Victoria ranks as Australia’s second most resilient jurisdiction, because of its strong economic capacity. NSW ranks third, marginally ahead of QLD and WA.
The ACT’s top place – maintained from the inaugural study in 2015 – is due to strong social and community factors, although this has taken a downturn in the last 2 years. The new report also shows a close correlation between resilience and growth, with ACT, Victoria and NSW’s growth rates from 2014-2018 mirroring their top three resilience rankings.
KPMG’s ‘Australian Regional Capacity Index’ (ARCI) compares the states and territories by 12 indicators, grouped in three categories – economic, socio-demographic and ‘community connectivity’. The single statistic which gives each jurisdiction its ranking is made up of 12 equally weighted indicators, classified into one of three capacity types:
- Regional economic indicators, which capture concepts of industrial diversification, business dynamics, regional affordability measured as a product of housing costs and income levels, and income equality
- Socio-demographic indicators, which capture concepts of life expectancy, educational attainment, female labour force participation and poverty
- Community connectivity indicators, which capture how familiar with and civically active a region’s residents are, as expressed by participation in sport and voter participation, incarceration rates and net overseas migration.
Dr Brendan Rynne, KPMG Chief Economist, said: “It is important to recognise that resilience does not equate to success, although our report does show a correlation between adaptability and growth. The index is not trying to measure absolute economic growth, but rather to quantifiably assess the settings available to achieve growth in a post-shock environment. The better a region is able to collectively enhance economic, socio-demographic and community outcomes the more likely it will be to withstand adversity and bounce back quickly. Adaptability is about being able to move away from the economic past and achieve a better outcome.” “During the last four years, Australia and its states and territories have experienced a range of domestic and global influences. Locally, these include natural disasters, such as major drought conditions afflicting most parts of Eastern Australia and flooding in Queensland; and changes in business conditions such as the substantial closure of the car manufacturing industry in South Australia and Victoria. International influences include the trade war between the US and China and commodity market fluctuations, in part driven by the iron ore mine closures in Brazil.” “The implications of our report are that policy-makers need to ensure not only the fundamentals of a diverse, investment-orientated economy but also that the necessary complementary building blocks of an educated, healthy population exist, while at the same time providing the environment for a safe and engaged community.”
Other key factors that explain the movement in the economic index the states and territories since 2014 include:
- Income inequality, as measured by the Gini coefficient, has improved slightly for Australia during the past four years. However, improvements in income equality have not uniformly progressed. NSW, SA and Tasmania have seen household income slightly more skewed to the top quintile, compared to other jurisdictions, while ACT has seen more even household income distributions since 2014.
- NSW continues to be the most economically diverse jurisdiction, with its economic structure largely replicating that of the national economy. The ACT has the least economic diversity, with high levels of activity associated with public administration.
- The ACT achieves a socio-demographic capacity value substantially higher than any other jurisdiction in Australia, as it consistently achieves very high levels of educational attainment, high life expectancy and female participation in the labour force, and comparatively moderate levels of household poverty.
- Levels of participation by women in Australia’s labour force continue to rise year-on-year, with every State and Territory recording higher levels in 2018 than what was recorded in 2014. The ACT and NT continue to have the highest levels of female participation within their jurisdictional labour force, while Tasmania and South Australia have the lowest.
- Households living in poverty remains a significant social, economic and community problem. Most jurisdictions over the past 4 years have been able to improve the situation for some households, lifting them out of the poverty trap and into a more stable economic foothold. Unfortunately this hasn’t been the case for either WA or the NT, where poverty rates increased between 2014 and 2018.
- Regional affordability, as measured by housing costs as a proportion of gross household income, has improved in Victoria, South Australia and Tasmania, and worsened slightly in the remaining States and territories. NSW remains the least affordable location for accommodation relative to household income in Australia.
- The rate of “business churn” – the number of new businesses starting up and existing businesses closing - has increased across Australia since 2014, and is notably higher in Victoria and ACT.
- R&D spend has dropped off in most jurisdictions since 2014, including by around 15 percent for businesses located in NSW, 7 percent in Victoria, 10 percent in South Australia and 5 percent in Tasmania. One shining light for this indicator has been WA, which has seen R&D activity increased by more than 80 percent compared to spending four years ago.
- Internet connectivity has improved with the continued roll-out of the NBN across Australia. Tasmania achieved the greatest improvement in connectivity over the past 4 years, while the ACT now has more than 96 percent of residents connected to the internet.
The KPMG ARCI incorporates each of the 12 resilience capacity indicators, weighing each indicator equally, creating the effect that individual indicators are ‘worth’ the same as each other in the composite measure. It does not attempt to measure absolute growth, either economic or population; rather it seeks to quantifiably assess the settings available to achieve growth in a post-shock environment. In some regards the ARCI is analogous to the relativity values used by the Commonwealth Grants Commission top determine its differing GST payments to the states and territories.