

to remain in the workforce, either because they need to build retirement incomes further,

or because the Government and employers are increasingly making it more attractive for

older Australians to remain in the workplace, offering flexible working hours and tax

incentives to keep working.



This has showed up in rising labour force2 participation rates through to 2010. However,

Australia’s participation rate has levelled off recently. At first glance, that loss of

momentum seems a logical reaction to a matching loss of momentum in jobs. However, it

is possible that this story is a little more complicated than it looks. One of the reasons why

job growth has slowed is simply because working age population growth has dropped back

to recession-like levels. In turn, that means job growth in Australia increasingly has to come

from participation growth – boomer retirement and weaker migrant flows mean that the

‘people numbers’ simply aren’t there, and hence job gains require improving participation

rates.

Slowing population gains now mean that participation has to lift for employment growth to

do the same, and the shortfall in employment gains evident during 2011 reflects not merely

increasingly poor population growth, but also the sectoral squeeze evident off the back of

interest and exchange rates.

That cyclical squeeze should lift over the next couple of years and provide the impetus for a

short-term rebound in jobs growth. However, the moderation in working age population

growth seen in Chart 2.1 above is also seen in employment growth in Chart 2.2 below. The

profile for jobs growth is a little stronger than for working age population growth, as age

cohort labour force participation rates continue to grow over time.

Chart 2.2: Employment and GDP forecasts

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

1980 1990 2000 2010 2020 2030 2040

Employment Output


Forecast


The third ‘P’ as a supply-side driver of the Australian economy is productivity. However,

productivity growth has delivered relatively little to the Australian economy over the past

decade.

2 The labour force is equal to employment plus unemployment, where unemployment includes only those who

are unemployed and are actively seeking work. Hence, a university student who is not seeking work is not

considered to be unemployed.



As the Reserve Bank itself recently noted (in addressing the risks to inflation), “Another risk

stems from the outlook for productivity. Growth in both labour and multifactor productivity

over the past 5–10 years has been well below longer run average rates and has contributed

to the pick-up in the rate of growth of unit costs. Looking ahead, a risk is that continued

weak productivity growth will put more upward pressure on costs and hence domestic

inflation, possibly at a time when global inflation pressures are less benign than they have

been over the past couple of years.”

Deloitte Access Economics expects that there will be some improvement in the rate of

labour productivity growth over the next few years. This will occur as part of the economic

cycle as massive new mining investments add to the capital stock (and use relatively few

workers when they are up and running). Other drivers of productivity such as business

innovation and government reform are less predictable and may be harder to deliver on a

consistent basis.

The wedge between GDP growth and employment growth in Chart 2.2 above reflects

labour productivity growth, which is expected to average 1.7% per annum over the decade

to 2020, before averaging 1.8% per annum over the decade to 2030 and over the decade to

2040.

2.3 The mining boom as key driver

This section explores the outlook for the mining industry (including offshore

oil/gas exploitation) as a key driver of the Australian economy, and particularly

key to many of the northern regions which are the focus of this report.

Conditions are in place at present for a massive mining investment boom, and therefore a

major lift in Australia’s capacity to produce and export minerals and energy over the

coming decades. Commodity prices remain at (or near) record highs, seemingly untroubled

by renewed recession risks in the rich economies of the northern hemisphere.

Deloitte Access Economics’ Investment Monitor shows a very large value of resources

projects currently under construction or committed. In total, $380.5 billion of resource

projects are currently shown within the Investment Monitor database. Of this amount,

about 39% ($147 billion) are definite, i.e. ‘under construction’ or ‘committed’; 47% ($179

billion) are under active investigation for a decision in the reasonably near future, i.e. in the

‘under consideration’ category; and 14% ($55 billion) are in the ‘possible’ category.

Within resources investment, liquefied natural gas (LNG) is the current wonder child. By

value some 56% of all resources projects in the Investment Monitor database at present are

LNG projects. Outside of oil and gas, resource projects underway are led very much by iron

ore projects in Western Australia.

Evidence from the ABS CAPEX Survey, the Federal Treasury, and the Reserve Bank of

Australia are consistent and, like Deloitte Access Economics’ Investment Monitor, point to a

surge in mining investment in the next two years.

Chart 2.3 shows that the highest concentration of mega-projects is in Western Australia and

Queensland, with many of them offshore projects.



Chart 2.3: Mining projects across the nation

SydneyCanberraAdelaide

Perth

Brisbane

Hobart

Darwin

Melbourne

>$5 bil >$1 bil >$500 mil <$500 mil

North West Shelf: LNG

Pilbara: Iron ore

Goldfields/midwest:

Iron ore and base metals

Bowen Basin/Surat Basin:

Coal and LNG

Hunter: Coal

Source: ABARES, Deloitte Access Economics

However, the extent to which Australia capitalises on current opportunities may depend on

two things – skills shortages which may see investment opportunities deferred or lost, and

how long the global economy is able to support commodity prices at elevated levels.

To begin with, the capital expenditure plans of miners are so big that they will have

difficulty in achieving anything like what they’ve said they’d do on the timing they’ve said

they’d do it on.

That is why forecasters – including Deloitte Access Economics – are not factoring in that all

current projects will necessarily be achieved over the next few years. However, an

impressive pipeline of major projects has already commenced or received commitment,

which will see mining investment move higher still over the next couple of years (from what

is already an elevated level).

The key question for Australian miners is how quickly they can expand operations to

increase exports before commodity prices fall. Having said that however, even when prices

do eventually fall, Australian mining export volumes should be much greater than they are

today, resulting in a sector which will play an expanding role in the Australian economy.

Over the next few years business investment is expected to eke out a higher share of the

Australian economy, and that will help to keep Australia’s unemployment rate at a low level

(Chart 2.4). As the decade extends, the business investment share is expected to

moderate, but a continued focus on mining activity should keep it at a reasonably high level

by developed economy standards.



Chart 2.4: Business investment and the unemployment rate

4%

8%

12%

16%

20%

1985 1990 1995 2000 2005 2010 2015 2020

Underlying business investment to GDP Unemployment rate

Forecast


2.4 Industry structure

Australia’s industry structure is likely to continue to change over time. Some regions will be

winners from this longer term structural change while others will be losers.

Chart 2.5: Structure of employment by industry, 2010 and 2040

0% 2% 4% 6% 8% 10% 12%

Utilities

Rental, hiring and real estate

Mining

Information media and …

Arts and recreation

Agriculture

Wholesale trade

Admin and support services

Financial and insurance services

Other services

Transport

Public administration

Accommodation and food services

Professional, scientific and technical …

Education

Manufacturing

Construction

Retail trade

Health

2040

2010

Share of total employment Source: Australian Bureau of Statistics, Deloitte Access Economics



The key structural change for Australia as a whole over the past two decades has been the

decline in the relative sizes the manufacturing and agricultural sectors, and the

considerable expansion in the share of output contributed by the services sector.

Industries such as mining and construction have been more cyclical over time, responding

to changes in global and domestic economic conditions respectively.

Key factors in manufacturing’s decline include strong international price competition,

labour productivity improvements which have limited employment growth, an increase in

outsourcing, and a general shift in the structure of economic activity in most advanced

economies towards services.

As has been the broad trend among advanced economies, Australia has moved strongly

towards a service based industry structure. That trend is expected to continue into the

future, with services sectors expected to account for the majority of jobs growth going

forward.

Chart 2.5 above shows the industry structure of the Australian economy in 2010 and the

projected structure in 2040. The chart shows that key service industries including health,

education and public administration are expected to account for a growing share of total

employment over the next three decades.

More broadly, Australia faces substantial structural changes in the future with recent global

developments including:

• The global financial crisis (GFC) and accompanying slowdown in the world economy

fostering changes in future financial sector regulations and products/services;

• The climate change challenge encouraging a future shift toward carbon emission

reduction mechanisms with the encouragement of low-emissions ‘green’ industries

and the shrinking of emissions-intensive industries/activities; and

• Future growth in rapidly developing nations such as China and India fuelling export

demand for Australia’s strong resources base and sustaining strong growth in these

‘traditional’ areas.

The structural implications for the economy resulting from these developments depend

largely on the ability of Australian industries and individuals to adapt and take advantage of

future developments. For example, the move toward carbon reduction could offer growth

opportunities in areas such as renewable energies and energy efficiency in production

methods.

2.5 Key challenges and opportunities

The longer term projections for the Australian economy shown in this report can best be

thought of as central tendencies over time, against which a number of factors are likely to

cause deviations, particularly in the short term.

There are many key challenges and opportunities the Australian economy will face, which

may produce a stronger or weaker economic performance over time. Some of these are

discussed below.



2.5.1 Key opportunities

Australia’s proximity to the dynamic Asian region

Australia’s proximity to the dynamic Asian region offers significant opportunity, and in the

short term at least, this is being capitalised on.

The challenge for Australia is to continue it.

Emerging economies have been the key driver of world economic growth in the past

decade. Reforms in previous decades have opened up countries such as China and India,

transforming rural economies into manufacturing and export-oriented powerhouses. In

contrast, many advanced economies continue to struggle.

Urbanisation is occurring simultaneously with industrialisation across the developing world.

This twin process is reinforcing, with rapid income growth and job opportunities attracting

Chinese workers into cities. In turn, the larger urban population is generating demand for

housing, energy, shopping centres, schools, office blocks and transportation, creating

additional employment demand.

That construction requires raw materials, and the scale of China’s urbanisation which is yet

to come offers huge potential for Australia’s miners. The United Nations estimates that

been 2010 and 2030, China’s urban population will increase by around 270 million people.

By 2050, more than 1 billion people will live in China’s cities – an increase of 400 million

people from 2010. In contrast, China’s rural population is projected to decline by almost

340 million people over the next 40 years.

India’s pace of urbanisation may well be greater. Between now and 2050, the United

Nations is expecting India’s urban population to grow by more than half a billion people.

India currently has 46 cities which boast a population of more than 1 million people. In

2025 that is projected to rise to 63 cities.

Harnessing productivity growth

Productivity growth is front and centre in the minds of the RBA at the moment, resulting

from weak growth over the past decade in Australia. Poor productivity is a concern

because it means that it doesn’t take much wage growth to set labour cost growth moving

quickly.

There is considerable potential for Australia to improve its productivity performance. Some

of this will occur in the short term through a shift to activity to the higher productivity

mining sector. However, more can also be done by government to improve efficiency,

while Australia’s business R&D performance is modest and therefore offers the potential to

improve and become a growth driver.

2.5.2 Key constraints

There are several constraints currently facing the Australian economy which may hinder the

full potential of economic growth. In a two speed economy, there is always the risk ‘slow’



becomes the dominant speed. Indeed the $A’s rise above parity with the $US in late 2010

marked the point at which many business models simply came under too much stress.

Adequate infrastructure

Australia has massive opportunities at present, particularly in mining investment.

However, the extent to which we can capitalise on these investment opportunities may be

severely constrained by inadequate infrastructure. The image of tankers queuing for weeks

or months off the Port of Newcastle highlighted the shortcomings exposed during the

previous mining boom (2006 to 2008). Those images could be repeated again as the

current mining investment boom is of a grander scale.

Beyond that, the bulk of Australia’s infrastructure needs are in our major urban centres,

where there has arguably been under-investment in infrastructure over a number of years.

That means congestions costs, blackouts and shortages increasing, unless we can deliver

more infrastructure, or learn to use it in a more efficient manner.

Skilled workers

A lack of skilled workers in the right areas could pose significant problems to Australia’s

future economic prospects.

That is most clearly seen at present in the engineers and construction workers required to

support Australia’s massive mining investment boom. Hance the sector is seeing rapidly

rising wages, and much greater use of Fly In Fly Out (FIFO) arrangements. The risk is that

the right workers become too expensive or simply cannot be found at any price, which

means that major projects are deferred or lost.

More broadly, the more moderate rate of growth for Australia’s working age population

going forward means that Australia’s future problems are unlikely to revolve around where

the next job is coming from, but rather where the next worker is coming from.

Developed economies hampered by large public debts

Many developed economies are now saddled with large public sector debts. The risk of

default may trigger financial consequences for the rest of the world, including Australia.

At present, Europe is the likely epicentre of broader financial contagion. Flows of money

would tighten, and chances are that the response of governments and central banks to

renewed crises would fall short of the flawed-but-still-effective global stimulus of 2008 and

2009 – perhaps disappointingly so.

