18mm spine10mm allowancespine
2008-09 Budget
Northern Territory Economy
2008-09 Budget
Northern Territory Economy Beijing
6000 Seoul
km Tokyo
50km 5550
5450 km
Taipei Hong Hanoi 4300 km Kong 4250
km 4650
km Bangkok Manila
3200 km
4450 km
Brunei
2700 Kuala Lumpur 365 km Singapore 0 km 3350 k m
Jakarta
2700 km Dili 700 km 1800 km Darwin Port Moresby
1500 km
2850 km
Alice Springs
2600 km 3150 km Brisbane km 3150 km
2650 Perth 3150 km 3750 km Sydney Adelaide Canberra Melbourne
Hobart Contents
Overview 1 Chapter 1 Structure of the Economy 5 Chapter 2 Economic Growth 11 Chapter 3 Population 21 Chapter 4 Labour Markets 39 Chapter 5 Prices and Wages 53 Chapter 6 External Economic Environment 65 Chapter 7 International Trade 69 Chapter 8 Mining and Energy 79 Chapter 9 Manufacturing 89 Chapter 10 Construction 93 Chapter 11 Residential Property Markets 103 Chapter 12 Tourism 113 Chapter 13 Retail and Wholesale Trade 121 Chapter 14 The Public Sector 129 Chapter 15 Defence 135 Chapter 16 Transport and Communication Infrastructure 145 Chapter 17 Rural Industries and Fisheries 155 Abbreviations 165 Glossary 167 Charts 169 Maps 170 Tables 171
Contents iii
Overview
The small size of the Northern Territory economy means that large, typically resource-based, projects can have a substantial impact on investment and production, resulting in volatile growth patterns. The structure of the economy reflects significant natural resources, the Territory’s importance in national defence and the relatively large tourism and public sectors. The significance of the mining and tourism industries makes the Territory economy particularly reliant on exports and susceptible to developments in key export markets and the world economy generally. The Economy in 2007-08 In 2007-08 Territory state final demand (SFD) is estimated to increase by 2.1 per cent driven by very strong levels of total consumption expenditure which more than offset the significant decline in total investment expenditure associated with the completion of mega projects. Household consumption expenditure is estimated to grow by 6.4 per cent in 2007-08, supported by strong employment and population growth and high levels of consumer confidence. Business investment is estimated to decline by 9.2 per cent in 2007-08 reflecting significant declines in engineering construction activity associated with major projects. In addition, the level of dwellings investment is estimated to decline by 3.3 per cent in 2007-08, as housing affordability and interest rates dampen activity. The level of public consumption expenditure reflects the significance of spending on both Closing the Gap and the Northern Territory Emergency Response in 2007‑08. Public investment in 2007-08 is being supported by the ongoing delivery of the Middle year’s schooling program as well as continued development of the Desert Knowledge Precinct in Alice Springs. Gross State Product Following an increase of 5.6 per cent in 2006-07, Territory gross state product (GSP) is estimated to increase by 2.8 per cent in 2007-08. The more modest growth rate compared to 2006‑07 is due to lower net exports and lower investment. The negative contribution of net exports to growth in 2007‑08 reflects the impact of scheduled maintenance shut-downs at the Wickham Point liquefied natural gas (LNG) plant and associated gas fields, as well as the temporary closure of the Corallina oilfield and the permanent closure of the Elang Kakatua oilfield. In addition, total private investment expenditure is estimated to decline by 8.5 per cent in 2007-08, reflecting the completion of major works on the Alcan G3 expansion, and despite increases in machinery and equipment expenditure by many mine operators. Population Population growth is estimated at 2.2 per cent in 2007, up from the reported growth rate of 2.0 per cent in 2006. Construction of the Darwin Waterfront is currently providing good employment opportunities and the associated construction of hotels, residential apartments and retail complexes will continue for several years. In addition the new suburbs of Lyons and Muirhead are well under way. Construction of the Blacktip gas project will provide good employment opportunities during 2008-09. Labour Force The Territory labour market continued its strong performance in 2007-08, with estimated resident employment growth of 4.8 per cent and an estimated average unemployment rate of 4.5 per cent (up from 3.8 per cent in 2006‑07) as strong employment conditions prevail, encouraging greater numbers of job seekers into the labour market. Related indicators, such as the Sensis Business Index, the ANZ job advertisements series and the skilled vacancy survey, point to strong employment growth and a shortage of skilled labour.
Overview 1 2008-09 Budget
Prices Darwin’s Consumer Price Index (CPI) is estimated to increase by 3.1 per cent in 2008, a moderation from the 3.4 per cent increase reported for 2007. The 2007 result was the highest of the capital cities, and compares with the 2.3 per cent increase recorded nationally. The relatively high Darwin CPI figure for 2007 was driven by the significant increase in Darwin house prices, as well as increases in fuel costs and financial and insurance services (reflecting the impact of both higher interest rates and insurance premiums). The expected moderation in Darwin house prices over 2008 will offset some of the expected fuel and freight cost increases such that the Darwin inflation rate is estimated to moderate. Wages Solid wages growth in 2007, both in the Territory and nationally, reflects tight labour market conditions and skilled labour shortages prevalent throughout the year. In the year to December 2007, the Territory Wage Price Index (WPI) increased by 3.9 per cent, compared to 4.1 per cent nationally. This reflects a consolidation of wages growth in the Territory, with growth in 2007 equal to the reported growth in 2006. Private sector wages in the Territory increased by 4.8 per cent in 2007 compared to 2.7 per cent for the public sector. The lower wages growth reported for the public sector mainly reflects the timing of negotiations for enterprise bargaining agreements across the public sector. Outlook for 2008-09 and Beyond Gross State Product Economic growth is forecast to strengthen to 6.6 per cent in 2008-09, as the contribution from exports increases substantially, with full recovery from the temporary closures of both Wickham Point and the Corallina oilfield, as well as significantly higher oil production from the Puffin field. In addition, with the completion of the conversion to open cut operations at McArthur River, the production of lead‑zinc will increase significantly, as will the output of alumina from Alcan, and iron ore from the Frances Creek mine. State Final Demand Territory SFD is forecast to decrease by 0.4 per cent in 2008-09, due to the continued significant decline in total investment expenditure as major projects are completed. In addition, growth of both household and public sector consumption expenditure are forecast to moderate in 2008-09. The more modest contribution of total consumption expenditure in 2008-09 is not sufficient to offset the decline in total investment expenditure, resulting in the forecast decrease in SFD. Population Population growth is forecast to moderate to 1.9 per cent in 2008, with net interstate migration returning to longer run averages due to the completion of some major employment generating projects. Employment Resident employment growth of 2.5 per cent is forecast for 2008-09, underpinned by residential construction and work on resource projects and continued migration and tourism growth. The more modest growth rate forecast for 2008-09 is in line with the forecast moderation in SFD growth over the same period. Despite strong labour demand associated with high levels of construction activity and strong economic conditions, growth in employment may be partially constrained by limited availability of skilled labour. The ability of Territory employers to attract and retain suitable skilled workers will continue to be a critical factor in determining employment growth in the Territory. Prices and Wages Inflation in the Territory is expected to continue to moderate in 2009, remaining within the Reserve Bank of Australia’s (RBA) target band of 2 to 3 per cent. Darwin CPI growth of 2.8 per cent is forecast for 2009. The continued softening of inflationary pressures in 2009 is attributed to higher interest rates, house price growth moderating further and lower crude oil prices relative to 2008. This softening in the
2 Overview Darwin CPI is expected to be partially offset by continued skilled labour shortages and the prevailing tightness of the labour market, as well as the possible depreciation in the Australian dollar (in line with the strengthening of the United States (US) dollar in 2009) which could lead to inflationary pressure in the economy, particularly in the manufacturing and tourism sectors. Wages growth in the Territory is expected to strengthen in 2008 as outcomes of the finalised enterprise bargaining agreements flow through to stronger public sector wages growth. In addition ongoing skilled labour shortages and a tight labour market are expected to flow through to growth in the Territory’s WPI averaging around 4.0 per cent over the year.
2003-04 2004-05 2005-06 2006-07 2007-08e 2008-09f Summary of Territory Economic % % % % % % Indicators Real GSP 2.0 5.5 5.5 5.6 2.8 6.6 Resident Employment -2.9 -1.3 3.0 5.3 4.8 2.5 Population1 0.7 1.6 2.3 2.0 2.2 1.9 Darwin CPI2 2.1 1.6 2.6 4.4 3.43 3.1
e: estimate; f: forecast 1 As at December, annual percentage change 2 As at December, year on year percentage change 3 Actual Darwin CPI 2007 Future Potential The economic base of the Territory is expected to expand significantly over the next decade. • There is potential for construction of Train Two of the Wickham Point LNG plant to begin construction in the next one to two years with exports around four years later. • Following ratification of the International Unitisation Agreement and the Certain Maritime Arrangements in the Timor Sea Treaty in January 2007, Woodside announced that it would proceed to explore development options for the Greater Sunrise liquids and gas field in the Timor Sea. Greater Sunrise has an estimated 6 trillion cubic feet of natural gas. • An area at Middle Arm has been identified as a potential site for a major gas-based industrial estate and associated port facilities. Possible gas manufacturing projects include further production of LNG, or gas-based products such as methanol, ethane, ammonia/urea fertilisers and various petrochemicals. • In February 2008, the Territory Government signed a project facilitation agreement with Japanese oil and gas company Inpex to evaluate the possibility of constructing an LNG plant at the Middle Arm Peninsula, near Darwin. • Nexus Energy is proposing to undertake a US$1 billion development at the Crux liquids and gas field located 700 kilometres northwest of Darwin. The development will entail the mooring of a floating, production storage and offloading vessel at the field and the construction of a number of wells and interconnecting pipelines. Condensate and LPG will be extracted with natural gas re-injected into the well. A final investment decision is expected in 2008, with the potential for first liquids production from 2010. • Compass Resources is currently undertaking a feasibility study of its proposed $750 million Browns Sulphide project near Batchelor. A number of production scenarios are currently being examined, with the potential for production to commence in 2010 or 2011.
Overview 3 2008-09 Budget
• Arafura Resources is currently in the process of assessing the feasibility of developing the Nolans rare earths-phosphate-uranium deposit located approximately 135 kilometres north of Alice Springs. If the study proves to be successful and government approval is forthcoming, the company is proposing to freight the ore to Darwin by train where it will be processed at a $300 million plant. • As the Territory continues to develop as a service and manufacturing hub for the northern Australian mining and energy sectors, further opportunities are likely to be created for the Territory construction industry. • Production of oil from the Montara project, from the Montara, Skua, Swift/Swallow oil fields in the Timor Sea, is due in 2009. • Construction will continue at the Darwin Waterfront, with the addition of residential apartments, retail outlets and a hotel. • Over the next four years the Australian and Territory Government have committed to a jointly funded major program for Indigenous housing in Territory communities. The strategic Indigenous Housing and Infrastructure Program (SIHIP) has an anticipated total value of $647 million, with $547 million provided by the Australian Government and $100 million by the Territory Government. • The construction of a $33 million backpacker resort in Alice Springs commencing in 2008-09.
4 Overview Chapter 1 Structure of the Economy
Key Points »»The Northern Territory economy is markedly different to other Australian jurisdictions. It has an abundance of natural resources, a large public sector and a significant defence presence. »»The Territory economy is highly influenced by global economic conditions due to its relatively small size and commodity-focused base. »»The importance of mining and mining-related production will grow as production reaches full capacity following the completion of major infrastructure projects. »»The manufacturing base has significantly increased with the Alcan G3 refinery expansion, completed in 2007. »»A relatively large mineral and energy industry means that the Territory economy is capable of high growth as resources are developed.
Territory gross state product (GSP), at about $13.4 billion, accounts for about 1.3 per cent of national gross domestic product (GDP). Key activities in the Territory economy include mining, defence, alumina production, liquefied natural gas (LNG) production and government services. Notable differences between the Territory and the national economy include a greater contribution from mining, construction, and government administration and defence, and a comparatively small contribution from manufacturing, finance and insurance, and property and business services (Chart 1.1). The contribution of the manufacturing industry to Territory GSP will increase significantly in coming years as the LNG produced at Wickham Point is exported to Japan, and the completed Alcan G3 refinery expansion increases alumina production levels from 1.7 million tonnes per annum in 2006‑07 to 3.5 million tonnes by 2008-09. International exports of goods and services from the Territory are an important source of demand, averaging around 40 per cent of Territory GSP for most of the past decade compared to 21 per cent nationally.
