The Times Australia
The Times Australia

.
The Times Real Estate

.

Unemployment’s up, house prices are stagnating. But is the Victorian economy doing as badly as it seems?

  • Written by David Hayward, Emeritus Professor of Public Policy, RMIT University



The early 1990s in Victoria[1] were tough. The economy was contracting severely, the population was shrinking, employment was collapsing and the unemployment rate skyrocketed to the highest in the land.

A long-term Labor government[2] got the blame for allowing state debt to spiral out of control. Victoria, reckoned a popular joke at the time, was “Australia’s Mexico without the sunshine”.

Is it happening all over again?

Some reporting in national media would suggest it is.

The Australian Financial Review[3] has recently run a series on the state, including a piece last week quoting business leaders saying the Victorian economy was in trouble.

Reference was made to the latest unemployment figures as supporting evidence. Victoria’s unemployment rate has risen[4] over the last year, and at 4.4% is now the highest in the country. Rising numbers of company failures and stagnant house prices were also cited.

Earlier in the month, data showing a falling rate of Victorian business start-ups[5] was highlighted, while another Financial Review article examined the decline in the number of conferences[6]. All this was referred to as evidence of a state struggling under the weight of

$8.6 billion in levies [imposed] in [Labor’s] 2023 budget to curb a mountain of state debt that is forecast to reach $188 billion by 2028.

The Australian[7] also ran a feature on Victoria echoing the same themes.

Readers were asked, “What the hell has gone wrong with Victoria?”. Public debt and taxation figured as prominent causes of an economic catastrophe in the making. The Australian deemed the state to be

at best, trapped in stagnation, forcing it to cover falling private investment and expenditure with ever greater public largesse. And at worst […] as the spending and debt build-up sets off the alarms, a vicious spiral is triggered […] until the whole Ponzi scheme collapses.

But are things that bad? What does the economic data actually show?

Some positive signs

It is true that unemployment in Victoria is rising, and is also high compared to the rest of the country. But it has been stable for the last four months, reflecting the impact of interest rate increases over the previous couple of years.

Also, looking back over the last 40 years, the increase has been from a very low base, and remains at an historically low level – and a long way off the highs of the 1990s.

The number of people in the labour force is continuing to grow at a healthy clip. The participation rate is now the highest on record.

Last month, the labour force increased in seasonally adjusted terms by 20,000, and almost all of these additional people ended up in employment.

The growth in employment since the end of the pandemic is notable.

Since January 2023, employment has increased by 268,000, or 8% in seasonally adjusted terms. That’s 37% of the jobs added in the whole of Australia during that time.

Yes, the share of job growth is falling, but it is still higher than the state’s population share, and it is from an unbelievably high base (55% of all jobs created nationally in July were in Victoria).

The Australian Financial Review acknowledged that the latest jobs data were indeed “unexpectedly strong[8]”.

What about business insolvencies?

Victorian insolvencies[9] are on the rise (up 61% in September compared to the same month last year). But so too are they across Australia, with the national number rising at a higher clip (up 70%).

What about the number of conferences in Victoria? We simply cannot be sure whether they are up or down, because there is no consistent data base to settle the matter.

And while Victoria may have fallen behind other states in the number of new startups per 1,000 businesses, the actual number of businesses[10] has increased by more than 31,000, or 3%, since the beginning of the year.

How are house prices and rents holding up?

Yes, house prices[11] are tumbling. In real terms, they are around 20% below their pandemic peak, at least partly caused by a bundle of new property taxes introduced in the 2023/24 state budget to help pay for pandemic-related debt.

But with housing affordability at an all-time low courtesy of high interest rates, that is no bad thing, especially for those keen to buy their first home.

That fall in house prices stands in contrast to a boom in rents[12] over the same time period.

Over the last 12 months, median rents in Victoria have increased by 13.3%, and by 4.3% over the last quarter. In the March quarter, the rental stock fell for the first time on record, perhaps supporting those who see an economy in trouble.

Board pinned to a front fence with a leased sign on it
Available rentals have fallen by 2.7%, the first decrease on record. James Ross/AAP[13]

But that fall amounted to barely 10,000 dwellings, or only 2.7% of the stock. Those properties had to be sold to someone, and it is likely many were sold to first time buyers who, in changing tenure, had no net effect on the rental market. A redistribution of wealth like that may be no bad thing.

Debt is high – but so is infrastructure spending

There is no doubt the Victorian economy has been slowing, as has the rest of the country. That is exactly the outcome sought by the Reserve Bank when it pushed up interest rates last year.

But there is little evidence to show Victoria is following the disastrous path of the early 1990s.

Back then, state debt grew alarmingly because of a savage recession. This time round, state debt has grown strongly, but largely to fund a construction pipeline on a scale the state has not seen before.