Australia’s coming decade may be rather different to our last, with the risks dominating the

returns; with the performance of commodity prices, housing prices, wealth and business

investment all under pressure relative to the experience of the 2000s. Albeit in this

downside scenario, a lower $A and lower interest rates would take pressure off ‘two speed

economy’ effects at the sectoral level.



2.5.3 Implications for Defence

These opportunities and risks affect the Department of Defence both directly, and

indirectly. Most notably, the Department is subject to Federal Government budget

pressures, and right now this puts Defence firmly in the slower growing part of the

Australian economy. The Federal Government remains committed to delivering a budget

surplus in 2012-13, although this looks increasingly unlikely without further policy changes

and savings measures. The result may be further pressure on all Government departments

to find additional savings, including the Department of Defence.

These cost cutting measures are likely to occur around the same time that the Department

finds itself competing for workers with the mining and construction industry. Given the

current pipeline for engineering construction projects, competition for occupations such as

engineers, project managers and tradespeople is likely to be fierce, which will put

considerable upward pressure on wages for these occupations. Indeed, the competition for

mining sector workers may be stronger during the current mining boom than the one

experienced from 2006-2008, given the number of mining projects either underway, or

commencing shortly. Other sectors too will be vying for these workers, including the

utilities sector, and other departments within the public sector (as major infrastructure is

upgraded or rolled out, such as the NBN).

2.6 Regional growth

Much of Australia’s economic activity has traditionally occurred on the east coast, in the

financial hubs of Sydney and Melbourne, and, increasingly, Brisbane. However, this

dominance will decrease over time, as northern Australia takes a larger share of national

output thanks to the current mining boom. NSW and Victoria currently account for around

55% of economic activity in Australia, compared with around 35% for northern Australia

(Queensland, WA and the NT). However, by 2040 northern Australia is forecast to account

for nearly 42% of the Australian economy.

While this is a substantial shift in economic activity from the south to the north, it is likely

that the current economic structure will remain. That is, mining will be the primary focus

for much of the north, while the south will remain the financial centre of Australia. It is also

unlikely that mining companies would move their major headquarters from current

locations (whether they be in Perth, Melbourne or London) to the faster growing northern

regions.

An increasing share of the economic pie also leans towards faster growing populations.

Many of the regional centres are predicted to see faster growing populations than other

major centres – for example population growth in the Sydney region is expected to be 1.2%

per annum on average in the decade to 2020, while regions of WA such as the Kimberly are

forecast to grow at 2.1% per annum, and the Pilbara 2.6% per annum over the same

timeframe. However, sheer weight of numbers will mean that the absolute population of

capital cities continue to grow faster than the regional centres – Sydney’s population is

forecast to expand by around 600,000 in the decade to 2020, compared with 5,700 people

in the Kimberly, and 14,000 people in the Pilbara.



Thus, while the north of the country is likely to see faster growth rates than the south, this

is unlikely to translate into large cities springing up in the NT or north of WA. Queensland

will remain a magnet for Australian interstate migrants, however the far north is likely to

remain far less populous than the south. It follows then that the economies of cities in the

north will not be as vibrant or diverse as that of larger cities in the south, although there

will undoubtedly be some increase in social infrastructure and amenities.

Employment in public services (comprising health, education, arts and recreation) varies

from State to State, as Table 2.3 shows, though the variations are not dramatic. Currently,

the Northern Territory and South Australia have the highest employment share in these

industries. Over time, public services are expected to account for a higher share of

employment in all States.

Table 2.3 : Public services employment share of total employment

State 2010 2040

NSW 20.4% 21.7%

VIC 20.4% 23.5%

QLD 20.1% 21.9%

WA 18.8% 20.3%

SA 22.0% 22.5%

NT 22.0% 23.0%

Source: Deloitte Access Economics

A discussion of the specific economic drivers of each region, along with projections of the

region’s output and population, is provided in the following chapters. For each region, a

comparison between our own population forecasts, and those provided by various ‘official’

sources, is also provided. Where differences occur, the likely reasons behind such

differences are discussed, though it should be noted that in many cases differing

geographical classifications makes a direct comparison of forecasts somewhat difficult.

For information regarding the regions climate and predicted changes in average

temperatures and rainfall, please see Appendix E.



3 Western Australia

3.1 State overview

The mining boom has caused WA’s growth over the past decade to be significantly higher

than national averages – over the past ten years WA grew at an average annual rate of

4.5% (compared to 3.0% Australia wide).

Table 3.1: Western Australian forecasts

10 yrs to 2020 10 yrs to 2030 10 yrs to 2040

Western

Australia

% change Level % change Level % change Level

GSP ($m) 3.73% 270,932 3.00% 363,940 2.94% 486,326

Population 1.86% 2,755,042 1.48% 3,192,078 1.20% 3,596,969

Working age

population 1.97% 2,243,300 1.55% 2,615,416 1.30% 2,976,691

Employment 1.90% 1,452,879 1.50% 1,686,353 1.21% 1,901,005

Australia

GDP ($m) 3.08% 1,738,118 2.95% 2,325,112 2.70% 3,036,259

Population 1.41% 25,642,412 1.22% 28,947,313 1.00% 31,985,490

Working age

population 1.52% 21,017,317 1.30% 23,916,047 1.09% 26,664,950

Employment 1.65% 13,018,012 1.19% 14,652,881 0.91% 16,040,868


And the mining investment in Western Australia is by no means at an end. The mega

projects are seemingly endless. Wheatstone - a $29 billion LNG project in the Pilbara, has

just received the green light from Chevron, and it managed to do so amid the current global

uncertainty. Projects such as this one will unquestionably form the WA economic story

over the coming decade. The leap in capital expenditure will be enormous, and the lift has

already been impressive.

These large projects will see Western Australia grow comfortably faster than Australia over

the forecast horizon to 2040, in terms of economic growth, population growth, and

employment growth. Indeed, our forecasts for population growth are higher than that

presented by the Western Australian Planning Commission in their report “Western

Australia Tomorrow”, which predicted a State population of 2.8 million people by 2030,

compared with the forecast here of 3.2 million. However, this is unsurprising given that the

WAPC forecasts were produced in 2005, and Western Australia has experienced a

significant investment boom since that time.

That isn’t to say that there aren’t major challenges to growth in the West. There certainly

are. In fact, if you are in a business (or a family) on the wrong side of ‘two speed economy

effects’, then just about the last place you want to be is in WA. For example, the mining



boom means wage and material costs are higher and workers are at risk of being poached

by the resources sector. Skills shortages also loom as a large problem as demand for

workers (particularly construction related workers) leaps.

However, there is no denying the overall State story is one of great growth as it scrambles

to catch up to the business opportunities on offer to a resource rich part of the world amid

the fastest growth spurt in global industrial commodity demand ever recorded. The current

European debt crisis has merely taken the top off growth forecasts for both China and WA,

and in many ways this is a good thing, bringing growth back closer to their supply side

potential, which will help to contain rising inflation and skills shortages.

If Chinese strength continues to outweigh the bad news coming out of Europe (which is the

scenario built into our current forecasts), then Western Australia can expect the short term

to look like 2007 and 2008.

The following three charts show projected average annual growth rates for various regions

in Western Australia, for population, employment, and output.

Chart 3.1: Population growth

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

Gascoyne and

Geraldton

Rest of WA Kimberly Perth Pilbara

Average annual growth, 2010-2040

WA average

Chart 3.2: Employment growth

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

Gascoyne and

Geraldton

Rest of WA Kimberly Perth Pilbara


WA average

Chart 3.3: GRP growth

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Gascoyne and

Geraldton

Perth Rest of WA Kimberly Pilbara


WA average

These charts show that, in all measures, the Pilbara region is expected to grow the fastest

over the forecast period, and the Gascoyne and Geraldton region the slowest.

Looking longer term, the forecasts still paint a rosy picture for Western Australia. While

average annual growth slows, it remains above that for the nation as a whole. Importantly

for the State, population growth should also continue to grow faster than the Australian

average, driven by longer term demand for workers. This faster population growth will



provide a floor for the Western Australian economy, and mean that the State continues to

carve out a larger share of the national economy.

The following sections discuss the regions in further detail.

3.2 Perth

The majority of Western Australians live in the Perth region, as shown in Table 3.2, and as

such this region accounts for a large portion of the State’s economic growth.

Table 3.2: Vital statistics, Perth

Perth WA

Population (2010) 1,696,065 2,293,510

Indigenous share of pop (2006) 2% 3%

Area (sq km) 5,386 2,531,564

Average taxable income (2008) 59,095 58,017

Participation rate (2010) 68% 68%

Source: Deloitte Access Economics, ABS National Regional Profiles

Table 3.3: Economic forecasts, Perth

2010 2020 2030 2040 2010-2020 2020-2030 2030-2040

Average annual growth

GRP ($m) 131,284 183,817 242,604 328,625 3.4% 2.8% 3.1%

Population 1,696,065 2,062,042 2,417,337 2,757,167 2.0% 1.6% 1.3%

Working age

population 1,375,040 1,686,081 1,986,160 2,287,317 2.1% 1.7% 1.4%

Employment 900,660 1,101,568 1,296,131 1,477,469 2.0% 1.6% 1.3%

Share of WA GRP 69.9% 67.8% 66.7% 67.6% Population ('000) 74.0% 74.8% 75.7% 76.7% Working age

population 74.5% 75.2% 75.9% 76.8% Employment 74.8% 75.8% 76.9% 77.7%

Deloitte Access Economics estimates that that Perth currently accounts for about 70% of

the State’s economy, with a Gross Regional Product (GRP) of $131 billion. This corresponds

with official estimates from WA’s Department of Regional Development and Lands.

The largest industries in terms of employment in Perth are healthcare, retail and

construction. Perth has a smaller share of workers in the agriculture and mining than seen

in the rest of the State, and, as you would expect for a State capital, a larger share of

professional, business and healthcare workers (see Chart 3.4).

‘Public services’, including education, health care, and arts and recreation (sports grounds,

art galleries and the like), account for 20% of Perth’s employment base, compared to 19%

of the State’s. By 2040, these services are projected to increase their share of Perth’s

employment base to 22%, and WA’s employment base to 20%. This implies that Perth will



see a larger share of the growth in social amenities over the next 30 years, which will

translate into additional schools, hospitals and other social facilities.

As the administrative and financial centre of WA, Perth has become the ‘hub’ for the State’s

mining boom. Its growth will therefore be strongly influenced by the mining sector – which

for the foreseeable future shows no sign of slowing down. Of course, as a major financial

centre, it will also be driven by macro-economic drivers and global economic conditions, as

discussed in Chapter 2.

This combination is the reason for the moderate fall in Perth’s share of State output over

time. The rest of the State is heavily dependent on the mining industry, which is growing

faster than the rest of the economy at present. Therefore the other regions in WA will

carve out a larger share of the State’s economy while the mining boom is at its height. Our

forecasts have Perth’s share of GRP falling to 67.6% by 2040. This is not to say that Perth’s

economy will be struggling – quite the reverse. It just isn’t the standout region in a

standout State.

Chart 3.4: Employment by industry, Perth, 2010

0% 2% 4% 6% 8% 10% 12%

Agriculture, forestry and fishing

Electricity, gas, water and waste services

Information media and telecommunications

Arts and recreation services

Rental, hiring and real estate services


Administrative and support services

Wholesale trade

Other services

Mining


Public administration and safety

Transport, postal and warehousing

Manufacturing

Education and training

Professional, scientific and technical services

Construction

Retail trade

Health care and social assistance

Share of State

Share of region

Perth

In contrast, Perth’s population is expected to continue to rise as a share of the State, which

reflects two things. The first is that people prefer to live in the larger city and fly in – fly out

to their place of work in remote regions. The second is that the mining infrastructure

currently being built will produce a large increase in exports, without needing additional

people to the same degree to create these exports in the regional centres. This will have

the effect of lifting GRP in the mining regions, without the need for a notably increased

population.

It is worth noting that our own population projections are rather higher than the ‘official’

projections. We expect Perth’s population to grow at 2% a year to 2020 and 1.6% a year for



the ten years to 2030, reaching a total population of 2.4 million by 2030. By contrast, the

WA Planning Commission (2005) expected 1.4% growth in the ten years to 2021 and 1%

growth in the 10 years to 2031, reaching 2 million people by 2030.

The ‘official’ projections, made in 2005, are simply too low. For a start, Perth’s population

is currently 1.7 million people - a population of 2 million people in 2030 would imply an

average growth rate for the next 20 years of just 0.8% per annum.