Chart 1.1: Industry Proportion of % 25 GSP and GDP, 2002-03 to 2006-07 (five year average) 20 15
10
5
0 Mining Utilities insurance Retail and Cultural and Finance and and defence Government Agriculture Property and Personal and administration other services Construction communication and restaurants Transport and wholesale trade Manufacturing business services recreational services Accommodation, cafes Health and education Northern Territory Australia Ownership of dwellings Source: ABS Cat. No. 5220.0
Structure of the Economy 5 2008-09 Budget
Industry Structure In terms of contribution to GSP, mining is the most significant Northern Territory industry, accounting for 24.5 per cent of GSP in 2006-07, more than three times the national figure of 7.0 per cent (Table 1.1). The Territory’s figure is significantly influenced by activity associated with a few major resource projects, namely the Laminaria-Corallina oilfield in the Timor Sea, production from which is attributed to the Territory, and liquid petroleum gas production (condensate) from Bayu-Undan. A relatively high proportion of Territory GSP is attributed to government administration and defence services. This reflects the diseconomies of scale associated with providing public services to a small and dispersed population combined with the high needs of the Territory’s relatively large Indigenous population. The defence presence in the Territory is also relatively large compared to other jurisdictions. Other notable differences between the Territory economy and the national economy are the greater proportion of tourism-related production (accommodation, cafes and restaurants, and cultural and recreational services) in the Territory and the higher proportion of construction production compared to most other jurisdictions. Construction is currently a key contributor to the GSP of the three resource-rich jurisdictions of Western Australia, Queensland and the Territory, as the mining boom fuels construction. In the Territory in 2006-07, engineering construction comprised 69 per cent of total construction, while residential building comprised 17 per cent and non-residential comprised 14 per cent. The contribution of the manufacturing industry is significantly lower in the Territory than in most other jurisdictions, but has increased as production from the completed Wickham Point LNG plant reached full capacity in 2006-07 and the completed Alcan G3 expansion increases alumina production. Production of both LNG and alumina is attributed to the manufacturing industry. The proportion of the Territory’s economic production attributed to service industries (all industries excluding agriculture, forestry and fishing, mining and manufacturing) is the second lowest in Australia at 53 per cent. The proportion of the national economy’s output attributed to service industries is 65 per cent. However, in employment terms, the Territory has a high proportion of people employed in the service industries, representing 91 per cent of employment compared to 85 per cent nationally. Part of the percentage increase in service industry employment is attributable to the decrease in the number of workers in capital intensive industries, such as mining and communication. This would have the effect of increasing labour‑intensive industries’ percentage share of total employment, which predominantly consist of service-related industries.
6 Structure of the Economy Table 1.1: Industry Proportions of NSW Vic Qld SA WA Tas NT ACT Aust GSP and GDP, 2006-07 Agriculture, forestry and fishing 1.3 2.3 2.8 3.4 2.1 5.4 2.2 0.1 2.1 Mining 2.3 2.0 7.9 3.9 28.6 2.7 24.5 0.0 7.0 Manufacturing 10.0 12.5 9.3 13.2 7.3 13.8 5.4 1.6 10.2 Electricity, gas and water 1.9 2.4 1.9 2.8 2.4 4.6 1.2 2.2 2.2 Construction 6.2 6.1 8.5 6.2 7.3 5.3 7.3 7.0 6.7 Wholesale trade 4.9 5.5 4.6 4.0 3.5 3.5 2.0 1.8 4.6 Retail trade 5.5 5.5 7.0 5.9 4.7 6.7 4.1 4.5 5.7 Accommodation, cafes and 2.3 1.6 2.7 2.2 1.2 2.4 2.5 1.9 2.1 restaurants Transport and storage 4.2 4.5 5.6 4.3 5.1 4.8 4.1 1.9 4.6 Communication services 2.6 3.2 2.3 2.3 1.9 2.2 2.0 2.4 2.5 Finance and insurance 10.2 8.0 5.2 6.2 3.5 5.7 2.2 3.4 7.3 Property and business services 14.3 13.1 9.3 9.4 9.1 5.8 7.2 12.5 11.8 Government administration and 3.7 2.6 4.3 3.5 2.4 5.6 7.8 28.7 4.0 defence Education 4.1 4.6 4.3 4.8 2.8 5.1 4.0 5.3 4.2 Health and community services 5.7 6.0 5.7 7.2 4.7 8.6 5.3 5.6 5.8 Cultural and recreational 1.6 1.6 1.2 1.5 1.0 1.6 1.5 2.7 1.5 services Personal and other services 1.8 1.7 2.1 2.2 1.6 2.2 2.1 2.6 1.8 Ownership of dwellings 8.7 7.7 7.9 8.3 5.7 6.9 9.5 8.3 7.8 Taxes less subsidies 8.8 9.2 7.5 8.9 5.2 7.2 5.1 7.5 8.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: ABS Cat. No. 5220.0 Employment by Industry Chart 1.2 compares GSP and employment by industry in the Territory. The mining industry is a relatively small employer, despite its contribution to GSP. The government administration and defence industry is the largest employer in the Territory, comprising 24.5 per cent of total Territory employment, followed by the health and education industry at 18.4 per cent. The retail and wholesale trade industry is also a relatively large employer in the Territory.
Chart 1.2: Territory Employment % and GSP Proportions, 2006-07 25 20
15
10
5
0 Mining Utilities Finance Retail and Agriculture, Cultural and and defence Government Construction Property and Personal and Transport and administration and insurance other services Manufacturing communication and restaurants wholesale trade business services forestry and fishing recreational services Health and education Accommodation, cafes GSP Employment Source: ABS Cat. No. 5220.0, Census 2006
Since the 1996 Census, the number of people employed in both the mining and communication industries, as reported in the 2006 Census, has fallen more than 40 per cent. These decreases may be attributed to the changing technologies in the industries, whereby these industries have become more capital intensive. The
Structure of the Economy 7 2008-09 Budget
number of people employed in government administration and defence and the education industry has increased significantly since the 1996 Census, at 35 per cent and 20 per cent respectively. The increase in government administration and defence employment may be the result of the relocation of significant numbers of defence personnel to the Territory in the mid to late 1990s, and the increased provision of services by the government industry. Export Propensity In 2006-07, international trade exports of goods and services accounted for 35 per cent of Territory GSP, an increase on the previous two years and higher than the national figure of 20 per cent, mainly due to LNG production at Wickham Point and alumina production from the Alcan G3 refinery expansion. Over the past five years, the composition of Territory exports has changed, with mineral fuel and ore exports increasing substantially, while exports of livestock have remained relatively stable (Chart 1.3). LNG exports have contributed significantly to the increase in mineral fuel exports, accounting for about 65 per cent of the total over the past year, while a number of mining projects have contributed to the increased mineral ore exports, namely the completed Alcan G3 expansion boosting alumina exports.
Chart 1.3: Composition of Territory $B Merchandise Exports 2.5
2.0
1.5
1.0
0.5
0.0 2004 2005 2006 2007 2008e Year ended June Livestock1 Mineral fuels2 Mineral ores
e: estimate 1 Predominantly live cattle exports 2 Predominantly LNG exports Source: ABS Cat. No. 5368.0
The significance of international exports to the Territory economy means that it is somewhat more exposed to conditions in world markets than other jurisdictions. Territory merchandise exports are primarily minerals, energy and agricultural commodities, which are prone to significant price fluctuations. Global supply and demand conditions, and the impact of exchange rate movements on competitiveness, are key factors affecting production and income. In the short to medium term, continued strength in global demand, especially from the rapidly growing economy of China, is expected to lead to increased demand for Territory minerals. Expenditure Patterns Overall, the balance between consumption and investment expenditure in the Territory and nationally is quite similar, with consumption expenditure accounting for about three-quarters of the Territory’s state final demand (SFD).
8 Structure of the Economy Consumption General government consumption in the Territory accounts for a significantly higher share of total consumption expenditure compared to the national figure, while household consumption is lower (Chart 1.4). This reflects the relatively large presence of government administration and defence in the Territory compared to other jurisdictions. Capital Formation Private capital formation in the Territory accounted for 25.4 per cent of final demand, a marginally higher share compared to the national figure of 21.8 per cent. This reflects the work on major projects over the five years to 2006‑07 in the Territory, contributing a large proportion to Territory SFD. However, the contribution of private capital formation in the Territory may decline in coming years with the completion of the LNG plant at Wickham Point and the Alcan G3 refinery expansion at Gove. Public capital formation is similar in the Territory and nationally.
Chart 1.4: Proportion of % SFD, 2002-03 to 2006‑07 60 (five year average) 50
40
30
20
10
0 Household General government Private capital Public capital consumption consumption formation formation
Northern Territory Australia
Source: ABS Cat. No. 5220.0 Household Patterns of household consumption are somewhat different in the Territory compared Consumption Patterns to nationally (Chart 1.5). Territory consumers spend relatively more (as a proportion of consumption expenditure) on rent and other dwelling services, food, and culture and recreation than Australian consumers in general. In relation to rent and other dwelling services, this reflects the significant increase in Territory house prices and rent in 2006-07, when the Darwin Consumer Price Index (CPI) reported the highest increases on record for house purchases and the highest increase in rents in 19 years. This increase in house purchase costs in Darwin was more than double the increase at the national level, while the increase in Darwin rents exceeded the national increase by 32 per cent. Food prices in the Territory are higher due to freight costs for most goods, combined with weaker competitive pressures relating to the small market size. Culture and recreation consumption is relatively higher in the Territory due to tourist consumption expenditure, which is a key component of the Territory economy.
Structure of the Economy 9 2008-09 Budget
Chart 1.5: Household Final % Consumption Expenditure, 2006-07 25 20
15
10
5
0 Food Health services footwear Transport Education recreation restaurants Culture and and tobacco Clothing and and other fuel Miscellaneous Electricity, gas Rent and other Communications Hotels, cafes and dwelling services goods and services Alcoholic beverages household equipment Furnishings and other Northern Territory Australia Source: ABS Cat. No. 5220.0
Lower proportional expenditure on clothing is presumably due to the warmer climate in Darwin, while lower transport expenditure may reflect shorter commuting distances for urban-dwelling Territorians. Lower expenditure on electricity, gas and other fuels reflects subsidies provided by the Northern Territory Government and a larger household size, combined with relatively high average household incomes. Lower private consumption of health and education services in the Territory reflects the relatively low provision of private sector services relative to other jurisdictions. Business Investment Private industry business investment in the Territory has increased steadily from 12 per cent of SFD in 1995-96 to 20 per cent in 2006-07. Private investment in the Territory is extremely volatile, as the timing of investment for major resource projects such as the Alcan G3 refinery expansion continued to have an impact on business investment in 2006-07. Non-dwelling construction is the main driver of total business investment in the Territory and is primarily made up of new engineering construction. In 2006-07, the machinery and equipment component of business investment reported strong growth, while all other components reported decreases (Chart 1.6). Business investment is expected to remain at high levels in the medium term as a number of large-scale mining and gas-related projects proceed. Defence and social infrastructure projects are expected to boost public industry investment in coming years, as will ongoing work on major projects such as the Darwin Waterfront.
Chart 1.6: Business Investment $M Components, 2006-07 3500 Total business investment 3000
2500 Non-dwelling construction 2000
1500
1000 Machinery and equipment 500 Intangible fixed assets Livestock 0 97 98 99 00 01 02 03 04 05 06 07 Year ended June Source: ABS Cat. No. 5206.0
10 Structure of the Economy Chapter 2 Economic Growth
Key Points »»Economic growth in the Northern Territory tends to be volatile from year to year. The small size of the economy means large, typically resource-based projects can have a substantial impact on investment and income streams. »»During the three years to 2006-07 Territory GSP grew by an average annual rate of 5.5 per cent. Growth was driven by strong consumption and a substantial increase in investment associated with major resource projects, followed by solid growth in exports and the commencement of LNG production. »»Economic growth is estimated to ease to 2.8 per cent in 2007-08 as business investment declines in line with the completion of the Alcan expansion, while scheduled maintenance at Wickham Point, temporary closure of the Corallina oil field and the permanent closure of the Elang Kakatua oil field contribute to a moderate decrease in exports. These are offset by very strong consumption expenditure, particularly among Territory households. »»Economic growth is forecast to strengthen to 6.6 per cent in 2008-09, driven by a substantial recovery in export volumes and supported by consumption expenditure.