Infrastructure spending is now running close to $25 billion a year, almost five times what it was a decade ago. There’s a lot of jobs in those numbers, and shortly a lot of that infrastructure will come on line, boosting the state’s economic potential.

There is one other factor driving Victoria’s surprisingly resilient economy. Net international migration increased[14] by 152,000 in the year to March 2024 – almost 30% of the Australian total – driven partly by the return of international students.

Very fast, migration-driven population growth is not being matched by increased output, and the state’s household income per person is continuing its long-term decline, leading some to argue it has become a “poor state”[15].

Treasurer Tim Pallas will hope that the increase stock of debt-funded infrastructure provides the productivity boost sorely needed to turn that around.

While on several indicators Victoria’s economy is slowing, this largely reflects a national trend. Drilling down into the data shows there are signs of growth, which suggest alarm at this stage is not justified.

References

  1. ^ Victoria (www.smh.com.au)
  2. ^ Labor government (insidestory.org.au)
  3. ^ The Australian Financial Review (www.afr.com)
  4. ^ unemployment rate has risen (www.ceicdata.com)
  5. ^ business start-ups (www.afr.com)
  6. ^ number of conferences (www.afr.com)
  7. ^ The Australian (www.theaustralian.com.au)
  8. ^ unexpectedly strong (www.afr.com)
  9. ^ Victorian insolvencies (asic.gov.au)
  10. ^ number of businesses (asic.gov.au)
  11. ^ house prices (theconversation.com)
  12. ^ boom in rents (discover.data.vic.gov.au)
  13. ^ James Ross/AAP (photos.aap.com.au)
  14. ^ Net international migration increased (population.gov.au)
  15. ^ “poor state” (www.afr.com)

Read more https://theconversation.com/unemployments-up-house-prices-are-stagnating-but-is-the-victorian-economy-doing-as-badly-as-it-seems-241762

Independents took cities by storm last election. This time, they’ve got regional Australia in their sights

In 2022, the national vote for independents or minor parties was the highest[1] in almost a century. A third o...

The Times Features

Why You Need an Expert Electrician for Your Business’s Electrical Upgrades and Repairs

When it comes to maintaining and upgrading your business’s electrical systems, it’s essential to call in a professional. Electrical work in any commercial setting requires the ex...

Why Is It Crucial to Have a Building Inspection Done Before Buying a New Home?

Purchasing a new property is a big financial decision that can impact your future for years. Whether you are a first-time buyer or an investor, good or bad, it is essential to en...

Online Application for Sick Leave Certificate: Understanding When and How to Secure One

A sick leave certificate is an official document issued by a healthcare professional to verify an individual's inability to attend work due to illness. It typically includes the ...

A No-Fuss Guide to an Effective Beauty Routine

Taking care of the skin and appearance need not be complicated; it need not even consume your hours of time. Smart and simple approaches can give one that glow and fresh look witho...

Safe & Effective Tattoo Removal in Auckland – What You Need to Know

If you're looking for tattoo removal in Auckland, modern laser technology offers the safest and most effective way to fade or completely remove unwanted ink. Whether it's an outd...

Fleece-Lined Tights vs. Regular Tights: What’s the Difference?

When temperatures drop, choosing the right pair of tights can make a significant difference in comfort, warmth, and durability. Whether you wear tights for fashion, work, or outdoo...

Times Magazine

The Ultimate Guide to Apple Watch Faces & Trending Wallpapers

In today’s digital world, personalization is everything. Your smartwatch isn’t just a timepiece—it’s an extension of your style. Thanks to innovative third-party developers, customizing your Apple Watch has reached new heights with stunning designs...

The Power of Digital Signage in Modern Marketing

In a fast-paced digital world, businesses must find innovative ways to capture consumer attention. Digital signage has emerged as a powerful solution, offering dynamic and engaging content that attracts and retains customers. From retail stores to ...

Why Cloud Computing Is the Future of IT Infrastructure for Enterprises

Globally, cloud computing is changing the way business organizations manage their IT infrastructure. It offers cheap, flexible and scalable solutions. Cloud technologies are applied in organizations to facilitate procedures and optimize operation...

First Nations Writers Festival

The First Nations Writers Festival (FNWF) is back for its highly anticipated 2025 edition, continuing its mission to celebrate the voices, cultures and traditions of First Nations communities through literature, art and storytelling. Set to take ...

Improving Website Performance with a Cloud VPS

Websites represent the new mantra of success. One slow website may make escape for visitors along with income too. Therefore it's an extra offer to businesses seeking better performance with more scalability and, thus represents an added attracti...

Why You Should Choose Digital Printing for Your Next Project

In the rapidly evolving world of print media, digital printing has emerged as a cornerstone technology that revolutionises how businesses and creative professionals produce printed materials. Offering unparalleled flexibility, speed, and quality, d...

LayBy Shopping