Strong growth has also meant that many of the ‘two speed economy’ effects appear more

pronounced in Perth, with non-mining companies also having to face high wage and

materials costs.

Strong population growth has also made housing affordability a cutting issue for Perth.

Between March 2002 and December 2010, the median house price in Perth grew 163%,

while the average median price (weighted by the number of housing transfers) for the eight

capital cities grew 118%.3 Relatively high house prices in Perth will place a speed limit in

the short term on how fast the region can grow as WA seeks to attract more labour from

interstate.

In aggregate terms, however, there is no denying that the overall State story, and indeed

that of Perth, is one of great growth. The State is experiencing the fastest growth spurt in

global industrial commodity demand ever recorded, and that shows no signs of abating.

Furthermore, just as it did during the GFC, the mining boom should provide a relatively

good shield for Perth and for WA more broadly.

3.3 Gascoyne and Geraldton (including

Exmouth)

Table 3.4: Vital statistics, Gascoyne and Geraldton,

Gascoyne & Geraldton WA

Population (2010) 46,974 2,293,510

Indigenous share of pop (Gascoyne- 2006) 17.2% 3%

Area (sq km) 135,449 2,531,564




3 ABS 6416.0, House Price Indexes: Eight Capital Cities, June 2011



Table 3.5: Economic forecasts, Gascoyne and Geraldton

2010 2020 2030 2040 2010-2020 2020-2030 2030-2040


GRP ($m) 3,929 5,315 7,017 9,029 3.1% 2.8% 2.6%

Population 46,974 52,546 57,356 61,541 1.1% 0.9% 0.7%

Working age population 36,308 41,463 45,716 49,617 1.3% 1.0% 0.8%

Employment 27,216 28,459 30,930 33,221 0.4% 0.8% 0.7%

Share of WA

GRP 2.1% 2.0% 1.9% 1.9%

Population ('000) 2.0% 1.9% 1.8% 1.7%

Working age population 2.0% 1.8% 1.7% 1.7%

Employment 2.3% 2.0% 1.8% 1.7%

Chart 3.5 shows that the region has a higher share of workers in the agriculture,

accommodation services, retail, transport and education industries, while the region has a

lower percentage of mining, healthcare and professional workers.


art galleries and the like), account for 17% of Gascoyne and Geraldton’s employment base,

compared to 19% of the State’s. In 2040 these services are projected to account for 19% of

the region’s employment, and 20% of the State’s employment base.

Chart 3.5: Employment by industry, Gascoyne and Geraldton, 2010

0% 2% 4% 6% 8% 10% 12% 14%







Wholesale trade


Other services

Manufacturing

Mining







Construction

Retail trade

Share of State

Share of region

Gascoyne and Geraldton

Deloitte Access Economics estimates that the Gascoyne and Geraldton region has a GRP of

around $3.9 billion.

The Gascoyne Development Commission (2011) estimated its GRP at $651 million in 2009-

10, while the Midwest Development Commission (2011), of which Geraldton is a part,



estimated that GRP in 2009-10 was $4.5 billion. Given the Mid West region includes towns

other than Geraldton, this suggests our estimate is in line with ‘official’ estimates.

‘Official’ projections from the WA Planning Commission (2005) are for Gascoyne’s

population to gradually stabilise. In the ten years to 2020 it is projected to grow at just

0.3% per annum, before declining by 0.1% per annum over the ten years to 2030. These

estimates are a fair bit lower than our own (1.1% growth in the ten years to 2020, and 0.9%

in the ten years to 2030), though they are difficult to compare because our estimates

include the major population centre of Geraldton. Importantly though, we, like the WA

Planning Commission, believe that Gascoyne’s population growth in the coming decades

will be among the slowest in the State.

Perhaps the Gascoyne region’s greatest strength is that it has a fairly diversified economy –

illustrated by the wide range of industries people are employed in throughout the region. It

has a large tourism industry (illustrated by a large number of workers in the retail and

accommodation industries), a significant agriculture sector, and also a mining presence.

The Gascoyne Development Commission (2011) notes there are a number of tourism

accommodation projects which should bode well for tourism in the near term. However a

strong Australian dollar will continue to put a dampener on tourism, with overseas markets

being relatively cheaper for visitors. Additionally, the higher Australian dollar makes

additional tourism infrastructure more expensive, and so less likely to go ahead.

Competition from other regions which are projected to grow more strongly than Gascoyne

will also affect Gascoyne’s tourism potential.

Although not currently a major mining region, Gascoyne will not be completely left behind

by a continuing mining boom. The region’s biggest potential lies in LNG, although it does

not have, as yet, any ‘mega’ projects on the horizon. There are some plans to expand the

salt mine, as well as a heavy mineral sands deposit. Geraldton is also heavily driven by

mining, however the mining is quite diversified, covering everything from gold to LNG, iron

ore, copper, nickel, cobalt and uranium.

However, this region, as mentioned above, does not yet have a slice of the LNG investment

shown in Investment Monitor. There is currently a $2.7 billion gold mine being constructed,

however this is the only major project which has been committed to. There are two larger

projects on the horizon, however it is not certain that these will go ahead – a $4.3 billion

iron ore project, and a $5.9 billion Oakajee Port development. The lack of committed

investment projects in the region shows up as slower growth for the region when

compared to the State average, although output growth over the forecast period for the

region is broadly in line with the national average.



3.4 Pilbara (Karratha and Port Hedland)

Table 3.6: Vital statistics, Pilbara

Pilbara WA

Population (2010) 48,610 2,293,510

Indigenous share of pop (2006) 16.9% 3%

Area (sq km) 506,575 2,531,564




Deloitte Access Economics estimates that the Pilbara’s Gross Regional Product in 2009-10

was around $10 billion, which is in line with the estimated $9.2 billion of the Pilbara

Development Commission (2011). This is an impressive result, given that the region boasts

only 2.1% of the State’s population and 2.6% of the State’s employment.

This is a region in full swing due to the mining boom. Chart 3.6 shows that a third of all

workers in the region are employed in the mining industry, with over 10% in a supporting

role in the construction industry.

Table 3.7: Economic forecasts, Pilbara

2010 2020 2030 2040 2010-2020 2020-2030 2030-2040


GRP ($m) 10,152 19,746 30,855 40,660 6.9% 4.6% 2.8%

Population 48,610 62,790 73,977 81,106 2.6% 1.7% 0.9%

Working age

population 36,629 48,072 56,822 62,820 2.8% 1.7% 1.0%

Employment 30,930 39,193 46,605 51,614 2.4% 1.7% 1.0%

Share of WA

GRP 5.4% 7.3% 8.5% 8.4%

Population ('000) 2.1% 2.3% 2.3% 2.3%

Working age

population 2.0% 2.1% 2.2% 2.1%

Employment 2.6% 2.7% 2.8% 2.7%


art galleries and the like), account for 12% of the Pilbara’s employment base, compared to

19% of the State’s. However, strong employment growth in mining means that the services

share of the Pilbara may not keep pace – by 2040 we expect public services to account for

only 9% of the region’s employment base. This indicates that the level of services in the

region is unlikely to keep pace with the mining expansion – that is, the number of aged care

facilities, schools or sporting fields per person is likely to decrease.



Chart 3.6: Employment by industry, Pilbara, 2010

0% 5% 10% 15% 20% 25% 30% 35%







Wholesale trade



Other services

Manufacturing





Retail trade


Construction

Mining

Share of State

Share of region

Pilbara

As Deloitte Access Economics often notes, the developing world is demanding commodities

at an unprecedented rate, and despite economic uncertainty on a global scale, the mining

boom shows no sign of abating. For example, just witness the massive investments now

underway, or soon to commence, in LNG (see below).

This is the reason for the increasing share of output for the region over the majority of the

forecast period – output is forecast to grow a stunning 6.9% annually in the decade to 2020,

and 4.6% per annum over the decade to 2030. Over the same timeframes, Australia’s

average annual growth is expected to be 3.1% and 3.0% respectively.

However, the benefits to the region from this mining activity are not as high as they could

potentially be. A lack of appropriately skilled workers has forced most mines in the region

to make heavy use of FIFO workers. It is estimated that about half of all resource related

employment in the Pilbara in 2010 was from FIFO workers (Heuris Partners 2010). This is

backed up by a study undertaken by the Pilbara Industry Community Council, which

estimated that the proportion of FIFO workers in 2010 was 50%. Additionally, the study

estimated that this proportion would rise to 64% by 20204.

Although these workers do generate some additional economic activity in the region (they

still have to be fed, for instance), their overall contribution to the region will obviously be

significantly less than a resident mine worker. Significantly, much of their discretionary

income will be spent in other regions. Miners, even those who ‘live’ in the Pilbara, tend to

leave the region when they are not on shift. Miners are, on the whole, unmarried, and

generally have a lot of disposable income. With a large proportion of their income

4 http://www.pdc.wa.gov.au/media/81869/final%20-%20pilbara%20futures%20presentation%206%20sept.pdf



discretionary, they’re likely to hop on a plane to Perth (or Bali) during their extended

breaks.

In recognition of this, key priorities of the Pilbara Development Commission (PDC) are

making the Pilbara an attractive location for mine workers to reside, and ultimately

developing a diverse and thriving regional economy. Diversity in the region’s employment

base goes hand in hand with sustainability in its overall population levels.

In striving to achieve this goal, the PDC makes two rather bold predictions about the

region’s future. The first is that the population of the region will be over 140,000 people by

2035 (it is currently about 50,000), with Karratha and Port Hedland expected to grow to

about 50,000 people (they currently have around 12,000 people each). Second, strong

population growth is expected to reduce the region’s dependence on mining.

Deloitte Access Economics’ forecasts however, do not support these predictions. Our

forecasts for the Pilbara are for an increase from just under 49,000 people in 2009-10 to

just over 80,000 by 2034-35. There are significant impediments to achieving a population

of 140,000 people by 2030. The first of which is that this would imply an average annual

population growth rate of 5.3% for 20 years, which would be a phenomenal rate to sustain

over two decades. The average annual national growth rate is expected to be 1.3%, and

the State average of 1.7% over the same timeframe.

The second is the looming skills shortage which will hit WA more so than any other State. A

lack of appropriately skilled workers will see companies increase their use of FIFO workers –

a fact acknowledged by the Pilbara Development Commission itself.

Investment agenda

Two words adequately describe the Pilbara’s investment agenda: LNG and iron ore. In LNG,

the Gorgon and Wheatstone projects will dominate. The former, which began in 2009, is

the massive Gorgon LNG project near Barrow Island, worth a whopping $43 billion. The

latter, only recently approved, involves an LNG project near the Carnarvon Basin, worth a

very respectable $29 billion.

The biggest iron ore projects are Hancock Prospecting’s $7.2 billion Roy Hill 1 iron ore

project and BHP’s $6.7 billon Rapid growth Project 5.

Outside of mining, the major projects are designed to support the mining industry – these

include the $890 million expansion of the Cape Lambert port near Karratha, the $600

million ‘Dampier Nitrogen’ project, and upgrades to power and fuel infrastructure at some

of Rio Tinto’s mine sites.



3.5 Kimberley

Table 3.8: Vital statistics, Kimberley

Kimberley WA

Population (2010) 24,390 2,293,510

Indigenous share of pop (2006) 47.4% 3%

Area (sq km) 420,798 2,531,564




In 2009-10 Deloitte Access Economics estimates that the Kimberley region had an

estimated GRP of $1.6 billion. This compares with the estimate of about $2.2 billion by the

Kimberley Development Commission (2011), although this estimate also includes the Ord

region immediately to the east of the Kimberley. The region’s total population is just over

24,000, of which most live in Broome and Derby.

The WA Planning Commission (2005) forecast the Kimberley region to enjoy strong

population growth, of 2.6% a year for the ten years to 2020 and 2.0% a year for the ten

years to 2030. These estimates are now somewhat outdated as the projected population

for 2009 in fact turned out to be 21% higher than the actual value, according to the

Kimberley Development Commission (which continues to use these ‘official’ forecasts).