Table 2.1: Territory Economic GSP Growth Profile Period Growth % Comment 2004-05 5.5 Onshore recovery broadens. Strengthening in construction, mining and tourism. Business investment falls, but greater level of local value-adding. 2005-06 5.5 Construction for major projects continues, and liquefied natural gas (LNG) production commences. Strengthening in mining and energy sectors. Population growth supports solid residential construction activity. Darwin Waterfront project proceeds. 2006-07 5.6 Ongoing strong economic growth, despite declining construction activity associated with the completion of the Alcan alumina refinery expansion, led by a full year of LNG exports and increasing mineral exports, especially for alumina. 2007-08e 2.8 Investment returning to expected levels with completion of mega projects. Population and employment growth supported by high levels of construction and mining activity. Exports decline sightly reflecting lower energy production levels offshore. 2008-09f 6.6 Strong growth driven by net exports as mining and manufacturing volumes pick up, due to increased alumina production and increased offshore oil and gas production. Activity will be partially offset by declining growth in private consumption, and a decrease in private investment, as engineering construction and machinery and equipment investment come off recent highs.
e: estimate; f: forecast Source: Northern Territory Treasury, ABS Cat. No. 5220.0
Economic Growth 11 2008-09 Budget
Table 2.2: Territory State Final Demand (SFD) and Gross State Product (GSP) 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08e 08-09f $M1 Private consumption 3 959 4 219 4 366 4 650 4 863 5 173 5 418 5 728 5 918 6 297 6 500 Public consumption 3 202 3 446 3 483 3 498 3 586 3 752 3 871 3 955 4 139 4 361 4 561 Total consumption 7 164 7 668 7 851 8 148 8 449 8 924 9 289 9 684 10 057 10 658 11 061 Private investment Dwellings 791 592 354 366 403 387 495 567 573 554 537 Business investment 2 424 1 450 1 426 2 204 2 378 2 609 2 621 3 065 2 955 2 682 2 191 Total private investment2 3 270 2 085 1 844 2 684 2 900 3 150 3 263 3 789 3 681 3 370 2 855 Public investment 274 400 583 693 464 471 591 603 546 561 613 Total investment 3 491 2 490 2 460 3 406 3 370 3 622 3 861 4 392 4 227 3 930 3 469 State Final Demand3 10 686 11 552 10 304 11 552 11 820 12 550 13 150 14 076 14 285 14 588 14 530 Total exports 3 727 5 276 6 681 5 312 4 661 3 689 3 517 3 425 4 628 4 576 5 291 Total imports 878 2 090 964 1 033 1 248 1 314 2 538 3 184 3 236 3 225 3 373 Net exports 2 849 3 186 5 717 4 279 3 413 2 375 979 241 1 392 1 351 1 918 Balancing item -3 493 -2 690 -4 736 -4 420 -3 801 -3 337 -2 038 -1 624 -2 232 -2 158 -1 758 Gross State Product (A) 9 650 10 355 10 930 11 118 11 184 11 408 12 032 12 693 13 405 13 782 14 690 Percentage change Private consumption 5.4 6.6 3.5 6.5 4.6 6.4 4.7 5.7 3.3 6.4 3.2 Public consumption 5.6 7.6 1.1 0.4 2.5 4.6 3.2 2.2 4.7 5.4 4.6 Total consumption 5.5 7.0 2.4 3.8 3.7 5.6 4.1 4.3 3.9 6.0 3.8 Private investment Dwellings 43.6 -25.2 -40.2 3.4 10.1 -4.0 27.9 14.5 1.1 -3.3 -3.1 Business investment 88.3 -40.2 -1.7 54.6 7.9 9.7 0.5 16.9 -3.6 -9.2 -18.3 Total private investment 71.5 -36.2 -11.6 45.6 8.0 8.6 3.6 16.1 -2.9 -8.5 -15.3 Public investment -35.1 46.0 45.8 18.9 -33.0 1.5 25.5 2.0 -9.5 2.7 9.4 Total investment 49.4 -28.7 -1.2 38.5 -1.1 7.5 6.6 13.8 -3.8 -7.0 -11.8 State Final Demand 17.0 8.1 -10.8 12.1 2.3 6.2 4.8 7.0 1.5 2.1 -0.4 Total exports 1.1 41.6 26.6 -20.5 -12.3 -20.9 -4.7 -2.6 35.1 -1.1 15.6 Total imports -24.4 138.0 -53.9 7.2 20.8 5.3 93.2 25.5 1.6 -0.4 4.6 Net exports 12.9 11.8 79.4 -25.2 -20.2 -30.4 -58.8 -75.4 477.6 -2.9 41.9 Balancing item 66.1 -23.0 76.1 -6.7 -14.0 -12.2 -38.9 -20.3 37.4 -3.3 -18.5 Gross State Product (A) 6.2 7.3 5.6 1.7 0.6 2.0 5.5 5.5 5.6 2.8 6.6 Percentage point contribution to Gross State Product Private consumption 2.2 2.7 1.4 2.6 1.9 2.8 2.1 2.6 1.5 2.8 1.5 Public consumption 1.9 2.5 0.4 0.1 0.8 1.5 1.0 0.7 1.4 1.7 1.5 Total consumption 4.1 5.2 1.8 2.7 2.7 4.2 3.2 3.3 2.9 4.5 2.9 Private investment Dwellings 2.6 -2.1 -2.3 0.1 0.3 -0.1 0.9 0.6 0.0 -0.1 -0.1 Business investment 12.5 -10.1 -0.2 7.1 1.6 2.1 0.1 3.7 -0.9 -2.0 -3.6 Total private investment 15.0 -12.3 -2.3 7.7 1.9 2.2 1.0 4.4 -0.9 -2.3 -3.7 Public investment -1.6 1.3 1.8 1.0 -2.1 0.1 1.1 0.1 -0.4 0.1 0.4 Total investment 12.7 -10.4 -0.3 8.7 -0.3 2.3 2.1 4.4 -1.3 -2.2 -3.4 State Final Demand 17.1 9.0 -12.1 11.4 2.4 6.5 5.3 7.7 1.6 2.3 -0.4 Total exports 0.5 16.1 13.6 -12.5 -5.9 -8.7 -1.5 -0.8 9.5 -0.4 5.2 Total imports -3.1 12.6 -10.9 0.6 1.9 0.6 10.7 5.4 0.4 -0.1 1.1 Net exports 3.6 3.5 24.4 -13.2 -7.8 -9.3 -12.2 -6.1 9.1 -0.3 4.1 Balancing item -15.3 8.3 -19.8 2.9 5.6 4.1 11.4 3.4 -4.8 0.6 2.9 Gross State Product (A) 6.2 7.3 5.6 1.7 0.6 2.0 5.5 5.5 5.6 2.8 6.6
e: estimate; f: forecast; A: average 1 2005-06 base year 2 Total private investment is equal to business investment plus dwelling investment and ownership transfer costs 3 Chain volume measures (real) are not additive. As such, the components do not add to the total measure Source: Northern Territory Treasury, ABS Cat. Nos 5206.0, 5220.0 12 Economic Growth Measurement of Economic Growth At the national level, an economy’s size is measured by gross domestic product (GDP). Australia’s states and territories have an equivalent concept in gross state product (GSP). Both measure the production undertaken in an economy in a particular year. The value of production can be estimated using different approaches. Innovations in 2007 In November 2007, the ABS introduced a third method for calculating GSP based on production by industry measures. GSP (Production) estimates gross value added by industry by jurisdiction. This measurement provides an estimate of the value of production for an economy, and complements the existing measures of GSP, being expenditure and income, which are explained below. The publication of GSP (Production) in November 2007 led to an additional change in the way GSP is reported. The headline measure of GSP is now GSP (Average), the average of the three different GSP measures. The Expenditure The ‘expenditure approach’ for calculating GDP and GSP is the sum of all final Approach expenditures by residents (Table 2.2). It includes consumption expenditure by households and government on final goods and services, gross fixed capital expenditure (investment) by the private and public sectors, changes in inventories (that is, output produced in the year but not yet sold) and net exports. The Income Approach The ‘income approach’ sums income accruing to the factors of production (primarily labour and capital) in an industry. This provides a measure of the total factor income earned in each industry, in each year, in current prices. The income measure of GDP and GSP also includes net taxes on production and net taxes on imports. The income approach provides an alternate way of measuring economic activity in the economy, with a focus on the industry or supply side dimension, in order to provide a complement to the expenditure or demand side measure. The Production Approach The production approach for calculating GDP and GSP is the sum of gross value added (value of final output minus value of intermediate use) by industry. To this total is added taxes less subsidies on products, to derive an estimate of GSP(P). While in theory the three approaches of estimating GSP should provide the same outcome, in practice they do not. This is due to methodological differences. As such, statistical adjustments are required to make them all equal (GSPLA). Volatility of GSP All jurisdictions report on the GSP measure of economic growth. Nonetheless, the GSP measure is experimental and volatile, with the series open to significant revisions. For example, the Australian Bureau of Statistics (ABS) initially reported economic growth of 7.5 per cent for the Territory in 2005‑06. This growth rate was subsequently revised down to 5.5 per cent. The size of any revisions to ABS-reported GSP can be exacerbated in the Territory due to the dominance of a few industries and the small size of the economy. State Final Demand A component of GSP, calculated using the ‘expenditure approach’, is state final demand (SFD). SFD is a measure of the demand for goods and services in an economy. SFD data is released quarterly, in contrast to GSP, which is released once a year and as such is a more readily available measure of economic activity. SFD includes expenditure for both consumption and investment purposes. As shown in Table 2.2, the investment component of SFD can be volatile, particularly with the influence of large projects on the Territory’s relatively small economy. Consumption is a more stable element of economic activity and is influenced by population, employment and income growth as well as interest rates and consumer confidence. Public consumption includes defence-related consumption expenditure.
Economic Growth 13 2008-09 Budget
Onshore and Complicating the interpretation of Territory GSP is the impact of offshore economic Offshore Activity activity. This is of economic significance to the Territory due to the location of many oil and gas fields offshore. In addition, a substantial proportion of Territory offshore oil and gas reserves are located within the Joint Petroleum Development Area (JPDA). The resources in this area are shared between Timor Leste and Australia, with half of the value of production from the JPDA allocated to the Territory. In total, offshore oil and gas account for around one fifth of the Territory’s GSP. This means that, in effect, there can be dual economies reported in GSP data. For example, SFD growth was relatively weak in 2006-07, with much of the growth in consumption expenditure offset by declining levels of investment. Nevertheless, GSP increased by 5.6 per cent due largely to increased exports. This was driven by a doubling of LNG production (compared to 2005-06) as well as significant increases in the volume of manganese production. Major Projects In a small jurisdiction such as the Territory, it is possible for major projects to have a substantial impact on SFD, particularly via business investment, and on GSP via income earned by factors of production, as well as the value of final production. However, if the acquired machinery and equipment is assembled overseas, the investment expenditure attributed to the Territory can have a limited impact on the local economy, despite a large impact on SFD. A recent example is the importation of the pre-assembled modules (PAMs) for the Alcan G3 refinery expansion at Gove. In the same way, the income accruing to factors of production employed on major projects will be reported in GSP but may not flow on fully to the local economy through private consumption expenditure and dwellings investment, as many of the employees who work on these projects, as well as the owners of these projects, are not permanent residents of the Territory or, in the case of owners, residents of Australia. Economic Performance 2006-07 The Territory economy continued to experience very strong growth in 2006-07, with reported GSP growth of 5.6 per cent, the second highest of the jurisdictions. Growth in the Territory economy in 2006‑07 was export led, with relatively moderate growth in state final demand. SFD increased by 1.5 per cent in 2006-07, reflecting moderating onshore economic activity, with the 3.9 per cent increase in total consumption partially offset by the 3.8 per cent decline in total investment. The level of household consumption expenditure held up in 2006‑07, reflecting both strong employment and population growth (5.3 per cent and 2.0 per cent respectively), and strong consumer sentiment. This was supported by very strong growth in both retail sales and motor vehicle sales in 2006‑07. The level of investment in new dwellings, including expenditure for alterations and additions of existing dwellings, increased modestly in 2006-07, from a very high base. This was the only positive contributing factor on the investment side, with both business investment and public sector investment reporting declines in 2006‑07. Business investment decreased by 3.6 per cent, primarily reflecting decreased levels of investment expenditure on major projects. Territory output in 2006‑07 was supported by the production of liquids (condensate and liquid petroleum gas) from the Bayu‑Undan fields, as well as a full year of exports of LNG from Wickham Point, and a ramp up in production of manganese from both the Bootu Creek and the GEMCO mines. In addition, despite continuing work on the refinery expansion at Gove, production levels of alumina increased in 2006-07 and production of iron ore commenced from the Frances Creek mine, with first exports reported early in 2007‑08.
14 Economic Growth 2007-08 The Northern Territory economy is estimated to grow by a further 2.8 per cent in 2007‑08, driven by a significant 6.0 per cent increase in total consumption expenditure, with the largest contribution from Territory households. The confidence of Territory households is supported by jobs growth estimated at 4.8 per cent in 2007‑08, solid gains in property values in recent years, population growth and positive net interstate migration. Despite these positive influences, Treasury has factored in the recent interest rate rises leading to a moderation in the growth of consumer spending in the second half of 2007‑08 and into 2008‑09. The levels of both public consumption and investment expenditure are estimated to increase in 2007‑08 supported by expenditure on Closing the Gap, the Northern Territory Emergency Response, Indigenous housing and defence. Additional public spending on salaries and accommodation for Emergency Response employees has contributed to public consumption expenditure in 2007-08. Total private investment is estimated to decrease by 8.5 per cent in 2007‑08, led by large decreases in non‑dwelling construction and despite solid increases in machinery and equipment expenditure. The decrease in expenditure on non‑dwelling construction reflects the completion of the Alcan expansion, while the increase in purchases of machinery and equipment reflects expenditure by Gemco (Groote Eylandt), Xstrata (McArthur River), Compass Resources (Browns Oxide) and Australian Pipeline Trust (Bonaparte Gas project). The contribution of net exports (exports minus imports) is a modest negative in 2007-08, and despite declining levels of imports, reflects relatively stable overall production volumes for Territory commodity exports. While the volumes of some Territory commodities including manganese, magnetite and alumina have increased substantially in 2007-08, there have been offsetting declines in the production of other commodities. For example, a scheduled maintenance shut‑down at the Wickham Point LNG plant and associated gas fields in the Bayu-Undan field resulted in decreased LNG production in 2007-08 relative to 2006‑07. In addition, a temporary shut‑down of the Corallina oil field in late 2007 has led to a substantial reduction in oil production. Finally, the permanent closure of the Elang Kakatua oil field in July 2007 has also contributed to a decrease in oil production. These declines are partially offset by the commencement of oil production from the Puffin field, which began at relatively low levels in October 2007, but will increase substantially in 2008‑09. Onshore Economy In 2007‑08 SFD is estimated to increase by 2.1 per cent, with positive contributions from private and public consumption expenditure, and public investment.
