Thoroughbred WA leads Vic in a canter

Western Australia has a lot to learn from Victoria, which might seem an odd comment given the recent economic performance of the two states.

While WA has significantly outclassed Victoria across all major economic metrics, every science student knows you can learn as much from a failed experiment as a successful one.

In Victoria’s case it’s the failures on multiple levels that make it a place to watch, rather than ‘the place to be’, which was a slogan once displayed on Victorian vehicle licence plates.

The poor financial health of the Victorian government is a starting point in a comparison of the two states, with WA running a handy $3.7 billion budget surplus and Victoria sliding deeper into debt, which is forecast to hit $180 billion in 2027.

Housing prices provide another interesting comparison, as evidenced in the latest reports from CoreLogic.

In the March quarter, CoreLogic’s Perth home value index rocketed up by a remarkable (and almost certainly unsustainable) 19.8 per cent, whereas the Melbourne index rose by 3.2 per cent.

The index value difference is so great that it could be an indicator of a new Victorian exodus as residents relocate to other states with greater growth potential and lower taxes.

The last time an event like that occurred was in the 1890s, when Melbourne fell into a depression triggered by a property crash.

WA proved a favoured migration destination because it had jobs to offer in the recently discovered goldfields around Kalgoorlie.

The latest flight of Victorians to other states is being led by wealthy property owners, who have been hit with a steep increase in land tax to help repair the state’s damaged budget. And their money could be a factor in Perth’s recent property price boom.

Property investors, while not often popular with politicians, are an integral part of housing supply, providing the capital to build dwellings the state can’t afford.

Losing a portion of the property mix means that rents for available properties in Victoria are rising rapidly, boosted by a government policy to encourage an influx of foreign students, who are now struggling to find a place to sleep.

There are other examples of how badly run Victoria has been for the past decade; a rolling disaster that culminated in the abrupt (and expensive) decision to cancel the 2026 Commonwealth Games.

A rush to decarbonise the state by banning new household gas connections is starting produce perverse results, such as an increase in carbon pollution rather than a decline because a forecast renewables boom is yet to happen.

Because solar panels and wind turbines are not yet delivering the electricity needed to power Victoria, and might never be sufficient as electricity demand rises, the risk of entire industries relocating or simply closing is very real. The likely closure of the Qenos plastics business is potentially an early example of industries following people out of the state.

If what’s happening wasn’t so serious it would be hard to not laugh, because the no-gas policy has led to the burning of more brown coal, the worst form of carbon pollution.

Where Victoria’s troubles become useful for WA is to see them as a failed experiment, and one not to be repeated.

In other words, WA has the luxury of being able to see what happens when the theory of creating a greener economy moves too far too quickly to comply with a political theory, rather than following sensible policies.

The electricity-over-gas situation might sound good in principle, and WA has its own gas policy problems, but to cut off one source of essential energy before a replacement is available verges on a form of vandalism.

Luck has undoubtedly played a role in WA’s good fortune, along with a willingness to develop the state’s geological endowment; a step Victoria is refusing to take in the name of green political theory.

The difference between WA and Victoria was the highlight in the latest edition of Westpac Bank’s Coast to Coast research report, with the Victoria chapter headed ‘Stalling on consumer, housing sector weakness’.

The WA chapter was headed ‘Bucking the wide trend’.

That sort of report can encourage some WA politicians to boast about how well the state is performing relative to the rest of the country. However, as has been said before, boasting is an ugly habit and potentially a costly one, given the repeated attempts by the poorer states to raid WA’s share of the GST.

A far better approach for the WA government would be to closely study the actions of the Victorian government and do the opposite.

It would also be wise to prepare for a fresh tax attack as Victoria slips deeper into debt, eventually discovering that industries and people are migrating, which means even higher taxes on the locals to try and service an unmanageable debt load.

The Westpac report provides a few clues as to how Victoria is slipping into dangerous territory, forced to rely on major sporting events such as the Australian Open tennis championship and the Formula 1 weekend to make the locals feel comfortable.

That sort of public relations trick was perfectly captured a few thousand years ago by the Roman poet Juvenal, who is credited with the saying “give them bread and circuses and they will never revolt”. In time, even the most loyal Victorian will look at the numbers published by Westpac, such as the average contribution per person to gross state product ($84,600 in Victoria and $157,400 in WA), and wonder where their state is going.

Share of national exports is even more interesting, with WA stretching out to a 42 per cent share whereas Victoria has slipped to 9 per cent.

Watching Victoria is like observing a slow-motion car accident while thinking ‘I’m glad I’m not there’.

The more important point, though, is that the lesson of failure can be far more valuable than the lesson of success.

Trade off

It's official, almost.

Australia has emerged the winner from the utterly pointless trade war waged by China.

This rerun of the David versus Goliath story was judged earlier this month April in London’s Financial Times newspaper by its trade writer, Alan Beattie.

The conclusion of his analysis was “a points win” for Australia thanks to economic flexibility and an ability to roll with punches by finding new markets for goods China had banned.

Perhaps more importantly, Australia has learned the lesson of diversification, something wine producers will not have forgotten. China might be open for business today, but it can close again tomorrow.