Table 3.9: Economic forecasts, Kimberly

Kimberley 2010 2020 2030 2040 2010-2020 2020-2030 2030-2040


GRP ($m) 1,633 2,587 3,964 5,385 4.7% 4.4% 3.1%

Population 24,390 30,152 34,830 39,000 2.1% 1.5% 1.1%


Employment 13,204 15,721 18,357 20,751 1.8% 1.6% 1.2%

Share of WA

GRP 0.9% 1.0% 1.1% 1.1%

Population ('000) 1.1% 1.1% 1.1% 1.1%


Employment 1.1% 1.1% 1.1% 1.1%



Chart 3.7: Employment by industry, Kimberley, 2010

0% 2% 4% 6% 8% 10% 12% 14%




Wholesale trade



Manufacturing



Mining


Other services



Retail trade

Construction




Share of State

Share of region

Kimberley

Much of the Kimberley’s economic potential in the near term will come from its proximity

to South East Asia. A relatively high number of workers in the Kimberley are employed in

the public administration, transport, accommodation, and health care sectors – see Chart

3.7. However these sectors are not high value adding, so thus do not contribute nearly as

strongly to the region’s output.

However, the region does have a significant tourism presence, demonstrated by a large

number of workers in the retail and accommodation sectors. Tourism to the region

accounts for an important share of the region’s economy, with the number of visitors

consistently being between 250,000 and 300,000 over the past decade.


art galleries and the like), account for 22% of the Kimberley’s employment base, compared

to 19% of the State’s. By 2040 this share is expected to be 25% for the Kimberley and 20%

for the State, continuing the region’s historically higher than average share of public

services workers when compared to the rest of the State.

As with most regions in WA though, the story is predominantly about mining. While there

has been little in the way of ‘mega’ projects for this region in the first mining boom, that is

set to change – with the $8.9 billion Prelude LNG project in the Browse Basin set to

commence construction shortly. Additionally, the next North West Shelf LNG project seems

set to begin next year. Both these projects will provide a boost to the local economy, which

is the reason behind the good growth rates seen in Table 3.9, as well as the increasing

shares of Western Australia’s totals.

Agriculture presents a small downside to the Kimberley’s near term outlook. About three

quarters of the Kimberley’s agricultural output is in livestock disposals (i.e. live cattle



exports). Following the suspension of live cattle exports to Indonesia in July, which has only

recently been lifted, ABARES expects Australian live cattle exports to fall to around 456,000

head in 2011-12 (compared to 728,000 head in 2010-11 and 871,000 in 2009-10). Given

the negative publicity generated over live cattle exports during the suspension, the

industry’s near term outlook is subject to a considerable degree of uncertainty.



4 Queensland

4.1 State overview

Table 4.1: Queensland forecasts


Western

Australia

% change Level % change Level (m) % change Level (m)

GSP ($m) 4.56% 397,672 3.24% 547,097 3.04% 738,329

Population 1.89% 5,436,137 1.75% 6,465,407 1.46% 7,476,076

Working age

population

2.06% 4,424,843 1.87% 5,325,199 1.54% 6,202,657

Employment 2.23% 2,880,448 1.62% 3,381,089 1.29% 3,842,954

Australia

GDP ($m) 3.08% 1,738,118 2.95% 2,325,112 2.70% 3,036,259

Population 1.41% 25,642,412 1.22% 28,947,313 1.00% 31,985,490

Working age

population

1.52% 21,017,317 1.30% 23,916,047 1.09% 26,664,950

Employment 1.65% 13,018,012 1.19% 14,652,881 0.91% 16,040,868


Queensland is Australia’s best long run growth story, but when the global financial crisis hit

bank loans became harder to get in this State than anywhere else, and the housing

construction sector – flag bearer of Queensland’s strength in the good years – fell hard and

fast and is still falling.

Yet the State is supremely resource rich, and China’s recovery and continuing growth

allowed Queensland to shrug off the worst of the GFC. Moreover, the global interest in

Queensland’s coal seam gas reserves saw 2010 characterised not just by the State’s

economic recovery, but also by a series of high profile announcements of enormous

engineering projects.

Then the story took yet another twist in early 2011 as floods and cyclones tore through

Queensland, causing massive damage.

The poor growth in the last couple of years has generated collateral damage to the State’s

economy. Housing prices are falling, the pace of rental growth has dropped to its lowest

for some time, population growth is within an ace of the national rate for the first time in

many years and unemployment has been higher than the national rate since mid-2009.

Moreover, Queensland’s tourism sector has been hard hit by the rise of the $A. Occupancy

rates have been below national levels for a couple of years, a position not made any easier

by the publicity around the floods and cyclones.



However, against this the big rebound in State growth has begun. Just as the floods and

cyclones were a massive hit to the State, the recovery from them is a similarly massive

boost. More to the point, a lot of it is yet to show up in the figures – coal exports are still

well down on where they were at times during 2010.

In effect, that says there is a degree of ‘automatic rebound’ in the short term forecasts for

Queensland – the simple ‘return to normal’ in coal production won’t be complete until

early 2012, and that means petrol in the tank for Queensland’s recovery even if many

citizens of the State won’t see or even feel much of it.

The larger part of the growth story, however, is not the recovery from floods and cyclones.

It is the stunning surge in engineering work now commencing in Queensland. Spending by

corporates on capacity expansion is already a bigger share of the economy than it was just

ahead of the global financial crisis, and the lead that Queensland has on this measure is

already bigger than it was back then. It is this investment work that drives the stronger

growth than that seen nationally over the forecast period to 2040. Likewise the lure of

warmer weather will continue to see the State attract a growing share of the nation’s

population.

In aggregate, our population projections are comfortably between the low and middle

bands (closer to the middle) of Queensland Treasury’s most recent population projections

(Queensland Treasury 2011).

By 2021 Treasury’s low band estimate is 5.29 million and its medium band estimate is 5.59

million – our estimate for 2021 is 5.53 million. By 2031, Treasury’s low estimate is 5.96

million and its medium estimate is 6.59 million – our estimate for 2031 is 6.57 million.

Finally, by 2041 Treasury’s low estimate is 6.55 million and its medium estimate 7.60 million

– our estimate for 2040 is 7.48 million.

The three charts below show average annual growth rates for various regions in

Queensland, for population, employment, and output.

These charts show that Cairns is predicted to be the fastest growing region in terms of

population and employment, followed by Townsville. This largely reflects the fact that they

are significant tourism destinations, and retirement favourites. However, the Mackay and

Fitzroy region is expected to show the strongest output growth over the next 30 years. This

is primarily due to the large LNG projects which are currently being constructed off the

coast. The following sections discuss the regions in further detail.



Chart 4.1: Population growth

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%


Queensland average

Chart 4.2: Employment growth

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%


Queensland average

Chart 4.3: GRP growth

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%Average annual growth, 2010-2040

Queensland average

4.2 Far North

Table 4.2: Vital statistics, Far North

Far North Qld

Population (2010) 124,138 4,513,850

Indigenous share of pop (2006) 22.9% 3.5%

Area (sq km) 272,658 1,734,175


Participation rate (2010) 67% 67.8%


We estimate that the Far North region of Queensland had a GRP of about $6.2 billion in

2010.

The Far North Queensland (FNQ) regional plan, the government’s official planning

document, includes low, medium and high growth scenario projections for population. Our

own forecasts fit in rather closely with these estimates. Over the 10 years to 2020 we

expect population growth of 1% a year, between the low and medium growth scenarios of

the FNQ plan. Over the ten years to 2030 we expect population to grow by 1.2% a year,

which is equal to the growth rate under the FNQ’s medium growth scenario. And over the



20 years to 2030 we expect growth of 1.1% a year, just lower than the FNQ plan’s medium

growth rate of 1.2% a year.

Table 4.3 Economic forecasts, Far North

2010 2020 2030 2040 2010-2020 2020-2030 2030-2040


GRP ($m) 6,247 8,920 11,209 14,186 3.6% 2.3% 2.4%

Population 124,138 136,706 153,726 170,900 1.0% 1.2% 1.1%


Employment 59,031 64,882 71,035 77,367 0.9% 0.9% 0.9%

Share of Qld

GRP 2.5% 2.2% 2.0% 1.9%

Population ('000) 2.8% 2.5% 2.4% 2.3%


Employment 2.6% 2.3% 2.1% 2.0%

Chart 4.4: Employment by industry, Far North, 2010

0% 2% 4% 6% 8% 10% 12% 14% 16%






Mining

Wholesale trade



Other services



Manufacturing

Construction



Retail trade



Share of State

Share of region

Far North

With most of Queensland’s mining activity taking place nearer to Gladstone and Mackay,

and with Cairns being the service and administrative (and tourism) hub for the far north,

the Far North’s economy outside of Cairns is heavily dependent on agriculture (mostly

cattle grazing, sugar cane and bananas) – about 14% of the region’s workers are employed

in agriculture, forestry and fishing, compared with only a 4% share State-wide.

Another big employer in the region is public administration and safety. This is perhaps

reflective of the socioeconomic status of the area – as shown in Table 4.2 above, average

taxable income in the Far North is some 14% lower than the State average. Tourism is an

important industry, with retail trade and accommodation together employing almost 20%



of the region’s workers. It should be noted, however, that most visitors to the region do

not venture far inland from Cairns.


art galleries and the like), account for 16% of the Far North’s employment base, compared

to 20% of the State’s. By 2040 we project that these services will account for 21% of the

Far North’s employment and 22% of the State’s, reflecting some degree of catch up with

the rest of the State.

The main driver of the economy is agriculture. And, with the dry, non-arable land that

dominates the northern Australian landscape, most agricultural activity in the region is

restricted to cattle grazing. ABARES (2011b) estimates that of 6.7 million head of cattle in

Australia at 30 June 2011, 3.6 million were from northern Queensland regions (see Figure

4.1).

Figure 4.1: Cattle regions of northern Australia

Source: ABARES 2011b

ABARES expects beef cattle exports to fall over the next year, owing to subdued demand in

Japan, subdued demand and increasing domestic production in the United States, and

heightened competition from US beef in Japan. Live cattle exports from the region are also

likely to remain subdued for at least the next few years following the suspension of exports

to Indonesia in June 2011.



Tourism is also likely to remain relatively flat in the near term, with the prospect of the

Australian dollar remaining fairly well supported putting a dampener on the short term

outlook for domestic tourism, though the $A should retreat over hte course of the next

decade.

Over the longer term, any significant diversification of the economy away from agriculture

(and to a lesser extent, tourism) is unlikely. Opportunities within agriculture, such as the

potential for carbon offsets to be included in the eventual carbon trading scheme, may

nevertheless bode well for the medium to longer term agricultural outlook.

4.3 Cairns

Table 4.4: Vital statistics, Cairns

Cairns Qld

Population (2010) 150,920 4,513,850


Area (sq km) 490 1,734,175



Table 4.5: Economic forecasts, Cairns

2010 2020 2030 2040 2010-2020 2020-2030 2030-2040


GRP ($m) 7,977 12,677 18,104 25,345 4.7% 3.6% 3.4%

Population 150,920 188,888 231,744 275,843 2.3% 2.1% 1.8%


Employment 82,539 106,996 129,243 151,328 2.6% 1.9% 1.6%

Share of Qld

GRP 3.1% 3.2% 3.3% 3.4%

Population ('000) 3.3% 3.5% 3.6% 3.7%


Employment 3.6% 3.7% 3.8% 3.9%

Cairns City Council (2011) estimates that the region’s GRP in 2010 was $7.5 billion, slightly

lower than our own estimate of $8 billion.

The Advance Cairns submission forecasts that the Cairns Regional Council will have a

population of 241,494 by 2031, against our forecasts of 231,744 by 2030 (noting that the

regional definitions between the two reports are slightly different). This amounts to a

difference of around 4% of total population.



Chart 4.5: Employment by industry, Cairns, 2010

0% 2% 4% 6% 8% 10% 12% 14% 16%

Mining







Wholesale trade

Other services


Manufacturing






Construction


Retail trade

Share of State

Share of region

Cairns

The drivers of Cairns’ economy are rather different to Queensland’s. Unsurprisingly, the

‘tourist heavy’ sectors of retail accommodation and food services each make up a far

greater share of Cairns’ workforce than for the State as a whole. And, conversely, primary

and manufacturing industries are far more important to the State’s employment base than

to Cairns’.

In essence, then, much of Cairns’ economy is driven by the all important tourist trade.

Tourists eat at Cairns’ restaurants, shop in its shops and stay at its hotels. In turn, more

tourists mean more demand for restaurants, hotels and shops, which drives the

construction industry.