Economic Growth 15 2008-09 Budget
Table 2.3: Northern Territory Economic Indicators Economic Indicators1 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Latest available4 Real retail turnover (real) -0.8 4.1 1.7 4.9 5.1 2.4 7.9 Dec 07 7.7 New motor vehicle sales -4.2 -0.3 3.3 8.4 10.7 0.0 4.1 Feb 08 8.2 Tourist accommodation takings 1.5 -1.0 -0.1 2.8 13.6 3.4 14.8 Dec 07 11.4 Number of dwellings approved -28.4 -13.8 0.0 23.4 18.4 -1.8 7.4 Feb 08 -10.7 Number of dwellings commenced -34.0 0.1 -4.1 6.0 29.1 1.3 -0.2 Dec 07 20.9 Employment 1.5 4.6 1.1 -2.9 -1.3 3.0 5.3 Mar 08 5.0 Unemployment rate (year average) 5.6 6.7 5.5 5.2 5.7 5.5 3.8 Mar 08 4.7 Darwin Consumer Price Index 5.4 2.2 2.3 1.4 2.2 3.4 4.4 Dec 07 3.4 AWOTE2 3.7 2.3 5.0 6.5 7.0 3.9 0.7 Dec 07 1.8 Wage Cost Index 2.8 3.1 3.0 3.3 3.7 4.4 3.9 Dec 07 3.9 Population as at June (levels – thousands) 198 199 200 202 206 211 215 Sep 07 217 Population (annual % change) 1.1 0.8 0.3 1.0 2.1 2.0 2.0 Sep 07 2.2 Net interstate migration (levels – number)3 -1 592 -1 956 -2 725 -1 445 653 -658 228 Sep 07 381
Financial Indicators Interest rates 90 Day Bank Bill (as at 30 June) 5.02 5.11 4.67 5.50 5.66 5.92 6.43 Apr 07 7.88 10 Year Government Bond Yield 6.04 5.99 5.01 5.87 5.11 5.79 6.26 Apr 07 6.07 (as at 30 June) Exchange rates US$ per A$ (year average) 0.52 0.52 0.58 0.71 0.75 0.75 0.79 Apr 07 0.87 US$ per A$ (as at 30 June) 0.51 0.56 0.67 0.69 0.76 0.74 0.85 Apr 07 0.93 Special drawing rights per A$ (as at 30 June) 0.41 0.43 0.48 0.47 0.52 0.51 0.56 Apr 07 0.57 Trade-weighted index of A$ (as at 30 June) 49.7 52.3 59.4 59.1 64.5 62.2 68.9 Apr 07 70.0
1 Year on year percentage change unless indicated otherwise 2 Average Weekly Ordinary Full-Time Earnings 3 Year to date 4 The 12 months to the latest available date Source: Northern Territory Treasury, Reserve Bank of Australia, ABS data
Consumption Total consumption expenditure provides an indication of household and government demand and is a key element of economic growth. Consumption also tends to reflect household and business confidence. Consumption typically accounts for around three-quarters of final expenditure in the Territory, with household consumption at around 60 per cent of total consumption (compared to about 75 per cent nationally). Given the distortionary effect of large, often offshore resource projects on broad economic indicators, consumption expenditure is often used as a more stable indicator of the state of the Territory onshore economy. In 2007‑08, total consumption expenditure by households and government is estimated to increase by 6.0 per cent, driven by growth in household expenditure. Since 1990-91, government consumption has declined as a proportion of total consumption, from about 45 per cent to 41 per cent in 2007-08. This reflects the growing significance of private sector (household) consumption expenditure in the Territory (Chart 2.1).
16 Economic Growth Chart 2.1: Territory Consumption $B (real moving annual total) 12 11 10 Total 9 8 7 6 Household 5 Government 4 3 2 1 0 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast Source: Northern Territory Treasury, ABS Cat. No. 5206.0 Investment Investment is the other component of SFD and includes investment for dwellings, business investment and public expenditure for economic and social infrastructure. Investment is typically more volatile than consumption, reflecting the impact of capital-intensive resource projects on the relatively small Territory economy. Continuing to retreat from the historic high levels reported in 2005‑06, Territory investment is estimated to decrease by 7.0 per cent in 2007-08, following declines of 3.8 per cent in 2006‑07. The decrease in total investment in 2007‑08 is being driven by declining levels of business investment in the Territory, which continue to be heavily influenced by major infrastructure works and resource projects. The LNG plant at Wickham Point was completed in December 2005, and major works for the Alcan G3 refinery expansion at Gove were completed in June 2007. During 2007‑08 relatively minor levels of construction work continue at Alcan during the commissioning phase. While both non‑dwelling construction expenditure and machinery and equipment expenditure continue at modest levels in 2007-08, the positive contributions of smaller projects is more than offset by the very substantial reduction in expenditure associcated with the completion of the Alcan upgrade. Other projects ongoing in 2007-08 and contributing positively to business investment include the Bonaparte gas project, the Gemco expansion, the McArthur River mine conversion, the Weddell power station and the Browns Oxide plant, as well as the Darwin Waterfront. The level of dwelling investment is estimated to decline by 3.3 per cent in 2007‑08 and has been impacted by both recent interest rate increases and diminished housing affordability. Growth in non-residential building activity is estimated to increase in 2007‑08, supported by investment expenditure associated with the Darwin Waterfront, continued work on the Mantra Pandanas serviced apartments, the Medina and Vibe hotels, and preliminary works on stage 2 of Chinatown. Public sector non-residential building activity in 2007-08 will include the ongoing delivery of the middle year’s schooling program and the continued development of the Desert Knowledge Precinct in Alice Springs.
Economic Growth 17 2008-09 Budget
Chart 2.2: Territory Dwelling and $B Business Investment 3.5 (real moving annual total) 3.0
2.5 Business investment1
2.0
1.5
1.0
0.5 Dwellings investment 0.0 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast 1 Private investment less dwelling investment and ownership transfer costs Source: Northern Territory Treasury, ABS Cat. No. 5206.0 Economic Outlook Following modest growth in 2007-08, GSP is forecast to increase by a more substantial 6.6 per cent in 2008‑09, predominantly driven by a recovery in export volumes, and supported by solid total consumption expenditure. Significant growth in export volumes more than offsets a forecast increase in import volumes (mainly oil and feedstock gas), and completely offsets the impact of the weakening onshore economy, particularly the significant decline in business investment. In 2008-09, oil production will be the main driver of increased production as the Corallina field resumes and a full year of production from the Puffin field contribute to growth. Additionally, increased liquids production from the Joint Petroleum Development Area (JPDA) including condensate, oil and liquid petroleum gas, will increase relative to 2007‑08, following recovery from the scheduled maintenance shutdown. Following completion of the conversion to open cut operations, production of lead-zinc at the McArthur River mine, will increase significantly in 2008-09, as will production of alumina from Alcan. Both will contribute to higher export volumes in 2008-09 relative to 2007‑08. Consumption Private consumption growth is forecast to moderate in 2008‑09 as the combination of higher interest rates, weak growth in property prices, and credit constraints impact on consumer spending and confidence. The combined impact of these influences on household spending reduces the forecast contribution of this expenditure component to both SFD and GSP in 2008‑09. Nevertheless, continued strong growth in public consumption expenditure due to Closing the Gap, as well as the Emergency Response, means that in 2008‑09, public consumption contributes relatively more to total consumption spending than households. Investment Total investment is forecast to decline by 11.8 per cent in 2008-09, subtracting 3.4 percentage points from growth. This decrease completely reflects lower private sector business investment, as public investment is forecast to strengthen. Private investment is forecast to decline by 15.3 per cent. The two mega-projects, the Alcan G3 refinery expansion and the Wickham Point LNG plant, raised private investment in the Territory to unprecedented levels in 2005-06 and, with their completion, private investment levels (particularly non-dwelling construction and machinery and equipment) are returning towards more long-run trends. Dwellings investment is forecast to decrease by a further 3.1 per cent in 2008-09, following a similar decline in 2007‑08, and reflecting the higher interest rate environment and affordability
18 Economic Growth issues around house and land prices. The forecast increase in public investment expenditure of 9.4 per cent in 2008-09, reflects expenditure by the Power and Water Corporation, as well as defence expenditure on both the Darwin and Tindal RAAF bases, and redevelopment of housing at Robertson Barracks. In addition, the increase in public investment in 2008‑09 captures expenditure on Indigenous and government employee housing, as well as expenditure for the Tiger Brennan Drive extension and the construction of a conveyor system at the Port of Darwin. Territory SFD is forecast to decrease by 0.4 per cent in 2008-09, due to the significant decline in total investment expenditure. Although total consumption is forecast to increase by 3.8 per cent in 2008-09, making a positive contribution to growth, total investment is forecast to decrease by 11.8 per cent, more than offsetting the increase in consumption. Major Projects With major works at the Alcan G3 refinery expansion at Gove drawing to a close in late 2006-07, and no multi‑billion dollar project to replace it, engineering construction activity in the Territory declines in both 2007‑08 and 2008‑09. Ongoing projects will support engineering activity in the Territory. These include the US$700 million Montara, Skua and Swift oilfield development in the Timor Sea and the $750 million development of the Blacktip gas field in the Joseph Bonaparte Gulf (of which about 50 per cent will be attributed to the Territory). The $160 million GEMCO manganese processing expansion at Groote Eylandt will also ensure that engineering activity in the Territory remains at levels above historical averages in 2008‑09. In addition, there are other projects such as the construction of the $71 million Molyhil tungsten and molybdenum plant near Alice Springs (with first production due in 2010), the $100 million retail development in the Darwin airport precinct, and ongoing works on the $100 million One30 Esplanade high rise apartment development.
Chart 2.3: Territory State Final % Demand and Gross State Product 20 (real year-on-year percentage change) 15
10 SFD
5
GSP 0
-5 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast Source: Northern Territory Treasury, ABS Cat. Nos 5206.0, 5220.0
Economic Growth 19 2008-09 Budget
20 Economic Growth Chapter 3 Population
Key Points »»The Northern Territory is generally sparsely settled, but more than half the population reside in the Greater Darwin area. »»The population is relatively young but ageing rapidly. »»A far higher proportion of the Territory’s population is Indigenous (32 per cent) compared with other jurisdictions. »»Natural increase (births minus deaths) is by far the largest component of Territory population growth and its contribution to growth is about double that experienced in other jurisdictions. »»Net interstate migration is the most variable component of population growth and historically takes the form of an annual net population loss. Recent net migration has been positive, although quarterly patterns fluctuate considerably making the future hard to predict. »»The Territory has enjoyed population growth of 2 per cent for the past three financial years and continues to have the third highest population growth rate after Western Australia and Queensland. »»Population growth of 2.2 per cent is forecast for the year to December 2007, moderating to 1.9 per cent for the year to December 2008.