That means Cairns is more exposed than the State as a whole to the current difficulties with

international tourism, where a weak global economy and high $A are combining to stall

international tourist numbers. An expected decline in the $A over the medium term would

provide some support to international tourist numbers and the Cairns economy.

An issue that places considerable uncertainty over the economic outlook for Cairns, but

also one which is nearly impossible to quantify, is climate change. Climate change impacts

such as ocean acidification, sea level rise and warming sea temperatures have the potential

to place significant strains on the biodiversity and overall quality of the Great Barrier Reef,

and hence to affect reef related tourism. A study conducted for the Garnaut Climate

Change Review (Hoegh-Guldberg & Hoegh-Guldberg 2008) estimated that some 62% of

total visitor nights to northern Queensland regions were reef related – and Cairns is the hub

for most reef related activity.


art galleries and the like), account for 17% of Cairns’ employment base, compared to 20%



of the State’s. By 2040 these services are projected to make up 21% of Cairns’ employment

base and 22% of the State’s.

4.4 Townsville

Table 4.6: Vital statistics, Townsville

Townsville Qld

Population (2010) 172,316 4,513,850


Area (sq km) 455 1,734,174.9



According to the Townsville City Council (2011), Townsville’s GRP in 2008-09 was $9.8

billion, pretty close to our own estimate for that year.

A range of publicly available population projections have been made for Townsville, all of

which assume strong population growth in the years to come, as Townsville transforms

from a regional centre to a fully fledged metropolitan city.

Toward the lower end, KPMG (2011) suggests that by 2026 the city’s population will be

235,908. Townsville City Council (2011) provides four population estimates for 2026:

medium (255,986), high (280,736), very high (307,879) and boom (340,725). Our own 2026

forecast, of 241,659, is comfortably between the low and medium estimates presented

above, and also comfortably between the low and medium bands of Queensland Treasury’s

‘official’ forecasts. By 2030, our population forecast of 260,083, is about 4% lower than the

corresponding medium range estimate from Townsville City Council, and about 1.5% lower

than the Queensland Government’s lower bound estimate.

Table 4.7: Economic forecasts, Townsville

2010 2020 2030 2040 2010-2020 2020-2030 2030-2040


GRP ($m) 11,109 17,610 24,095 32,463 4.7% 3.2% 3.0%

Population 172,316 215,159 260,083 304,971 2.2% 1.9% 1.6%


Employment 96,412 123,080 146,813 169,533 2.5% 1.8% 1.4%

Share of Qld

GRP 4.4% 4.3% 4.4% 4.4%

Population ('000) 3.8% 4.0% 4.0% 4.1%


Employment 4.2% 4.3% 4.3% 4.4%

Reflecting Townsville’s status as the service and administrative centre of North Queensland,

‘public services’, including education, health care, and arts and recreation (sports grounds,

art galleries and the like), account for 22% of Townsville’s employment base, compared to

20% of the State’s. These shares are projected to be similar in 2040 – 23% for Townsville

and 22% for Queensland.



Chart 4.6: Employment by industry, Townsville, 2010

0% 2% 4% 6% 8% 10% 12% 14% 16%







Mining


Wholesale trade

Other services



Manufacturing




Retail trade

Construction


Share of State

Share of region

Townsville

Compared with some of the massive differences evident for other Queensland regions, it

has to be said that on the whole, Townsville’s employment base is rather similar to

Queensland’s.

The biggest relative differences are in public administration and safety, which makes up

11% of Townsville’s workforce compared to 6% of the State’s; health care and social

assistance, with 14% of Townsville’s workforce and 11% of the State’s; manufacturing, with

8% of the State’s workforce and 6% of Townsville’s; and agriculture, with 4% of the State’s

workforce and only 1% of Townsville’s.

These differences can be explained by the fact that Townsville is essentially the service and

administration centre for the northern parts of Queensland and has a notable Defence

presence.

Looking forward, Townsville’s greatest strength is that it is not overly dependent on any

one industry – as shown above it has a well diversified employment base and, according to

the Townsville City Council, an equally diversified output base, with no single sector

accounting for more than 13% of GRP.

On the down side, the burgeoning natural gas investment pipeline, and Queensland’s

historically strong coal mining industry, is generally focused south of Townsville. Although

Townsville will always be at the centre of Queensland’s strong minerals industry, the

anticipated growth in coal and LNG means that growth in the middle regions of

Queensland, and in particular Mackay, Rockhampton and Gladstone, is likely to outperform

the northern regions.



Over the longer term, Townsville’s economy is far more diversified than those of Mackay,

Gladstone or Rockhampton, which should stand it in good stead when the mining boom

begins to slow. So the result for Townsville may be a contraction as a share of the

Queensland economy over the coming decade, but then a gradual improvement from 2020

to 2040 when mining becomes less important to overall economic growth.

4.5 Northern SD

Table 4.8: Vital statistics, Northern SD

Northern SD Qld

Population (2010) 59,312 4,513,850


Area (sq km) 79,587 1734174.9




The Northern SD’s dominant employer is agriculture, employing 22% of the region’s

workforce (compared to 4% of the State’s). As shown in Figure 4.1 above, the Northern

region is part of Queensland’s cattle grazing area, which likely accounts for a good chunk of

the region’s agricultural output. Some crops are grown closer to the coast (particularly

sugar cane and tropical fruits), though much of this is concentrated further north around

Innisfail and Cardwell.

Although it accounts for a relatively small share of the region’s workforce, the importance

of mining should not be overlooked. With most of Queensland’s coal mining located

further south (see Figure 4.2), mining activity in the Northern region is primarily

concentrated on minerals development. According to the Townsville City Council, it is the

second largest minerals mining region in the world, containing over 28% of the world’s

known zinc reserves, as well as sizeable deposits of silver, lead, zinc and copper.

Table 4.9: Economic forecasts, Northern SD

2010 2020 2030 2040 2010-2020 2020-2030 2030-2040


GRP ($m) 3,967 5,485 6,328 7,247 3.3% 1.4% 1.4%

Population 59,312 60,635 62,089 62,193 0.2% 0.2% 0.0%


Employment 31,844 32,246 32,320 31,812 0.1% 0.0% -0.2%

Share of Qld

GRP 1.6% 1.4% 1.2% 1.0%

Population ('000) 1.3% 1.1% 1.0% 0.8%


Employment 1.4% 1.1% 1.0% 0.8%

The Bureau of Resources and Energy Economics (BREE) expects Australia’s production and

export of minerals to remain fairly steady in the near term, meaning there should be no

major change to the region’s economy in the near term.



Looking forward, the region may underperform the expected growth performance for the

State as a whole. Minerals production is expected to grow more modestly than the massive

expansion of coal and iron ore nationally. Over the past decade, Australia’s coal production

grew by 26% and iron ore production by 168%; while production of copper grew only 8%,

and production of zinc and silver fell slightly (BREE 2011).

In view of this, we expect GRP to grow by 3.3% a year over the next decade, lower than the

growth rates in the coal mining/LNG regions.

Chart 4.7: Employment by industry, Northern SD, 2010

0% 5% 10% 15% 20% 25%







Wholesale trade


Other services

Mining





Manufacturing

Construction

Retail trade



Share of State

Share of region

Northern

That may not be enough to generate significant population growth. Queensland Treasury’s

high growth scenario has the region’s population growing at only 0.7% a year over the next

decade and 0.9% a year in the ten years to 2031. Our own forecasts are broadly in line with

Treasury’s low growth scenario.


art galleries and the like), account for 18% of the Northern region’s employment base,

compared to 20% of the State’s. By 2040 these services are projected to account for 22% of

both the region’s and the State’s employment base.

Investment agenda

The biggest project currently underway is Xstrata’s $589 million redevelopment of the

Ernest Henry underground copper mine.



4.6 Mackay and Fitzroy

Table 4.10: Vital statistics, Mackay and Fitzroy region

Mackay and Fitzroy

region

Qld

Population (2010) 270,716 4,513,850


Area (sq km) 90,362.2 1,734,174.9




According to the Mackay Regional Council (2011), in 2009-10 the Mackay-Isaac-Whitsunday

(MIW) region had an estimated GRP of $18.1 billion (the Mackay LGA accounted for about

32%, or $5.8 billion, of this.) The difference between this and our estimate ($27 billion) is

likely due to geographical definitions.

Our estimates of population growth are within the low and medium bands of Queensland

Treasury’s estimates, which predict 1.9% growth a year over the next decade and 1.8% over

the ten years to 2031.

Table 4.11: Economic forecasts, Mackay and Fitzroy

2010 2020 2030 2040 2010-2020 2020-2030 2030-2040


GRP ($m) 27,308 51,835 68,986 90,558 6.6% 2.9% 2.8%

Population 270,716 328,463 387,047 444,254 2.0% 1.7% 1.4%


Employment 141,939 183,746 213,554 241,973 2.6% 1.5% 1.3%

Share of Qld GRP 10.7% 13.0% 12.6% 12.3% Population ('000) 6.0% 6.0% 6.0% 5.9% Working age population 5.9% 6.0% 5.9% 5.9% Employment 6.1% 6.4% 6.3% 6.3%


art galleries and the like), account for 13% of Mackay and Fitzroy’s employment base,

compared to 20% of the State’s. This share is expected to be the same in 2040 for the

region, while it is expected to rise slightly to 22% for the State as a whole. This reflects the

dominance of mining in the region – particularly coal.



Chart 4.8: Employment by industry, Mackay and Fitzroy, 2010

0% 2% 4% 6% 8% 10% 12% 14%






Wholesale trade




Other services


Manufacturing




Retail trade


Construction

Mining

Share of State

Share of region

Mackay and Fitzroy

The region is the heart of Queensland’s all important coal industry (see Figure 4.2 below).

Mining is the largest employer in the region, accounting for about 13% of the workforce

(compared to only 2% State-wide). Mining’s share of output may be considerably larger –

the Mackay Regional Council (2008), estimated that mining accounted for some 58% of the

MIW region’s GRP in 2007-08.

The near term outlook for Australian coal mining is quite positive, with most of

Queensland’s coal operation back on track following the floods of early 2011. The Bureau

of Resources and Energy Economics, the government’s resources and energy forecaster,

expects Australian coal production to rise by 4% to 2011 and 6% to 2012, with exports

tipped to grow by 6% to 2011 and 8% to 2012 (BREE 2011). Buoyed by continued high

prices, Australia’s coal export earnings are tipped to increase from 2010-11 to 2011-12 by a

very strong 29%.

Just like the Pilbara and Kimberley regions of Western Australia, this region’s dependence

on mining represents an opportunity for very strong growth over the coming decade, but

that growth may fade in the periods after. Additionally, given the gradual move toward a

carbon constrained economy, the long term future of the coal industry faces further

challenges.

On the plus side, the diversification potential of the Mackay and Fitzroy region is perhaps

greater than the mining regions of WA, with a number of already strong alternate industries

providing a handy counter balance to coal mining.

First among these is tourism, with the southern part of the Great Barrier Reef and the

Whitsundays providing the region with significant tourist drawing potential. Between

2000-01 and 2009-10, passenger throughput at Mackay airport grew by 270%, and



Proserpine airport’s throughput grew by 170% (BITRE 2011). Of course, the Mackay region

always has, and always will, have to compete for tourists’ money with other locations such

as Cairns, the Gold Coast and the Sunshine Coast.

The region also has a fairly strong agricultural presence, particularly in sugar cane, which in

the pre mining boom days underpinned the region’s economy.

Figure 4.2: Identified gas and coal deposits

Source: Department of Resources, Energy and Tourism, Energy in Australia 2011

Investment agenda

Some $35 billion worth of investment projects appear in the latest Investment Monitor

database for the Mackay region, of which $22 billion relate to coal mining.

Major coal investment projects dominate the agenda, many of which are in the ‘under

consideration’ phase (and thus are fairly likely to eventuate). They include: Hancock

Prospecting’s $7.5 billion Alpha Coal Project in the Galilee Basin; Xstrata Coal’s $6 billion

Wandoan coal mine; and BHP and Mitsubishi’s $4 billion Caval Ridge Project, which includes

a new coal mine in the Bowen Basin.

Looking beyond the ‘mining’ industry, it is worth noting that virtually all of the major

projects in the latest Investment Monitor database are in fact driven by mining. They

include $4.6 billion for an expansion to the Abbott Point coal terminal, $1.25 billion for a

coal fired power station in Galilee, $1 billion for the Southern missing Rail Link from

Wandoan to Theodore, and a $1 billion upgrade to the Dalrymple Bay coal terminal.