The Territory’s population is characterised by its relatively young and very mobile nature, its large proportion of Indigenous people, and its high fertility rates. The population is highly urbanised, as in other parts of Australia, but a quarter of the population, mainly Indigenous people, live in remote communities and outstations spread over a vast area. Service provision is consequently both challenging and costly to deliver. The Territory experiences particularly high and volatile interstate migration among its non-Indigenous population, which strongly influences population growth and usually results in an annual net loss of interstate migrants. High natural increase, driven by high fertility rates in the Indigenous population, underpins continuing growth. Population is both a source of labour supply and a source of demand for goods and services and as such, population growth may either drive or be partially driven by economic growth. Interstate migration, for example, often responds to economic growth. However, significant economic growth can still occur in the absence of increases in the population because capital-intensive major projects, such as the mining projects common to the Territory, do not demand high levels of labour, although they contribute significantly to the economy. In addition, there is an increasing reliance on fly-in fly-out workers as a source of labour for major projects in the Territory and these workers are not necessarily counted in the resident population. The accurate estimation of population is of critical importance to the Territory as population estimates produced by the Australian Bureau of Statistics (ABS) are used by the Commonwealth Grants Commission (CGC) to distribute goods and services tax (GST) revenues, a substantial proportion of Territory total revenue. Northern Territory Treasury has concerns about the ability of the enumeration methods used by the ABS to accurately estimate the Territory’s very mobile population. Estimates of the resident population based on the 2006 Census included large adjustments for undercounting in the Census (see Appendix 1). The undercount rate in the Territory
Population 21 2008-09 Budget
was much larger than in other jurisdictions (Table A3.1 in Appendix 1). The Northern Territory Government and the ABS have worked in partnership to improve the accuracy of population estimates through collaborative projects such as those which aim to improve enumeration methods in the Census. Population Measurement Population figures can be measured in a variety of ways. The concept of population Concepts used in this chapter is estimated resident population (ERP), which is the official population figure as measured by the ABS. It includes all people who usually live in a place. To measure ERP, the ABS needs information about the number of usual residents as well as information about the numbers of births and deaths and interstate and overseas migrants. ERP does not include fly-in fly-out workers, temporary visitors or holidaymakers. There are a number of other population concepts that can be of interest, for example, population counts from the ABS Census of Population and Housing. These can be based on place of enumeration (where people are actually counted on Census night) or place of usual residence (the place where people have lived, or intend to reside, for at least six months). Service providers and planners may be interested in another measurement concept, that of the service population. However service populations are not easily defined and measured, as they may include tourists and other visitors and may differ according to a service’s catchment area. Recent Population Population growth in the Territory is more volatile than Australian population growth Growth (Chart 3.1). Significant fluctuations in the Territory’s population growth rate are largely due to variations in interstate migration. Historically, the Territory’s population grew strongly during the post-Cyclone Tracy reconstruction of the 1980s and the defence presence build up during the mid 1990s. Population growth slowed from 1999 to 2003, resulting from a lagged effect of the slowing Territory onshore economy, where the Territory experienced larger net interstate migration losses. Since 2004, population growth in the Territory has consistently been above national growth. Based on ABS estimated ERP, Territory annual population growth increased to 2.0 per cent in 2006, following revised growth of 2.3 per cent in 2005, and 1.6 per cent in 2004 (Table 3.1). In 2006-07, Territory estimated population growth was 2.0 per cent, the third consecutive year where the Territory population growth rate exceeded the national growth rate. Population growth in the Territory is forecast to be 2.2 per cent to December 2007 and is expected to ease slightly to 1.9 per cent in 2008 and 1.8 per cent in 2009, but remain above national growth during this period.
Chart 3.1: Annual % Population Growth 6
5
4
3 Northern Territory
2
1 Australia
0 83 85 87 89 91 93 95 97 99 01 03 05 07 09f Year ended December f: forecast Source: Northern Territory Treasury, ABS Cat. No. 3101.0
22 Population Table 3.1: Annual Population Northern Territory Australia To December Population '000 Annual % Change Population '000 Annual % Change 1998 191.3 1.6 18 814.3 1.1 1999 194.3 1.6 19 038.3 1.2 2000 196.3 1.0 19 272.6 1.2 2001 198.4 1.1 19 535.1 1.4 2002 199.4 0.5 19 773.3 1.2 2003 200.7 0.7 20 015.8 1.2 2004 203.9 1.6 20 257.1 1.2 2005 208.5 2.3 20 548.4 1.4 2006 212.6 2.0 20 852.4 1.5 2007 217.2 2.2 21 163.0 1.5 2008e 221.4 1.9 21 454.0 1.4 2009f 225.4 1.8 21 741.0 1.3
e: estimate f: forecast Source: Northern Territory Treasury, ABS Cat. No. 3101.0 Interstate Comparison Over the past ten years, the Territory had the third highest population growth of the jurisdictions (1.4 per cent) behind that of Queensland and Western Australia, and above the national average of 1.3 per cent (Chart 3.2). The Territory has maintained this position over 2006-07 and growth has strengthened considerably to more than 2 per cent while Western Australia has overtaken Queensland as the fastest growing jurisdiction. The national growth rate strengthened to 1.5 per cent in 2006‑07. The five-year period from 2002-07 saw comparatively more modest growth than in the past year in most jurisdictions. The Territory experienced a subdued onshore economy around 2000 which moderated the strong growth experienced in more recent years and curtailed the average growth rate for this period to 1.5 per cent. This was still above the national average of 1.4 per cent.
Chart 3.2: State and Territory % 2.5 Population Growth Rates, to June 2007 2.0
1.5
1.0
0.5
0.0 NSW Vic Qld SA WA Tas NT ACT Aust 10 Years 5 Years 2007
Source: ABS Cat. No. 3101.0 Regional Growth Regional populations and population growth trends are important for informing government, business and service deliverers of future infrastructure and service needs including schools, roads, public housing and policing across the Territory. Between 1996 and 2006, there was a 1.6 per cent increase in the proportion of the population living in the Darwin region, with the largest change occurring in Palmerston (Table 3.2). The proportion of the population living in the five main regional towns (Jabiru, Katherine, Nhulunbuy, Tennant Creek and Alice Springs) decreased from
Population 23 2008-09 Budget
23.9 per cent in 1996 to 21 per cent in 2006. Alice Springs was the only centre to experience a decrease in population between 2001 and 2006, with most of the other regional centres simply making up some of the population losses they had experienced in the previous intercensal period. Nhulunbuy experienced strong growth between 2001 and 2006 because of the Alcan alumina refinery expansion project. The proportion of the population that lived in the rest of the Territory, outside Greater Darwin and the five towns, increased between 1996 and 2006.
Table 3.2: Territory Population 1996 2001 2006 Estimates by Main Centre Population % of Total Population % of Total Population % of Total as at 30 June Darwin 68 889 37.9 68 710 34.7 71 933 34.1 Palmerston 13 343 7.3 22 559 11.4 25 889 12.3 Litchfield 13 597 7.5 15 573 7.9 16 546 7.9 Darwin Region 95 829 52.7 106 842 54.0 114 368 54.3
Jabiru 1 457 0.8 1 181 0.6 1 247 0.6 Katherine 9 443 5.2 8 956 4.5 9 023 4.3 Nhulunbuy 3 759 2.1 3 800 1.9 4 433 2.1 Tennant Creek 3 694 2.0 3 002 1.5 3 332 1.6 Alice Springs 25 040 13.8 26 520 13.4 26 194 12.4 Rest of Territory 42 621 23.4 47 467 24.0 52 077 24.7 Total NT 181 843 197 768 210 674
Source: ABS Cat. No. 3218.0 Population Characteristics Small Population, The Territory is sparsely populated, with a density of 0.16 persons per square Large Land Area kilometre, lower than any other jurisdiction and well below the national density of 2.68 people per square kilometre. Highly Urbanised Despite the low overall population density, more than three-quarters of the Territory’s population live in the six main town centres. At the 2006 Census, the Greater Darwin region accounted for 54 per cent of the Territory’s population. Alice Springs accounted for 12 per cent, while the other regional town centres (Katherine, Nhulunbuy, Tennant Creek and Jabiru) together accounted for about 9 per cent (Table 3.2). This pattern of settlement, particularly for non-Indigenous people, is related to employment opportunities such as in government administration, defence and construction in Darwin, hospitality and other service industries around Alice Springs. The influence of mining and service industries in these and other Territory towns is likely to increase in the future. The proportion of the population living in remote areas of the Territory (outside Darwin and the five regional towns) has also grown over recent years, largely driven by the high Indigenous fertility rate. Young Population The Territory’s population is the most youthful of any jurisdiction in Australia (Table 3.3 and Chart 3.3). It consistently has the largest proportion under 15 years of age and the smallest proportion aged 65 and over of any state or territory. For example, the proportion of the Territory’s population under the age of 15 is 24 per cent, compared to 19 per cent nationally, reflecting the younger age profile of Indigenous Territorians and higher birth rate. The Territory also has a small proportion of people aged 65 years and over, at 5 per cent, compared to 13 per cent in Australia, due to lower life expectancy of Indigenous Territorians and out-migration of non-Indigenous Territorians at middle and older ages. The Territory has a higher proportion (71 per cent) of its population in the typical working age group of 15‑64 years, compared to the Australian population (68 per cent).
24 Population As at 30 June 2007, the median age of Territorians was estimated by the ABS to be 31.1 years. This is the youngest of any jurisdiction and almost six years below the national median age of 36.8 years. However, over the past ten years, the Territory’s median age has increased much faster than that of the national population. See the section on Population Ageing below for more information.
Table 3.3: Comparative Age NSW Vic Qld WA SA Tas NT ACT Aust 1 Distribution Population (000) 6 889.1 5 205.2 4 182.1 2 105.8 1 584.5 493.3 215.0 339.9 21 017.2 Age Distribution (%) 0 – 14 years 19.6 18.9 20.2 19.8 18.2 19.6 24.0 18.6 19.4 15 – 64 years 66.7 67.7 67.5 68.3 66.6 65.6 71.1 71.7 67.5 65 years and older 13.7 13.4 12.3 11.9 15.2 14.8 4.9 9.7 13.1 Median Age 37.0 36.9 36.2 36.4 38.9 39.1 31.1 34.6 36.8
1 Based on estimated resident population at 30 June 2007 Source: ABS Cat. No. 3201.0 Indigenous Population The Indigenous population constitutes 31.6 per cent of the Territory’s total population, a far larger proportion than any other jurisdiction, according to ABS experimental estimates of the Indigenous population for 30 June 2006. The Territory Indigenous population is much younger than the non-Indigenous population, with a median age of 22.6 at June 2006 compared with 34.7 years for the non-Indigenous population. Chart 3.4 shows the very different age distributions of the Territory’s Indigenous and non-Indigenous populations. The non-Indigenous population has an unusual age distribution caused by the high proportion of people in the young to middle ages, reflecting large numbers of interstate migrants in these age groups. Smaller proportions in older age groups reflect the tendency of older non-Indigenous people to leave the Territory on retirement. The shape is also influenced by an exceptionally large cohort of young adults who came into the Territory 30 years ago following Cyclone Tracy and the expansion of services following Self Government. As this cohort ages, it affects the age distribution. The Indigenous population has a standard age profile of a developing nation, with high proportions of children reflecting high fertility rates. High mortality rates rather than migration cause the sharp tapering off of the pyramid from middle age. The ABS Indigenous experimental estimates are based on the 2006 Census usual residence counts and take into account instances in which Indigenous status is not stated, the extent to which the ABS estimates that Indigenous people are undercounted, and differences in Indigenous identification between the Census and the presumed more accurate post-enumeration survey. At 30 June 2006, the Indigenous population in the Territory was estimated to be 66 582 persons, accounting for 13 per cent of the national Indigenous population of 517 174, which was 2.5 per cent of Australia’s total population. Between 1996 and 2006, based on ABS experimental estimates, the Territory’s Indigenous population has seen average annual growth of 2.5 per cent compared to 1.0 per cent for the non-Indigenous population. These trend figures should be used with caution, as the methods used to adjust Census population counts for undercounting and not stated Indigenous status differ across Census years and this could introduce bias to the estimates of growth. Chart 3.4 shows projections for the Territory Indigenous and non-Indigenous populations for 30 June 2007. Northern Territory Government and Charles Darwin University draft population projections (see below) show the Indigenous population was projected to grow to 67 586 by June 2007.
Population 25 2008-09 Budget
Chart 3.3: Age Distribution of Age group Population, June 2007 (years) 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 10 8 6 4 2 0 2 4 6 8 10 % of population Northern Territory Australia
Source: ABS Cat. No. 3201.0
Chart 3.4: Age Distribution of Age group (years) Territory Population, 80-84 June 2007 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 14 12 10 8 6 4 2 0 2 4 6 8 10 12 14 % of population Indigenous Non-Indigenous
Source: NTG-CDU draft population projections 2008 Household Size From 1996 to 2006, the average number of persons per household decreased from 3.1 in 1996 to 2.9 in 2006, a decrease of 6.5 per cent over 1996. Although this seems a small decrease, the potential impact on housing demand is substantial. The ongoing decline in the average size of Territory households reflects an ageing population and an increasing proportion of single person households, consistent with national trends. Despite the decline, household size in the Territory remains the largest of all jurisdictions, greater than the national size of 2.6 persons per household, partly reflecting high rates of overcrowding among Indigenous households as well as larger and younger families, particularly in remote communities. Male to Female Ratio The Territory has significantly more males than females, with an estimated 108 males (52 per cent) for every 100 females (48 per cent) as at 30 June 2007. This is the highest sex ratio of all jurisdictions, much higher than the national ratio of 99 males for every 100 females. The Territory’s sex ratio becomes more extreme in older age groups until 75 years and over, progressing from 107 males for every 100 females in 0‑19 year olds, to 124 males to 100 females in 55‑74 year olds (Chart 3.5). The corresponding national figures are 105 males for every 100 females aged 0‑19 years and 98 males for every 100 females aged 55-74 years. The Territory differences lie in the age structure of non-Indigenous males and females, as can be seen in Chart 3.5. High death rates among Indigenous males affect the Indigenous sex ratio from an early age.