The only large scale non mining project currently under way is the $408 million

redevelopment of the Mackay Base Hospital.

4.7 Gladstone and Rockhampton

Table 4.12: Vital statistics, Gladstone & Rockhampton

Gladstone & Rockhampton Qld

Population (2010) 129,036 4,513,850


Area (sq km) 1053 1,734,174.9




Table 4.13: Population characteristics, Gladstone and Rockhampton

2010 2020 2030 2040 2010-2020 2020-2030 2030-2040


GRP ($m) 7,396 11,765 16,113 21,671 4.8% 3.2% 3.0%

Population 129,036 153,907 182,440 210,530 1.8% 1.7% 1.4%


Employment 64,956 82,436 96,751 110,030 2.4% 1.6% 1.3%

Share of Qld

GRP 2.9% 3.0% 2.9% 2.9%

Population ('000) 2.9% 2.8% 2.8% 2.8%


Employment 2.8% 2.9% 2.9% 2.9%

We estimate the region’s GRP to be about $7.4 billion. Other estimates broadly match

ours: in 2005-06, the Gladstone region’s GRP was estimated at $2.2 billion (SGS Economics

and Planning 2010); and in 2009-10, the Rockhampton region‘s GRP was estimated at

$5.2 billion (Rockhampton Regional Council 2011).

Queensland Treasury’s population projections assume 1.7% growth a year over the next

decade and 1.4% for the ten years to 2031 under the low scenario, and 2.2% to 2021 and

2.03% to 2031 under the medium scenario. Our own estimates, of 1.8% growth to 2020

and 1.7% growth to 2030, are on the lower side of the official projections. Although the

region has enormous potential from LNG, its dependence on manufacturing is likely to act

as a strong counter-balance to LNG related growth over the near to medium term, meaning

that this region’s growth, while still strong, will not be the strongest in the State.

As with Mackay, coal mining makes a central contribution to Gladstone’s economy. Much

of this is through exports, with Gladstone Port accounting for 19% of Australia’s (and 33%

of Queensland’s) 2010-11 coal export by tonnage (Ports Australia 2011).

The largest industry in Gladstone itself is manufacturing, which accounts for about 12% of

total employment in Gladstone and Rockhampton, compared to 8% State-wide. Most of

Gladstone’s manufacturing output comes from metals processing, refineries and smelters.



The challenges of a strong Australian dollar are likely to hit the Gladstone region hard,

although strong coal exports should counteract the decline in manufacturing.

However, like Townsville, the employment base of Gladstone and Rockhampton is fairly

well diversified, which means its longer term prospects are strong.

Strong growth is expected over the next decade, due to Gladstone being the nearest

population centre to the burgeoning LNG activity already underway (see below).


art galleries and the like), account for 18% of Gladstone and Rockhampton’s employment

base, compared to 20% of the State’s. This share is expected to increase by 2040, to 21%

for the region’s employment base and 22% of the State’s.

Chart 4.9: Employment by industry, Gladstone and Rockhampton, 2010

0% 2% 4% 6% 8% 10% 12% 14%






Mining

Wholesale trade




Other services






Retail trade

Construction

Manufacturing

Share of State

Share of region

Gladstone & Rockhampton

Investment agenda

A massive $69 billion worth of projects appear in the Investment Monitor database for the

region, thanks to Gladstone being at the centre of Queensland’s contribution to the

burgeoning LNG market. The $16.2 billion Gladstone LNG Facility is currently under

construction. Works in the pipeline are dominated by the $20 billion Australia Pacific LNG

project, which is due to commence construction shortly.

As with the Mackay region, most projects not technically classified as ‘mining’ projects are

nonetheless related to mining. They include: the $1.9 billion Yarwun alumina refinery in

Gladstone, which is currently under construction; a $2.7 billion development of a cobalt

and nickel refinery in Gladstone, which is under consideration; and $1.9 billion worth of



railway works connecting the Port of Gladstone with surrounding coal mines, due to

commence in late 2011.

Non-mining works include about $330 million worth of works at the Rockhampton Hospital,

including a general upgrade and construction of a regional cancer centre.



5 Northern Territory

5.1 Territory overview

Table 5.1: Northern Territory forecasts


NT % change Level % change Level (m) % change Level (m)

GSP ($m) 4.01% 25,010 2.03% 30,590 2.23% 38,122

Population 1.65% 269,976 1.38% 309,498 1.18% 347,920

Working age

population

1.90% 212,797 1.43% 245,301 1.25% 277,798

Employment 2.45% 153,627 1.10% 171,444 0.87% 186,989

Australia

GDP ($m) 3.08% 1,738,118 2.95% 2,325,112 2.70% 3,036,259

Population 1.41% 25,642,412 1.22% 28,947,313 1.00% 31,985,490

Working age

population

1.52% 21,017,317 1.30% 23,916,047 1.09% 26,664,950

Employment 1.65% 13,018,012 1.19% 14,652,881 0.91% 16,040,868


Although global conditions are still extremely favourable to the Territory’s growth

potential, right now this economy lacks a major growth driver. Retail sales are flat, housing

construction remains sluggish, housing prices are falling, and population growth has

dropped back to be substantially below the national rate. Of course that is no great

surprise – the Territory has always had a very mobile workforce, and if the work isn’t there,

then the workers soon aren’t either. That combination has sent the unemployment rate up

pretty sharply, though it still remains comfortably below the national rate.

This illustrates the Northern Territory’s conundrum. The Territory grows faster during the

construction phase of big resource projects. Yet although the potential on that front is

magnificent, right now there are few things getting built, leaving a modest forecast for

output, population growth, and employment.

Looking longer term the Territory’s growth depends heavily on ‘mega’ projects which are

still to get approval. The largest is the $25 billion Inpex LNG project, part of which involves

the construction of a processing facility in Darwin. This would significantly boost

employment and population growth in the Territory, particularly in the Darwin region.

For the reasons noted above, population projections for the Territory are perhaps more

uncertain than for some other regions. For example, another LNG project could create a

significant boost to the region.

By 2020 NT Treasury expects the Territory’s population to be between 267,000 and 277,000

- our own estimate of 269,000 falls comfortably within this range. By 2030, NT Treasury



expects population to be between 309,500 and 334,338 – our own estimate is almost

exactly the same as Treasury’s lower bound estimate. Finally, by 2040 NT Treasury expects

population to be between 355,769 and 397,552. Our own 2040 estimate, 347,920, is

slightly lower than Treasury’s projection.

5.2 Darwin

Table 5.2: Vital statistics, Darwin

Darwin NT

Population (2010) 127,532 229,711


Area (sq km) 3,122 1,352,176




Deloitte Access Economics estimates that the GRP for Darwin in 2009-10 was $10.4 billion,

with a population of around 128,000. This is higher than the $7.5 billion estimate published

by the Darwin City Council (2011), and their estimate of population, of around 77,000.

However, the definition used in this report also includes Litchfield Shire.

Over the next decade NT Treasury expects Darwin’s population to grow by between 1.8%

and 2.6% a year. Our estimated growth rate of 2% a year fits within this range. In level

terms, by 2025 NT Treasury expects Darwin’s population to be between 166,359 and

188,951. Again, our estimate of 168,706 people by 2025 falls within this range.

As a capital city, Darwin’s employment base is relatively more dependent (compared to the

NT as a whole) on sectors such as retail, construction and professional services. Overall

however, because Darwin is by far the dominant employer in the Territory, its employment

base is fairly similar to the NT’s (see Chart 5.1).


art galleries and the like), account for 20% of Darwin’s employment base, compared to 22%

of the Territory’s. By 2040 this share is expected to be 21% and 23% for Darwin and the

Territory respectively.

The relatively high employment share of public services reflects both the Territory’s unique

demographic situation – public administration and safety, for example, is the largest

individual employer – and also the fact that financial and professional services are relatively

under-represented in the Territory compared to the other States (for example, they

account for 16% of NSW’s employment and only 7% of the Territory’s.

Looking forward, the burgeoning LNG market, particularly the development of the Ichthys

gas field, if it ever happens (see below), is likely to generate significant economic activity

and employment for Darwin and the Territory in general.

That being said, LNG investment is significantly lower than in the Kimberley and Pilbara

regions of WA. Given that skilled workers are scarce at the best of times, the Territory’s



LNG industry may find itself in a battle for staff with a bigger, better funded rival in Western

Australia.

Table 5.3: Economic forecasts, Darwin

2010 2020 2030 2040 2010-2020 2020-2030 2030-2040


GRP ($m) 10,432 15,606 19,336 24,429 4.1% 2.2% 2.4%

Population 127,532 155,228 182,826 209,785 2.0% 1.6% 1.4%


Employment 77,967 100,843 114,435 126,722 2.6% 1.3% 1.0%

Share of NT GRP 61.8% 62.4% 63.2% 64.1% Population ('000) 55.5% 57.5% 59.1% 60.3% Working age population 57.0% 58.7% 60.3% 61.5% Employment 64.7% 65.6% 66.7% 67.8%

Chart 5.1: Employment by industry, Darwin, 2010

0% 2% 4% 6% 8% 10% 12% 14% 16%






Mining


Wholesale trade


Manufacturing


Other services





Construction

Retail trade


Share of State

Share of region

Darwin

A lack of confidence is also evident in Darwin’s office market – according to the Property

Council of Australia (2011), supply of office space in 2010-12 outstripped demand by a

factor of roughly two to one. Although oil and gas projects have the potential to generate

demand for office space looking forward, other things being equal, rental prices in Darwin’s

CBD may be on the way down.

The continuing development of the Darwin Waterfront (see below) shines some light in the

near term outlook, particularly for tourism and retail. Of course, and as other areas in

Australia which have a tourism focus, the high $A has been responsible for surpassing

demand. We do expect the value of the $A to fall away over the medium term.



Investment agenda

As with the northern regions of WA, most large scale investment activity in Darwin is

centred on major LNG projects. Importantly however, only a very small share ($1.4 billion)

is under construction. The remaining projects, most notably the $27.4 billion Ichthys gas

field, remain uncertain at this stage.

Outside of mining, the biggest works include the $900 million redevelopment of Darwin

Waterfront, which begun construction in 2005 and is due to be completed in 2015; and a

possible $1 billion 5 year upgrade to Darwin’s electricity.



6 New South Wales

6.1 State overview

Table 6.1: New South Wales forecasts


NSW % change Level % change Level (m) % change Level (m)

GSP ($m) 2.46% 512,300 3.02% 689,519 2.60% 891,431

Population 1.17% 8,111,675 1.00% 8,956,508 0.79% 9,689,382

Working age

population

1.27% 6,662,482 1.06% 7,401,570 0.88% 8,080,958

Employment 1.27% 3,965,594 1.12% 4,430,780 0.75% 4,773,978

Australia

GDP ($m) 3.08% 1,738,118 2.95% 2,325,112 2.70% 3,036,259

Population 1.41% 25,642,412 1.22% 28,947,313 1.00% 31,985,490

Working age

population

1.52% 21,017,317 1.30% 23,916,047 1.09% 26,664,950

Employment 1.65% 13,018,012 1.19% 14,652,881 0.91% 16,040,868


New South Wales’ short term outlook is not as upbeat as that for WA and Queensland. If

China does continue to dominate the outlook for the Australian economy, then both

interest rates and exchange rates will remain uncomfortably high for a State that has a

large manufacturing sector, Australia’s largest mortgages, a significant tourism presence,

and a notable industry selling to foreign students (all of which remain vulnerable with a

high $A). Not even Sydney’s financial sector, a key strength for the State, is enjoying

current circumstances. Housing credit growth is the lowest since the 1970s and business

credit growth is the lowest since the early 1980s.

Or, in other words, if the future is characterised as ‘more of the same’ for Australia, that

presents considerable challenges to a State which is known to be on the wrong side of

Australia’s two speed economy.

However, there are several opportunities for growth in NSW – indeed, when growth has

been slow for a protracted period, finding the impetus for growth becomes somewhat

easier. For example, housing construction has been weak for an extraordinarily long time,

which now sees the average number of people per household rising after decades of falling.

Rental markets in Sydney are tight, with the pace of rental costs rising notably. That

suggests there is a floor under which New South Wales’ housing activity won’t fall. It looks

like a good year for agriculture, approvals for commercial construction have risen lately,

and occupancy rates in hotels have risen – NSW may not be getting large numbers of

international visitors, but business travel is strong.



Additionally, the new State Government has chosen to go steadily rather than hard at

tackling the longer term challenges in the State Budget, which will ease NSW into Budget

reform.

However, these opportunities pale in comparison to mining investment seen in Western

Australia and Queensland, putting NSW firmly on the wrong side of Australian growth.

Consequently, Table 6.1 shows our forecasts for NSW output growth are behind that of

Australia’s until 2020, after which time growth may be around the national average.

However, population, employment and workforce growth are expected to trail their

national equivalents over the course of the forecast period.

A key risk for NSW is the growing uncertainty in financial markets, this time stemming from

Europe. Were a second round financial crisis to hit the globe, then there would be some

relief for the State’s manufacturers and exporters as the $A and interest rates would fall.

However, there would be a similar effect on Sydney that the GFC brought. It is likely that a

renewed crisis would result in a lift in the cost of capital to businesses all around the globe

– affecting New South Wales’ financial sector. Nor will the rest of the world be too keen on

travel even if a sharp fall in the $A swings some people back towards Australia as their

preferred travel destination.

6.2 Sydney, Newcastle and Wollongong

Table 6.2: Vital statistics, Sydney, Newcastle & Wollongong

Sydney, Newcastle & Wollongong NSW

Population (2010) 4,832,235 7,232,589


Area (sq km) 17,278 801,315




Deloitte Access Economics estimates that the GRP for the Sydney, Newcastle and

Wollongong region was some $282 billion in 2010 – the equivalent to around 70% of total

output in New South Wales. The region is also expected to carve out a slightly larger share

of the total State economy over the next three decades as the State’s financial and business

centre.

Chart 6.1 shows some differences in the industry structure of Sydney, Newcastle and

Wollongong compared to NSW as a whole. Unsurprisingly, a relatively larger proportion of

financial and professional services workers are employed in these metro areas, while the

agricultural sector accounts for a far smaller share of total employment.

Labour force participation is a key driver of this region’s relatively stronger growth outlook

to 2040. While population growth is expected to be slightly higher than the NSW average

over the next three decades, stronger employment prospects in Sydney, Newcastle and



Wollongong (along with higher labour productivity) will contribute to stronger growth in

output.

Table 6.3: Economic forecasts, Sydney, Newcastle, Wollongong

2010 2020 2030 2040 2010-2020 2020-2030 2030-2040


GRP ($m) 282,065 362,437 491,400 637,233 2.5% 3.1% 2.6%

Population 4,832,235 5,438,198 6,037,787 6,563,358 1.2% 1.1% 0.8%

Working age

population 3,943,381 4,479,860 4,999,844 5,482,608 1.3% 1.1% 0.9%

Employment 2,363,406 2,718,045 3,063,034 3,315,652 1.4% 1.2% 0.8%

Share of NSW

GRP 70.2% 70.7% 71.3% 71.5%

Population ('000) 66.8% 67.0% 67.4% 67.7%

Working age

population 67.2% 67.2% 67.6% 67.8%

Employment 67.6% 68.5% 69.1% 69.5%

As the three main commercial/administrative districts of NSW, the share of public service

employment in Sydney, Newcastle and Wollongong is expected to be the same as NSW

throughout the projection period – that is, 20% in 2010 and 22% in 2020.

Chart 6.1: Employment by industry, Sydney, Newcastle, Wollongong, 2010

0% 2% 4% 6% 8% 10% 12%


Mining






Wholesale trade

Other services






Construction

Manufacturing

Retail trade



Share of State

Share of region

Sydney, Newcastle, Wollongong



7 Victoria

7.1 State overview

Table 7.1: Victoria forecasts


Victoria % change Level % change Level % change Level

GSP ($m) 2.64% 380,649 3.58% 541,002 2.97% 725,182

Population 1.39% 6,361,119 1.17% 7,145,815 0.96% 7,861,965

Working age

population

1.47% 5,235,928 1.25% 5,926,032 1.06% 6,586,926

Employment 1.41% 3,220,839 1.23% 3,639,924 0.90% 3,980,023

Australia

GDP ($m) 3.08% 1,738,118 2.95% 2,325,112 2.70% 3,036,259

Population 1.41% 25,642,412 1.22% 28,947,313 1.00% 31,985,490

Working age

population

1.52% 21,017,317 1.30% 23,916,047 1.09% 26,664,950

Employment 1.65% 13,018,012 1.19% 14,652,881 0.91% 16,040,868


Victoria has performed well in recent years despite all the natural advantages flowing to

the resource States. But a lot of Victoria’s relative strength has been due to its good

population growth and, related to that, the better level of land release on the outskirts of

Melbourne (a factor not seen on a similar scale in other State capital cities).

Since the mid-2000s, Victorian population growth rates have mostly equalled or bettered

their national counterparts. That’s the first time that has been true since the early 1970s.

Not only has it allowed economic growth in the State to do well during a time of resource

boom, it is still providing an important degree of protection. For example, retail sales in

Victoria still are still ahead of their Australian equivalent, as is housing construction, car

sales and several other consumer demand measures.

Although employment growth is slowing, it remains better than seen nationally, while the

same is also true for Victoria’s unemployment rate. The latter may be rising, but it is

currently only just below the rate for Australia as a whole. Even the State’s hotels are

seeing higher occupancy rates, while its small business confidence is comfortably ahead of

the Australian average.

However, there are a couple of important challenges facing Victoria into the future.

Worryingly, they have the potential to undermine the population growth which has been

the key to so much of Victoria’s relative outperformance in recent years.



One is that Victoria is the epicentre of manufacturing strength in Australia. And it is the

manufacturers and farmers who are notable victims of the exchange rate and interest rate

strength seen in the last couple of years.

There are many businesses who think that they can survive when the $A is high for quite

some time, but not forever. Though the global uncertainty recently has brought the $A

back to heel somewhat, it’s still at eye-watering levels as far as many manufacturers are

concerned. That’s why business closures are on the rise, and it’s also why many businesses

in Victoria look less comfortable than they did a year ago (when the $A was closer to US80

cents). In turn, the paucity of prospects for manufacturing is weighing on the outlook for

the State’s population growth.

Another is continuing disquiet in international education markets with Australia suffering as

a destination thanks to visa changes, the high $A and violence towards Indian students. For

Victoria, international education had been one of the State’s fastest growing sectors.

However, although Victoria’s strongest sectors are those that suffer from the biggest

challenges arising from the China boom, there is a solid pipeline of engineering work to be

undertaken in the State, which should maintain solid growth in the short term. However,

even with this solid pipeline of engineering work to be done, it pales in comparison to that

in the resource States, which means it will be hard for Victoria to maintain its current share

of Australia’s economy and population over time.

Looking longer term, it will be the $A and population challenges that have a large influence

over Victoria’s growth. A continuing mining boom would see the $A remain at elevated

levels, and a further decline in manufacturing, which would hit the State hard. Additionally,

if Victoria cannot turn around its poor productivity performance which has been seen over

the past couple of years (and is worse than the poor result seen nationally), then Victoria

will continue to lose ground to other States.

Consequently, and in a similar story to that of NSW, our forecasts have Victoria trailing the

national averages for output, population and employment growth over the decade to 2020.

After that time however, Victoria is expected to perform relatively better, with an average

annual growth rate in output of 3.6% (as compared to the national rate of 3.0%). This

reversal is primarily due to the expected fall back in the $A, making Victoria’s exports more

attractive to the rest of the world once again, and with the State’s proven ability to manage

population growth.



8 South Australia

8.1 State overview

Table 8.1: South Australian forecasts


South

Australia

% change Level % change Level % change Level

GSP ($m) 1.66% 92,591 3.13% 126,023 2.66% 163,794

Population 0.84% 1,787,794 0.76% 1,928,127 0.57% 2,041,574

Working age

population

0.94% 1,483,721 0.81% 1,608,873 0.66% 1,717,419

Employment 0.79% 872,566 0.64% 929,966 0.55% 982,812

Australia

GDP ($m) 3.08% 1,738,118 2.95% 2,325,112 2.70% 3,036,259

Population 1.41% 25,642,412 1.22% 28,947,313 1.00% 31,985,490

Working age

population

1.52% 21,017,317 1.30% 23,916,047 1.09% 26,664,950

Employment 1.65% 13,018,012 1.19% 14,652,881 0.91% 16,040,868


South Australia has great resource potential, with the approval of Olympic Dam facing the

final hurdle in South Australian parliament soon. BHP Billiton has already begun investing

in the project, which has the potential to transform South Australia into a resource

powerhouse in coming years. While Deloitte Access Economics doesn’t see Olympic Dam

as the be all and end all for South Australia’s development plans, there is no denying that

this project will reshuffle South Australia’s industry portfolio, which was desperately in

need of some diversification.

South Australia’s economy currently remains rather more heavily dependent on

manufacturing and agriculture, both of which are struggling under the high exchange rate

and interest rates. Add in relatively modest population growth (growth is now the weakest

that it’s been in five years) and a still weak outlook for housing construction and it’s safe to

categorise South Australia as a State that’s on the wrong side of Australia’s two speed

economy divide.

Of course Olympic Dam is not the only star on the horizon. Work on the Air Warfare

Destroyer Contract also helps prospects, with the State a heavyweight in defence related

manufacturing.

Yet overall business investment spending is little different today than five years ago, and

remains below levels it hit ahead of the global financial crisis. It will take significant

investment, such as the Olympic Dam project, to gradually turn around the prospects for

this State. Deloitte Access Economics forecasts have average annual South Australian



output to 2020 growing at just 1.7%, reflecting poor population and employment growth,

before rising to 3.1% in the ten years to 2030.



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http://www.rdl.wa.gov.au/publications/Documents/Kimberley%20-

%20A%20region%20in%20profile.pdf



KPMG 2011, Demographic Analysis of Townsville, Available from

http://www.townsville.qld.gov.au/townsville/economic/Documents/Honeycombes%

20Bernard%20Salt%20Report%20Jan2011.pdf

Mackay Regional Council 2008, Mackay LGA Regional Economic Report December 2008,

Available from

http://www.mwredc.org.au/~red34089/images/stories/regionalprofile/mackaylga/rp

081231mkylga.pdf

Mackay Regional Council 2011, Economic Development: prospectus, Available from

http://www.mackay.qld.gov.au/__data/assets/pdf_file/0009/111024/Small_version_

AAA_PRINT_FINAL_Economic_Development_Prospectus_2011.pdf

Midwest Development Commission Council 2011, Midwest – A region in profile, WA

Department of Regional Development and Lands, Available from

http://www.mwdc.wa.gov.au/assets/mid%20west%20profile%20a4.pdf

Northern Territory Government 2011, Northern Territory Population Projections, Available

from

http://www.nt.gov.au/ntt/economics/publications/population/ntpop_report_11.pdf

Pilbara Development Commission 2011, Pilbara – A region in profile, WA Department of

Regional Development and Lands, Available from

http://www.pdc.wa.gov.au/media/75465/pilbara%20a%20region%20in%20%20profil

e%202011.pdf

Ports Australia 2011, Trade Statistics 2010/11, Available from

http://www.portsaustralia.com.au/tradestats/

Property Council of Australia, Consensus Forecasts: Office, Spring 2011

Queensland Treasury 2011, Population projections, Office of Economic and Statistical

Research, Available from

http://www.oesr.qld.gov.au/subjects/demography/population-projections/index.php

Rockhampton Regional Council 2011, Rockhampton Region Economic Snapshot, Available

from

www.rockhamptonregion.qld.gov.au/.../Economic_Development_Strategic_Economi

c_SnapShot_v13.pdf

SGS Economics and Planning 2010, Prosperity 2030: Gladstone Region Economic

Development Strategy, Available from

http://www.sgsep.com.au/system/files/GREDS_january_2011.pdf

Townsville City Council 2011, Townsville’s Economic Strength, Available from

http://www.townsville.qld.gov.au/townsville/economic/Pages/strength.aspx

Western Australian Planning Commission 2005, Western Australia Tomorrow – population

projections for planning regions 2004 to 2031 and local government areas 2002 to 2021,

Perth



Appendix A: Major towns in

regions Table A.1: Major towns in the regions

Region Town

Sydney/Newcastle/Wollongong Sydney

Newcastle

Wollongong

Gladstone and Rockhampton Gladstone

Rockhampton

Mackay Region Mackay

Bowen

Proserpine

Emerald

North Queensland Ingham

Charters Towers

Far North Queensland Cooktown

Port Douglas

Innisfail

Townsville Townsville

Cairns Cairns

Perth Perth

Gascoyne and Geraldton Exmouth

Geraldton

Carnarvon

Pilbara Port Hedland

Karratha

Roeburn

Kimberley Broome

Derby

Darwin Darwin



Appendix B: Region maps Figure 9.1: Western Australian regions

Perth Kimberley

Pil lbara Gascoyne and Geraldton



Figure 9.2: Perth



Figure 9.3: Gascoyne and Geraldton (including Exmouth)



Figure 9.4: Pilbara (Karratha and Port Hedland)

Figure 9.5: Kimberley



Figure 9.6: Queensland regions

p

Mackay-Fitzroy North Queensland Townsville

Far North Rockhampton and Gladstone Cairns



Figure 9.7: Rockhampton and Gladstone

Figure 9.8: Townsville



Figure 9.9: Cairns

Figure 9.10: Darwin



Figure 9.11: Newcastle/Sydney/Wollongong



Appendix C: Major Projects This Appendix lists the major projects identified in Deloitte Access Economics’ Investment

Monitor by region (individual projects with a value of over $400 million are shown in these

tables, while individual projects with a cost of over $20 million are considered within the

broader Investment Monitor database). These projects have been considered when

preparing the forecasts of population, employment and GRP for the regions. The total of all

projects for each State is also shown.