26 Population Chart 3.5: Number of Males per 150 100 Females, as at 30 June 20071 140
130
120
110
100
90
80
70
60 0-19 20-34 35-54 55-74 75+ Total Australia NT NT Indigenous NT Non-Indigenous 1 A ratio of 100 means that there are equal numbers of males and females in a population. Source: ABS Cat. No. 3201.0; NTG-CDU draft population projections 2008 Overseas Born 2006 Census results show that 23 per cent of the Territory usual resident population was born overseas, with many from non-English speaking backgrounds. This is similar to the proportion of overseas born recorded in both the 1996 and 2001 Censuses (21 per cent and 22 per cent respectively), and is similar to the total Australian proportion. In the Territory, of those born overseas, the main countries of birth were the United Kingdom (18 per cent), New Zealand (8 per cent), the Philippines (4 per cent), the United States (3 per cent) and Greece and Germany (2 per cent each). The proportion of ‘not stated’ responses to the birthplace question for the overseas born in the 2006 Census has more than doubled since 1996. Unfortunately, this obscures any patterns of change that may have occurred for countries of origin of overseas-born Territorians over the period. Population Ageing Population ageing is a trend being experienced in nations around the world. In the absence of significant policy change, the implications of population ageing are lower labour force participation, potentially reduced labour productivity and increased government expenditure on services such as health and aged care. Both Australia’s and the Northern Territory’s populations are ageing rapidly. Table 3.4 sets out estimated changes in median ages in the Territory and Australian populations between 1996 and 2016. Projections to 2016 are from the Northern Territory Government-Charles Darwin University (NTG-CDU) population projections model. The model uses the ABS 2006 ERPs as the base population and projects the Territory and Australian Indigenous and non-Indigenous populations by single year of age and sex to 2036. Assumptions for future change in the growth components of natural increase and migration were set in consultation with Northern Territory Government agencies, while Charles Darwin University provided the technical expertise. The projections are currently in draft form. Table 3.4 shows that over the period 1996-2006, the median age of the Australian and Territory populations increased by 2.6 years and 3.1 years respectively, very large increases by any historical standards. The Territory’s non-Indigenous population showed an even larger increase of 5.2 years over this period. The Indigenous increase was somewhat less at 2.0 years.
Population 27 2008-09 Budget
Table 3.4: Median Age, Northern 1996 2006 2011 2016 Territory and Australia, Australia 34.0 36.6 37.7 38.4 1996 to 2016 Northern Territory 27.8 30.9 31.3 31.9 NT Non-Indigenous 29.5 34.7 34.9 35.0 NT Indigenous 20.6 22.6 23.8 25.0
Source: ABS Cat. Nos 3238.0, 3201.0; NTG-CDU draft population projections 2008
Large increases in the median age are expected in the decade beyond 2006, at 1.8 years for Australia and 2.4 years for the Territory’s Indigenous populations but only 0.3 year for the Territory’s non-Indigenous population. The transition to a much slower rate of increase in median age in the non-Indigenous population is a consequence of the unusual age profile of this population (see Chart 3.4) and is evidence of the substantial ageing that occurred in the decade up to 2006. The projected proportions of the population aged 65 years and over tells a slightly different story but still with substantial changes over the decade from 2006 (Table 3.5). The proportion of the population 65 and over is projected to increase by 2.9 percentage points for both the Australian and Territory populations. The impact on the Territory’s aged population, however, is greater than for Australia’s aged population because the Territory had a much smaller proportion of its population aged 65 and over than Australia in 2006. This age group is projected to increase in size by 63 per cent compared with a 22 per cent increase in the Australian population. The most noticeable difference in the proportion aged 65 and over occurs in the Territory’s non-Indigenous population with a 3.9 percentage point increase, representing a 68 per cent increase in size over the decade.
1996 2006 2011 2016 Table 3.5: Proportion of the % % % % Population Aged 65 and Over Australia 12.0 13.0 14.1 15.9 Northern Territory 3.2 4.6 6.0 7.5 NT Non-Indigenous 3.4 5.4 7.2 9.1 NT Indigenous 2.8 2.9 3.4 4.0
Source: ABS Cat. Nos 3238.0, 3201.0; NTG-CDU draft population projections 2008
The two summary measures of ageing appear to indicate contradictory expectations for ageing for the Territory’s non-Indigenous population, that is, a small change in median age over the next decade but a large change in the proportion aged 65 and over. However, the results are not incompatible and arise as a consequence of the distinctive age composition of the Territory’s non-Indigenous population. The increasing proportion of those aged 65 and over is a result of the ageing of the large cohort of post-Cyclone Tracy migrants to the Territory who, over the next decade, will significantly add to the 65 and over age group of the population. This is counterbalanced by the large cohorts of younger people entering the population, the consequence of continued high birth rates, natural increase and net migration of young adults (Chart 3.6). This results in little to no change in the overall median age of the non-Indigenous population. Components of Population Growth Population growth is the result of changes in natural increase, which is the excess of births over deaths, and in migration. Migration can take the form of net overseas migration and, for the states and territories, net interstate migration. The components of Territory population growth and total population growth are shown in Chart 3.6.
28 Population Chart 3.6: Territory Population number (000) 8 Growth by Component
6 Total growth
4 Natural increase
2 Net overseas migration 0
-2 Net interstate migration
-4 82 84 86 88 90 92 94 96 98 00 02 04 06 Year ended June Source: ABS Cat. No. 3101.0 Natural Increase Natural increase makes a strong and relatively stable contribution to total Territory population growth. There are, on average, about 3700 births and 950 deaths each year in the Territory (Table 3.6). Over the past five years, the percentage contribution of natural increase to the total annual Territory growth rate has fluctuated between 1.3 and 1.5 percentage points. This is about double the percentage contribution in other jurisdictions and is much higher than the Australian average of 0.6 percentage points per annum. Natural increase in the Territory’s Indigenous population accounts for about 40 per cent of the total contribution of natural increase to Territory population growth. Although remaining high, Indigenous fertility rates in the Territory have decreased in recent years and this is the main reason for the small decrease in the contribution of natural increase to total Territory growth from almost 1.5 to 1.3 percentage points over the past five years.
Table 3.6: Population Components 2001 2002 2003 2004 2005 2006 2007 as at 30 June (000) Northern Territory 197.77 199.44 200.11 202.16 206.49 210.67 214.98 Natural Increase 2.85 2.84 2.94 2.75 2.56 2.76 2.75 Births 3.70 3.76 3.82 3.62 3.52 3.72 3.73 Deaths 0.90 0.89 0.87 0.87 0.96 0.96 0.97 Net Overseas Migration 0.88 0.66 0.33 0.65 1.00 1.89 1.32 Net Interstate Migration -1.59 -1.96 -2.73 -1.45 0.65 -0.66 0.23
New South Wales 6 575.22 6 629.83 6 674.37 6 710.49 6 758.27 6 817.18 6 889.07 Victoria 4 804.73 4 863.55 4 924.47 4 983.06 5 050.52 5 128.31 5 205.22 Queensland 3 628.95 3 714.94 3 809.56 3 901.81 3 996.56 4 091.55 4 182.06 South Australia 1 511.73 1 521.12 1 531.26 1 540.40 1 552.52 1 568.20 1 584.51 Western Australia 1 901.16 1 925.64 1 952.37 1 982.01 2 016.40 2 059.05 2 105.78 Tasmania 471.80 472.80 477.68 482.80 486.38 489.92 493.34 Australian Capital Territory 319.32 322.70 325.72 327.56 330.25 334.23 339.87
Australia 19 413.24 19 652.56 19 898.07 20 132.76 20 399.84 20 701.49 21 017.22
Note: Growth components do not equal population change due to intercensal discrepancy. Source: ABS Cat. No. 3101.0
Population 29 2008-09 Budget
Births The Territory’s total fertility rate (TFR – children per woman during lifetime) in 2006 was 2.2 babies per woman, the highest of any state or territory. Over the past 20 years, the Territory’s TFR has remained around this level while Australia has experienced a small decline in the TFR over the same period from 20 years ago to 1.7 in 2003, before an increase over the past three years to 1.8. The Commonwealth’s ‘baby bonus’ policy may be partly responsible for achieving this increase, although currently there is no direct evidence to suggest this. This policy is aimed at reversing Australia’s falling fertility rate which is below replacement level (the level of fertility at which a cohort of women are just replacing themselves with daughters – in Australia a TFR of about 2 is required). The Territory’s high TFR is influenced by the age distribution of non-Indigenous women which favours the child-bearing ages. Based on recent ABS data, some 57 per cent of non-Indigenous Territory women are aged 15 to 49 years compared with 49 per cent of Australian women. High fertility rates among Territory Indigenous women who had a TFR of 2.4 in 2006 also strongly influenced the overall TFR. There were 1459 births registered to Indigenous women in 2006, representing 40 per cent of total births (3696) in the Territory, which was higher proportionally than the representation of Indigenous people in the Territory’s population (31.6 per cent). Nationally, Indigenous births made up nearly 5 per cent of all births. Indigenous women tend to be younger when they give birth, with a median age of 23.7 years compared with 28.1 years for all Territory mothers. Age-specific fertility rates are higher among younger women, particularly Indigenous women, in the Territory than they are elsewhere. The age-specific fertility rate for 15 to 19 year old Indigenous women in the Territory in 2006 was more than four and a half times that of all non- Indigenous Territory women and more than seven times higher than that of Australian 15 to 19 year old women. Half the Territory’s births in 2006 were to women living outside the Greater Darwin area. The TFR for Greater Darwin was 2.1 compared with 2.3 for the rest of the Territory. This reflects the high proportion of Indigenous people living in regional and remote areas of the Territory. However, the TFR for the rest of the Territory has decreased from 2.5 births per woman since 2005 while the TFR for Greater Darwin has remained relatively constant since that time. Deaths In 2006, 932 deaths were registered in the Territory. The Territory has a lower crude (unadjusted) death rate than other states and territories because of its younger age structure. In 2006, the Territory’s crude death rate was 4.4 per 1000 population compared with 6.5 for Australia. The median age at death in the Territory was 60.0 years compared with 80.3 years for Australia. The crude death rate conceals important aspects of mortality in the Territory such as the high death rate of Indigenous people. Once adjusted by the ABS for differences in the age structure of the Territory and Australia, the Territory’s death rate rises to 8.7 per 1000 compared with 6.0 for Australia. Over a 15 year period the age-standardised death rate has dropped from 12.7 per 1000 to 8.7, however the Territory’s rate remains the highest of all the jurisdictions. Although about one in three Territorians is Indigenous, deaths registered as Indigenous accounted for nearly half of all deaths in 2006. This partly reflects the tendency of older non-Indigenous Territorians to leave the Territory on retirement, however high mortality rates at young ages among Indigenous people explain most of this over‑representation in the death statistics. Mortality rates are higher for Indigenous Territorians compared with all Australians at every stage of life (Chart 3.7). Data for 2001-04 combined shows that death rates
30 Population are 3.5 times higher for Indigenous children aged 0-4 and up to 11 times higher for Indigenous people aged 30-35. Cardiovascular disease was the leading cause of death for Indigenous Territorians in this period while cancer and cardiovascular disease were the leading causes of death for non-Indigenous Territorians.
Chart 3.7: Ratio of Age-Specific Ratio Death Rates, 2001-20041 12 11 10 9 8 7 6 5 4 3 2 1 0 0-4 10-14 20-24 30-34 40-44 50-54 60-64 70-74 75+ NT Indig male/Aust male NT Indig female/Aust female NT non-Indig male/Aust male NT non-Indig female/Aust female 1 A ratio of 1.0 means that age-specific rates for both populations are equal Source: Department of Health and Community Services Life Expectancy The higher death rates of Indigenous people and at earlier ages results in lower life expectancy. For 2001-04, estimated life expectancy at birth (the number of years a baby born in the period could expect to live if no changes in future death rates occur) in the Territory was 59.7 years for Indigenous males and 79.0 years for non-Indigenous males compared with 79.5 years for all Australian males. The corresponding figures for females are 68.2 years for Territory Indigenous females, 85.5 years for Territory non-Indigenous females and 85.1 years for all Australian females. Over the last 20 years, both Indigenous and non-Indigenous life expectancy has increased, hence the gap between Indigenous and non-Indigenous life expectancy remains at about 19 years for males and 17 years for females. Overseas Migration Historically, net overseas migration to the Territory has provided a relatively stable contribution of about 0.4 percentage points (750 persons per year on average) to annual population growth in the Territory, lower than the national average. Over the last two financial years, net overseas migration has risen, to about 1900 persons in 2005-06 and 1300 persons in 2006-07, most likely due to increased labour demand resulting from the resources boom and skills shortages being experienced worldwide, and the construction boom occurring in the Territory. Despite this increase, the Territory’s share of total Australian net overseas migration remains small, equivalent to its share of the Australian population (1 per cent). The ABS recently developed a new methodology for estimating net overseas migration and preliminary results based on the new method were first incorporated in the September quarter 2006 figures. Using the new method, people who reside in or out of Australia for 12 months within a 16 month period are classed as permanent additions to or subtractions from the resident population. This is designed to ensure that groups such as overseas students, who spend most of their time in Australia but may return to their home country for university holidays, are included in the resident population. It is difficult to say at this stage whether the new method is having an effect on the Territory’s population growth estimate. As noted above, increases in net overseas migration have been experienced recently, however net overseas migration remains a volatile series in the population accounts, and it is too early to draw conclusions.
Population 31 2008-09 Budget
There are two sources of overseas migration information: ABS and the Commonwealth Department of Immigration and Citizenship (DIAC). Unfortunately, it is not currently possible to compare the statistics from these two agencies in order to have a more complete understanding of immigration to the Territory. For example, DIAC presents statistics by visa category type (for example, family, humanitarian, skill) and status (permanent, temporary), whereas length of stay in Australia (12 months of residence within a 16 month period) rather than visa status is the criterion by which the ABS measures permanent additions to the resident population. The statistics presented below can therefore only indicate that there appears to be an increase in the numbers of immigrants to the Territory, however it is not possible to say how many of these are additions to the Territory’s resident population. Emigration, which is not explored here, presents its own set of complexities. Recent times have seen an increase in the numbers of skilled migrants to the Territory, as a result of new Commonwealth programs and policies as well as the need for the Territory to meet employment demand within Australia’s skills shortage climate. Between 2004-05 and 2006-07, the number of skilled migrants arriving on permanent visas doubled from 154 to 308 (DIAC statistics). The Territory registered 142 humanitarian arrivals in 2006-07, up 149 per cent from the 57 humanitarian settlers received five years ago. Arrivals to the Territory for all permanent visa categories totalled 843 during 2006-07. Category 457 visa holders are a group of employer-sponsored skilled temporary entrants. There were 1353 Category 457 visa holders in the Territory at 30 June 2007; up 55 per cent from 871 the previous year. The major citizenship countries of the 457 visa holders are the Philippines 348 (26 per cent), India 140 (10 per cent), the United Kingdom 127 (9 per cent), China 75 (6 per cent), Zimbabwe 72 (5 per cent), South Africa 67 (5 per cent) and Papua New Guinea 51 (4 per cent). Primary grants (excludes accompanying family members) to Category 457 visa holders have risen from 690 in 2005-06 to 880 in 2006-07, an increase of 28 per cent. The Territory’s share of these visa holders (1.9 per cent) exceeds its share of the Australian population (1 per cent). The major sponsoring industries of the new Category 457 visa holders are Health and community services 210 (24 per cent), accommodation, cafes and restaurants 140 (16 per cent), and construction 110 (13 per cent). Future years may see the growth rate in this visa category moderate, as the Commonwealth is currently revising and tightening policy around eligibility for this visa category, particularly around English language and occupational skills competencies. Interstate Migration Interstate migration remains the ‘wildcard’ of Territory population growth. The Territory experiences very large annual interstate inflows and outflows of up to 18 000 people in each direction. The net figure is therefore the difference between two very large numbers and tends to be exceptionally volatile. Net interstate migration, as measured by the ABS, has fluctuated from negative 3100 per annum to positive 1700 per annum over the last 20 years, however in recent years it has more commonly taken the form of a loss to the Territory’s population. Periods of positive net gains occurred in the mid 1990s during the defence force build up and in 2005 there was a period of small positive gain with the influence of major employment-creating projects such as the Wickham Point liquefied natural gas (LNG) plant and the Alcan G3 refinery expansion (Chart 3.8). Gains have also been recorded in the two most recent quarters, June and September 2007. Over the past five years, net interstate migration has subtracted on average 0.4 percentage points from annual growth, an average net loss of around 800 people each year. Note that the ABS has revised
32 Population these figures upwards based on the 2006 Census, showing that the Territory’s net losses were not as large as reported by the preliminary ABS figures for the intercensal period 2001‑06.
Chart 3.8: Territory Interstate (000) Migration Flows 20
Outflow
16
Inflow
12
8 83 85 87 89 91 93 95 97 99 01 03 05 07 Year ended June Source: ABS Cat. No. 3101.0
Recent research is providing evidence-based insights into who migrates to the Territory and why, as well as who stays. The research forms part of a comprehensive program of demographic research being conducted in partnership between the Territory Government, CDU and the ABS. The research includes the Territory Mobility Survey (TMS), a telephone survey of 1500 Territory residents about their migration histories, and the Australia Post Relocation Survey (APS), a mail-out survey to which 2000 Australian households that had moved house responded. The results of the APS point overwhelmingly to work-related reasons as being the primary motivator for people to move from one jurisdiction to another. However, family and social networks featured strongly for people leaving the Territory and for those who move across other state or territory borders, while this was much less significant for movers into the Territory. For a small number of dissatisfied Territory ex-residents, climate and cost of living were the main reasons for leaving while improved law and order would be the main incentive to encourage them to return to the Territory. According to the APS, only 17 per cent of movers to the Territory intended to stay permanently or long term although the TMS reported a higher figure of one quarter of respondents who intended to stay permanently. Both surveys showed that the vast majority of current and former Territory residents are satisfied with life in the Territory, however it seems that for many, this is not enough to keep them here long term and many plan to leave within five years of arrival. In fact, the median length of stay of movers out in the APS survey was about five years. Although movement to and from the Territory occurs at all ages, most Territory interstate migrants are young adults. Territory interstate in-migrants in 2005-06 had a median age of 26 years, while the median age of out-migrants was 27 years. Tasmania had the oldest median age for in-migrants of 31 years while the median age of out-migrants was 28 for all jurisdictions other than the Territory. Chart 3.9 shows a typical age profile of interstate migrants for the Territory, with a net gain of people in their 20s. In all other age groups, the Territory experiences a net loss of people.
Population 33 2008-09 Budget
Chart 3.9: Age Profile of Territory 6000 Arrivals and Departures (five year average 2001-02 to 2005-06) 5000
4000
3000
2000
1000
0 0-9 10-19 20-29 30-39 40-49 50-59 60-69 70 and over Age (years) Arrivals Departures Source: ABS Cat. No. 3412.0
Interstate mobility is more significant in the Territory than in other jurisdictions. Based on Census questions about where people lived five years before the Census date, about 20 per cent of Territory residents in 2006 were not living in the Territory five years earlier. Although the Australian Capital Territory had a similar rate to the Terri- tory (19 per cent), the figure ranged from 7 to 12 per cent for the states. Over the five years to June 2007, about 8 per cent of the population left the Territory each year for interstate destinations while nationally, less than 2 per cent of the population moved interstate (ERP data). More of the Territory population exchange is with Queensland than other states. In the five years to June 2006, 32 per cent of the combined population flows were with Queensland, while the other large states accounted for most of the remainder (Chart 3.10).
Chart 3.10: Territory Interstate 6000 Migration Flows by Jurisdiction, 2002-03 to 2006-07 5000 (annual average) 4000
3000
2000
1000
0 NSW Vic Qld SA WA Tas ACT Inflows Ouflows
Source: ABS Cat. No. 3101.0
People come to the Territory from all parts of Australia and, in terms of absolute net gains, Census data show that over 2001 to 2006 the Territory received most interstate migrants from Melbourne and Sydney. However, relative to the populations of those cities, the strengths of the inflows of people were quite small. When placed in the context of the population size of the region of origin, the largest relative inflows of people are from the Territory’s neighbouring regions of the Kimberley, Pilbara, north west Queensland, and northern South Australia.
34 Population Population Outlook Major employment creating projects are the key drivers of change in population growth in the Territory. The completion of the Wickham Point LNG plant and the Alcan G3 refinery expansion project suggest that, in the medium term unless other major projects are confirmed soon, the strong population growth experienced in the Territory over the past three years may start to moderate. The past three financial years have seen population growth of 2.0 per cent. Northern Territory Treasury forecasts growth of 2.2 per cent for the year to December 2007 moderating to 1.9 per cent for the year to December 2008. Construction of the Darwin Waterfront is currently providing good employment opportunities and the associated construction of hotels, residential apartments and retail complexes will continue for several years. Residential construction remains strong and should continue to be so in the mid term, with large residential construction projects such as Pandanas and Evolution apartment complexes, as well as construction in the new suburbs of Lyons and Muirhead, under way. Construction of the Blacktip pipeline will provide good employment opportunities during 2008-09. Job vacancies in the Territory are at high levels and increasing. All these are good signs for continued population growth. However, engineering construction indicators show a decrease in activity in this sector over the past two years although the level of activity is still relatively high in historical terms. Some other economic indicators such as building approvals and housing finance commitments also suggest a slowing down of activity in some sectors. Based on current knowledge, the most significant future project for the Territory would be Train 2 of the LNG plant, possibly commencing in mid 2009. If employment prospects for this project are the same as or better than for Train 1, this should provide a further sustained boost to population growth. However increasing use of fly-in fly-out labour and construction methods which use pre-assembled modules (requiring less labour on site) could see fewer new additions to the Territory’s resident population than expected. There is no confirmation of this project at this stage. Another large gas plant has also been mooted for the Territory but negotiations are at an early stage. Net overseas migration should remain strong in the mid term as the skills shortage endures, as long as the Commonwealth continues to facilitate access to regional skilled migration visas. However, the skills shortage also means demand for workers is strong in other parts of Australia such as Western Australia and Queensland, and the Territory has to remain competitive to attract and keep both interstate and overseas workers. There is a distinct possibility that the Territory will be unable to remain fully competitive with other parts of Australia for skilled workers in the coming years. This could result in a gradual increase in net emigration from the Territory. It is equally important that current residents continue to find the Territory sufficiently attractive to stay. Beyond 2008, the uncertainty surrounding future major employment creating projects makes forecasting difficult. Treasury forecasts population growth to average around 1.7 per cent for the last years of the decade.
Population 35 2008-09 Budget
Appendix 1: 2006 Census Results and Re-Based Estimated Resident Population for 30 June 2006 Estimated Resident Populations (ERPs) are re-based every five years on population counts derived from a new Census, the most recent of which was conducted in August 2006. The Territory’s ERP at 30 June 2006 was 210 674, an increase of 1.9 per cent over the equivalent figure based on the 2001 Census of 206 688. The gap of 3986 people is known as intercensal error and is a result of inaccurate or incomplete intercensal information for the growth components of natural increase and migration, as well as errors in either of the base years of 2001 and 2006. The ABS attributed proportionally more of the intercensal error to the Territory than to other jurisdictions. It is likely the ABS will revise the intercensal error based on new information for the intercensal growth components when revised ERPs are published later in 2008. Accurate ERP depends on accurate results from the Census, and the Post Enumeration Survey (PES) – a survey designed to allow undercounting in the Census to be estimated. However, the Territory’s unique geography and demography make obtaining accurate results from these data collections a particularly challenging task. ABS has advised that the 2006 Census was more difficult to conduct than previous Censuses, particularly in northern Australia. The number of non-contact dwellings and hence the proportion of ‘not stated’ responses on most Census questions increased between 2001 and 2006 with the highest proportion of ‘not stated’ responses occurring in the Northern Territory. The PES was extended to remote areas for the first time in 2006. This resulted in a better estimate of Census undercount, however the levels of undercounting are considerably higher, for all jurisdictions, than those in 2001. Chart A3.1 shows that undercount rates have been increasing across Australia over the past four Censuses. The Territory has the highest undercount rate of all the jurisdictions in every Census year. The Territory’s undercount rate nearly doubled in 2006 (7.6 per cent) compared with 2001 (4 per cent). This is partly a result of the extended scope of the collection to include remote areas as well as improved methodology in 2006 for estimating the undercount, which means the 2001 and 2006 estimates are not completely comparable. This suggests that undercount has been underestimated in previous Censuses.
Chart A3.1: Undercount Rates, % Four Censuses 8
7
6
5
4
3
2
1
0 NSW Vic Qld SA WA Tas NT ACT Australia 1991 1996 2001 2006
Source: ABS Cat. No. 2940.0
36 Population Indigenous Undercount ABS published a breakdown of the Indigenous undercount below the national level for the first time after the 2006 Census (Table A3.1). The Indigenous undercount rate cannot be directly compared with the total Territory undercount rate shown above because of the different ways the rates are calculated. The Indigenous undercount rate includes adjustments for non-response to the Census Indigenous status question. The high Indigenous undercount rate for the Territory (19.2 per cent) is of concern and means that Indigenous Census count data need to be used with great caution, if at all in some cases. In addition, comparability with 2001 Indigenous Census data is compromised and uncertainty remains about the growth rate of the Indigenous population, which consequently affects the size and growth of the non‑Indigenous population. Although the ABS did not publish a non-Indigenous undercount, Treasury has estimated this at 19 675 people or 13.6 per cent of ERP at 30 June 2006.