72

Table C.1: Major investment projects from Investment Monitor

Region Under

construction

($m)

Committed

($m)

Under consideration

($m)

Sydney/Newcastle/ Wollongong 18352 6469 5678

NSW total 33889 7474 13292

Gladstone and Rockhampton 20616 3108 42342

Mackay Region 2922 298 26910

North Queensland 0 0 88

Far North Queensland 476 63 278

Townsville 460 0 1713

Cairns 486 0 0

QLD total 51687 28248 80587

Perth 9708 1849 2497

Gascoyne and Geraldton 3272 0 13694

Pilbara 63399 37488 39370

Kimberley 2240 8900 31813

WA total 81137 50624 80088

Darwin 2410 357 32390

NT Total 2502 764 32390

VIC total 25726 8637 8851

SA total 11749 1457 30584


73

Region

Under

construction

($m)

Committed

($m)

Under

consideration

($m)

Total

($m)

Perth

New teaching hospital, Fiona Stanley Hospital 1762

Outer Harbour Kwinana Bulk Jetty Infrastructure 1300

Children's hospital and a multi-storey carpark 1170

Commercial office development 1000

Perth City Link project - upgrades and construction 609

Major project total 4541 1300 0 5841

Region total 9708 1849 2497 14054

Gascoyne and Geraldton

Karara magnetite iron ore mine and pelletising plant 2700

Construction of a rail and port development 5940

Development of Jack Hills iron ore project 4300

Coolimba Power Project: coal fired power station 1500

Development of the Weld Range Haematite project 1000


Region total 3272 0 13694 16966

Pilbara

Gorgon LNG project (three liquefaction trains) 43000

Development of a LNG project, Wheatstone 29000

Pluto 2 LNG project 14900

Roy Hill 1 iron ore project 7200

Rapid Growth Project 5 6740


Region total 63399 37488 39370 140257

Kimberley

North West Shelf LNG Project Kimberly Gas Hub 30000

Prelude LNG project 8900

Underground expansion of Argyle diamond mine 1700

Wingellina nickel project 1700


Region total 2240 8900 31813 42953

WA State total 81137 50624 80088 211849


74

Region

Under

construction

($m)

Committed

($m)

Under

consideration

($m)

Total

($m)

Gladstone and Rockhampton

Australia Pacific LNG' - New CSG to LNG facility 35000

New LNG facility (GLNG), Gladstone 16200

Gladstone nickel project , stage 1 2700

Liquefied natural gas (LNG) plant 2200


Region total 20616 3108 42342 66066

Mackay Region

Alpha Coal Project: thermal coal mining project 7500

Wandoan coal mine - including rail link 6000

Caval Ridge Project 4000


Region total 2922 298 26910 30130

North Queensland

Development of the Einasleigh copper project 88


Region total 0 0 88 88

Far North Queensland

Expansion of the Lotus Glen Correctional Centre 442

Nornico nickel and cobalt mine 278



Townsville

720km high-voltage transmission link 1500


Region total 460 0 1713 2173

Cairns

Cairns Base Hospital Redevelopment 446



QLD State total 51687 28248 80587 160522

Region

Under

construction

($m)

Committed

($m)

Under

consideration

($m) Total ($m)

Darwin

Development of the Ichthys gas field 25000


Region total 2410 357 32390 35157

NT State total 2502 764 32390 35656



Appendix D: Forecasting

methodology Basic theory

The basic drivers of workforce numbers (employment of persons resident in a given area)

are population by age and gender, labour force participation rates by age and gender and

unemployment rates by age and gender (unemployment can be regarded as a further

manifestation of participation rates).

Population forecasts

The population forecasts for 2011 to 2040 are estimated from our demographic model of

Australia, the States, and the capital cities. This model begins with actual population levels

as at 30 December 2010 for the State and regions within, and uses the stated assumptions

for fertility, mortality and migration to calculate future population levels.

These projections are based on a number of underlying assumptions:

• Total fertility rates for Australia remain at 1.80;

• Relative fertility rates between capital cities, States and Australia remain constant;

• Mortality rates decline, lifting life expectancy at birth across the forecast period.

However, the rate of increase declines slowly over this period;

• After dipping to 180,000 in the near term, annual net migration is tipped to settle at

around 190,000 through the next few decades. Eventually, total migration rises to

ensure it does not fall below 0.65% of Australia’s population (that does not occur

until 2031).

• States are assumed to have a consistent share of international migration from the

middle of the decade. Queensland’s share recovers from its current relatively weak

position to 19.5% of the national total (37,050 per year across most of the

projection), New South Wales also sees a minor increase to 33.8% of the total

(64,220). Western Australia receives 24,700 per year and the Northern Territory 950.

• Interstate migration continues to see a net outflow of 23,000 each year from New

South Wales, while the other major regions see net inflows (an average of 33,000 per

year to Queensland, and around 300 to the Northern Territory) or little net

movement (Western Australia).

Participation and unemployment rates

Forecast trends in participation rates for the whole of Australia by age and gender are

based on projections included in the Productivity Commission’s 2005 report into long term

demographic trends, updated for measured changes in movements up until mid 2011.

These rates were then used to calculate total workforce levels for States and capital cities in

total, as well as to assist in the calculation of small area participation rates.



A similar process was followed to calculate total unemployment levels for areas within

States – with unemployment rates by age and gender for each zone declining in line with

the trends forecast in the Productivity Commission’s 2005 report on long term demographic

trends.

These trends see higher age-specific participation rates, particularly for over 60s, as

increasing life expectancy, declining pension expectations and increasing health of older

persons makes prolonging a working life both possible and desirable. Unemployment rates

in all age groups decline, while the total unemployment rate declines marginally faster as

there is a declining share of population in those age groups with higher rates of

unemployment.

The small area implications

Detailed population by age forecasts are created for small areas within the State which are

then aggregated to the regions used in the report. This allows the creation of workforce

estimates at the regional level over time. Historical employment and unemployment levels

are then created using a combination of regional ABS Labour Force Survey data (these

regions are determined by the ABS) and census level data at the small area (which are

aggregated). The initial relative gap between the rate of employment participation and

unemployment and the relevant rate for the State as a whole is maintained so that if

population structure in each area had remained the same, then the relative participation

rates in each area would have remained at a constant separation from the State total.

These effects can be regarded as ‘tendencies’. An area will see participation remain

relatively high if its population structure remains favourable. However, if it begins with a

low participation rate then it will continue to have a lower rate than the overall State would

if the population structures were identical.

Unemployment tendencies are modelled the same way.

In effect, both participation and unemployment rates assume that differences between the

small area and the relevant in total are driven by two factors:

• demographic make up; and

• other factors.

The modelling assumes that the ‘other factors’, which include differences in educational

attainment, English proficiency and so on will remain constant into the future and that only

changing demographic structures will move relative rates.

Industry level forecasts

Total industry employment levels for each State are calculated using a simplified version of

the industry methodology used in the Deloitte Access Economics Macro – States and

Industries (AEM-SI) model, a dynamic model of the Australian economy which is regularly

used for macroeconomic forecasts. Overall economic output (GDP) is calculated as the

product of employment levels (as calculated above) and productivity (which grows at a

constant rate determined by the assumption used).



Forecasts for national economic expenditure aggregates such as consumption, investment

and international trade are calculated as components of this total. In particular:

• National exports grow slightly faster than overall growth, while national imports

change so as to keep the net trade position constant as a share of output;

• Gross national expenditure (output less the trade component) is split into private and

public final demand, with both remaining a constant share of output ;

• Housing investment (measured as a share of the GDP estimate) moves cyclically with

economic growth. When output growth is faster, housing takes up a larger share,

and when growth slows, housing loses share (and slows more rapidly). As the overall

growth rate slows with demographic ageing, housing investment also slows, but

slows more rapidly reflecting the importance of population change on the

construction sector;

• Business investment occurs to keep the stock of capital per worker growing in line

with recent trends. This growth in capital stock per worker is called ‘capital

deepening’ and occurs at 1.04% a year. Business investment is calculated as the

growth in the required capital stock plus a component of replacement for

depreciation in the existing capital stock. This total investment is then split between

non-dwelling construction investment and plant and equipment investment – with a

slight increase in the share going towards plant and equipment over time, partly

reflecting slower demographic growth and a lowered requirement for growth in

infrastructure;

• Public investment moves in line with changes in total business investment – if private

investment’s share of the economy rises, so does public investment’s; and

• Private consumption and public consumption are equal to the non-investment

components of the respectively components of final demand.

Once the expenditure aggregates have been calculated, growth in employment by industry

is forecast using known relationships between components of final demand and industry

employment (based on input output data). For example, if the investment forecasts

suggest that residential construction is gaining strength, then the construction industry will

gain strength. Or, say, if rural exports are lifting, then the farm sector is similarly seen

lifting.

The relationships suggest that for a given change of $1 in any expenditure aggregate there

will be an induced change in employment. The induced changes are summed across all

aggregates to determine the total change in employment in an industry.

A counterfactual estimation is conducted on historical data to determine actual

employment growth not picked up by this methodology, for example due to changes in

worker productivity and structural changes in the economy. Corresponding adjustments

are made to the forecasts – although some past differences are ignored as they are not

expected to continue in the future (for example, the radical changes seen in the utilities

sector in the past decade). The modelling also allows for some adjustment to be made to

the early forecast periods to allow for any jumping-off problems, and to build current

cyclical patterns into the forecasts.

A final estimate of total workforce levels by industry are calculated to adjust to the

expected total workforce level in each region.



Gross regional product

Gross regional product (GRP) estimates are created using both a limited income based (or

GRP(I)) measure (wages based) and a more detailed production based (GRP(P)) measure,

based on the reported output by industry data from the ABS.

In the production estimate case, measured employment by industry in each State is used to

distribute the value of production for each industry in each State. For the income measure,

relative industry wages (average weekly earnings) are used to weight employment in each

case to determine relative wages in each region of the State.

Overall, the production estimate is given a much larger weighting to the total as the

methodology used in the income measure covers only wages (and not profits) and the

measures of wages by industry are less reliable at the State level than production

measures.

Appendix E – Current and

projected climate This Appendix provides some overview maps of current and projected climate for Australia

as a whole. The current temperature and precipitation maps are sourced from the Bureau

of Meteorology (BoM) website (http://www.bom.gov.au/climate/averages/maps.shtml).

The maps showing projected changes in temperature and precipitation represent the

median (50th percentile) estimate from a range of climate models run jointly by CSIRO and

BoM (http://www.climatechangeinaustralia.gov.au/natrain34.php).

These maps are included only for completeness. For detailed information on current and

projected climate, readers are encouraged to refer to the original sources.

Figure E.1: Average maximum temperature

Source: BoM


Figure E.2: Average annual precipitation, 2008-2011

Source: BoM


Figure E.3: projected temperature change

Source: CSIRO and BoM, Climate Change in Australia


Figure E.4: Projected precipitation change


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duty of care to any other person or entity. The report has been prepared for the purpose of

the ADF Posture Review. You should not refer to or use our name or the advice for any

other purpose.

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