Table A3.1: Indigenous Net PES estimate1 Undercount by State/Territory 2006 Usual Relative Residence Net Standard Standard Census Net Undercount Persons Error2 Error3 Count Undercount Rate no. no. % no. no. % NSW/ACT 151 048 9 146 6.1 142 382 8 666 5.7 Vic/SA/Tas 73 380 4 337 5.9 72 467 913 1.2 Qld 145 843 6 087 4.2 127 580 18 263 12.5 WA 77 304 5 605 7.3 58 710 18 594 24.1 NT 66 402 2 341 3.5 53 661 12 741 19.2
Australia 513 977 13 309 2.6 454 799 59 178 11.5
1 Estimate from the ABS PES of the Indigenous population who should have been counted in the 2006 Census 2 Means that the true value for the PES estimate could be said, with 95% confidence, to lie between plus or minus two standard errors of the estimate, for example, for the Territory, between 61 720 and 71 084 3 The standard error expressed as a proportion of the PES estimate Source: ABS Cat. No. 4705.0
In combination, the factors presented above mean that there is greater known uncertainty than in the past about Census population counts and estimates derived from them and these factors impact more on the Territory than on other jurisdictions.
Population 37 2008-09 Budget
38 Population Chapter 4 Labour Markets
Key Points »»The Northern Territory labour market continues to remain strong in 2007‑08 as buoyant onshore economic conditions prevail. »» Labour market statistics and related indicators point to solid employment growth and a shortage of skilled labour in 2007-08. »» Following an increase of 5.3 per cent in 2006-07, as reported by the ABS, resident employment is estimated to increase by 4.8 per cent in 2007-08. »» Resident employment growth of 2.5 per cent is forecast for 2008-09, in line with a general easing of growth in state final demand in the Territory. »» ABS-reported employment data does not include defence personnel or fly‑in fly‑out (FIFO) workers and as such it should be considered only generally indicative of the actual level of employment in the Territory. Even more importantly, ABS employment data for the Territory is subject to very high levels of volatility and must be interpreted and considered in conjunction with a range of other economic indicators.
Territory Labour Market Performance Labour is a critical input in the production of goods and services. The demand for labour is derived from the demand for goods and services, the cost of labour relative to capital, and the level of output produced per unit of labour (productivity). Accordingly, employment growth and economic growth are highly interdependent. Employment in the Territory is very much service-oriented. Service industry jobs account for almost 90 per cent of employment in the Territory, compared to just over 80 per cent nationally. The largest employers are retail trade, government administration, health, education and property and business services. The Territory also has a relatively young, mobile workforce, which is reflected in the Territory’s large interstate migration flows. There are a number of data quality issues associated with Territory labour market estimates that make its analysis difficult without using a range of economic indicators. These issues are explored in detail below, under ‘Data Reliability’. The Australian Bureau of Statistics (ABS) Labour Force Survey (LFS) is the most widely reported source of labour market data, producing monthly estimates of the employment, unemployment and labour force participation status of the civilian population aged 13 or over. Using ABS LFS figures, Northern Territory Treasury estimates that in 2007-08 Territory employment growth was 4.8 per cent, the unemployment rate averaged 4.5 per cent in the year and the participation rate increased by more than 2 percentage points to over 72 per cent (Table 4.1).
Labour Markets 39 2008-09 Budget
Table 4.1: Territory ABS-Reported Civilians 15 Participation Employed Unemployment Labour Force Statistics years and Over Labour Force Rate Persons Rate (annual average) Year % % % ended June 000 Change 000 Change % 000 Change % 1988 109.9 71.7 64.7 9.8 1989 111.9 1.8 80.9 12.8 72.2 75.6 16.8 6.5 1990 114.7 2.5 83.2 2.8 72.5 77.7 2.8 6.5 1991 116.8 1.9 83.0 -0.1 71.1 76.4 -1.7 8.0 1992 118.2 1.1 86.2 3.8 73.0 78.8 3.1 8.6
1993 119.0 0.7 83.1 -3.6 69.9 76.4 -3.0 8.1 1994 119.9 0.8 80.8 -2.8 67.4 75.0 -1.8 7.1 1995 123.5 2.9 89.1 10.4 72.2 82.6 10.1 7.3 1996 128.3 3.9 90.6 1.7 70.6 84.3 2.1 7.0 1997 131.4 2.5 92.1 1.6 70.1 87.0 3.2 5.6
1998 134.4 2.2 94.5 2.6 70.3 89.8 3.3 4.9 1999 137.3 2.2 98.5 4.3 71.7 94.5 5.3 4.0 2000 139.9 1.9 96.6 -1.9 69.0 92.3 -2.3 4.4 2001 141.5 1.1 99.3 2.8 70.2 93.7 1.5 5.6 2002 142.5 0.7 105.0 5.7 73.7 98.0 4.6 6.7
2003 143.0 0.3 104.7 -0.2 73.3 99.0 1.1 5.5 2004 143.3 0.2 101.5 -3.1 70.8 96.2 -2.9 5.2 2005 145.1 1.2 100.7 -0.8 69.4 95.0 -1.3 5.7 2006 148.6 2.4 103.5 2.8 69.7 97.9 3.0 5.5 2007 152.5 2.6 107.1 3.4 70.2 103.0 5.3 3.8 2008e 156.3 2.5 113.1 5.6 72.4 108.0 4.8 4.5 Compound Annual Growth % 1987-88 to 2007-08e 1.8 2.3 2.6 2002-03 to 2007-08e 1.8 1.5 1.7
e: estimate Source: Northern Territory Treasury, ABS Cat. No. 6202.0
In original terms, ABS-reported resident employment grew by 5.3 per cent in 2006‑07, in line with a broadly based expansion of economic activity in the Territory. It continued to expand in 2007-08 with growth estimated at 4.8 per cent. In trend terms, the number of employed persons in the Territory in March 2008 increased by almost 3000 to 108 816 from June 2007 (Chart 4.1).
40 Labour Markets Chart 4.1: ABS-Reported Trend number (M) number (000) Resident Employment 11.0 110
10.5 105
Australia (LHS) 10.0 100
9.5 95 Northern Territory (RHS)
9.0 90
8.5 85 98 99 00 01 02 03 04 05 06 07 08 Year ended June Source: ABS Cat. No. 6202.0
The average unemployment rate rose from 3.8 per cent in 2006-07 to an estimated 4.5 per cent in 2007-08 (Chart 4.2). The increase in the unemployment rate is attributed to a volatile data series, potentially understating the unemployment rate in 2006-07, as well as solid growth in the labour force.
Chart 4.2: ABS-Reported Resident % Unemployment Rate 8 Australia
6
4 Northern Territory
2
0 98 99 00 01 02 03 04 05 06 07 08 Year ended June Source: ABS Cat. No. 6202.0 Labour Demand Economic Growth Employment is generally pro-cyclical, increasing during periods of strengthening economic activity and contracting during periods of low growth. After experiencing solid economic growth in 2005-06, supported by high levels of business investment, the Territory economy remained strong in 2006-07. Economic growth of 5.5 per cent in 2005-06 (the highest of the jurisdictions) and 5.6 per cent in 2006-07 has coincided with the highest level of resident employment (107 000) recorded for the Territory. These strong economic growth rates have also coincided with the Territory reporting a participation rate of 72 per cent, the second highest in Australia behind the Australian Capital Territory (ACT). The Territory continues to experience strong economic growth in 2007‑08, although the shifting of the economy from an investment phase to an exporting phase was more noticeable. State final demand (SFD) was estimated to increase by 2.1 per cent in 2007‑08, while gross state product (GSP), essentially equal to SFD plus interstate and international trade, was estimated to increase by 2.8 per cent. The significant difference between SFD and GSP represents the Territory’s strengthening export economy. Construction activity remained steady in the Territory in 2007-08, with
Labour Markets 41 2008-09 Budget
work continuing on the over $1 billion Darwin Waterfront and numerous residential construction projects supporting economic and employment growth (Chart 4.3).
Chart 4.3: Territory Economic and % Employment Growth (year-on-year) 15 State final demand 10
5
0 Employment Gross state product -5
-10 00 01 02 03 04 05 06 07 08e Year ended June
e: estimate Source: Northern Territory Treasury, ABS Cat. Nos 5206.0, 6202.0
In the Territory in recent years there have been noticeable discrepancies between the growth rates of SFD and resident employment. The discrepancies are largely due to widely changing investment levels on major projects which, in a relatively small economy such as the Territory, can have a significant impact on economic growth figures. An example of this is the importation of pre-assembled modules (PAMs) for the Alcan G3 refinery expansion from 2005 to mid 2007. Although the refinery expansion has had a significant impact on the Territory businesses involved, the overwhelming majority of work done constructing PAMs occurred elsewhere. When the PAMs were transported to Gove and connected to the existing refinery, the investment component was attributed to Territory SFD. This boosts SFD growth while at the same time having little impact on Territory resident employment or other aspects of the onshore economy (Chart 4.3). Employment Indicators The Sensis Business Index for Small and Medium Enterprises (SMEs) reported relatively strong net employment and the ANZ Job Advertisement Series displayed strong year-on-year growth of 7.9 per cent in 2006-07. In addition, Territory newspaper job advertisements hit record levels in 2006-07, and remained well above the long-term trend. These are all indicators of the demand for labour in the Territory. The Territory’s labour market continues to strengthen in 2007-08, against a backdrop of strong economic growth, with resident employment growth estimated at 4.8 per cent in year-on-year terms. Latest data indicate a further increase in job advertisements in 2007-08, with growth of 13.6 per cent in the year to March 2008. In addition, the Sensis Business Index reports that a net balance of 24 per cent of SMEs expected to increase the size of their workforce in the three months to May 2008. In the February 2008 Sensis Business Index, 32 per cent of SMEs reported that finding quality staff was their prime concern, compared to 15 per cent nationally. According to Sensis, the issue of staff recruitment for SMEs has risen substantially in recent years. Since late 2004, the percentage of SMEs reporting staff recruitment as their primary concern has ranged between 25 and 30 per cent, compared to around 10 per cent in the early part of the decade. Despite their concerns, recruitment is expected to increase, with the index reporting that 24 per cent of SMEs expect to
42 Labour Markets increase staff in the next quarter, compared with 16 per cent nationally. The recent strong growth in employment and skilled labour shortages are also highlighted by the Department of Education, Employment and Workplace Relations (DEEWR) skilled vacancy survey, which reports that Northern Territory skilled vacancies were up 22.1 per cent in the year to March 2008, while the ANZ job advertisements increased by 13.6 per cent over the same period. Job vacancies are increasing, while the number of unemployed people in the Territory is decreasing. This means that the labour market is tight and the pool of available labour from which employers must select is small. Skills Shortages Skills shortages are a key indicator of the demand for labour and are widely reported across the country. The Northern Territory continues to experience a high demand for labour across a range of occupations, industries and skill levels. With an ongoing resources boom in Queensland and Western Australia, and low unemployment nationally, skills and labour shortages in the Northern Territory are expected to continue, particularly in regional areas. Skills shortages can occur for a number of reasons, including strong employment and economic growth, changing skills needs, changing technology, the geographical location of labour, and demographic factors such as the ageing of the population and associated retirement rates. The Territory has traditionally experienced difficulty in attracting and retaining skilled labour, with recruitment difficulties even greater in regional areas. Lack of suitable skilled labour can have a significant impact on the economy, constraining the rate of economic growth and putting upward pressure on wages as employers try to attract workers. In recent years, strong growth in the Territory economy and labour demand associated with major projects have exacerbated skills shortages across a broad range of trade and professional occupations, along with a shortage of labour for semi-skilled and unskilled work. In particular, acute shortages have been reported by the Department of Employment, Education and Training (DEET) in most trade occupations, and professional occupations such as engineering, medical practitioners and nursing, education and child care. During a recent review of the Northern Territory Occupation Shortage List, DEET received responses from industry reporting over 50 new occupations in shortage or experiencing recruitment difficulty. These were largely for professional and associate professional occupations, including librarians and child protection workers. In addition a large number of trade occupations continue to remain on the list. The DEET Workforce NT Report 2006 reports that, of the ten trade occupations forecast to require the highest numbers of additional employees, eight are currently in skills shortage or experiencing recruitment difficulty. National shortages exist for most of these occupations, which are likely to impact on recruitment activities as Territory employers compete with other jurisdictions. Wages growth Strong wages growth is an indicator of demand for labour. The Labour Price Index (LPI) is an index that measures changes over time in the price of labour unaffected by changes in the quality or quantity of worked performed. Changes in wages and salaries resulting from changes in the composition of the labour market are excluded from LPI movements. The LPI grew by 3.9 per cent in the Territory in 2005-06 and in 2006-07, after reporting a series high of 4.5 per cent in 2004-05. Nationally, the LPI reported average growth of 4.1 per cent from 2004-05 to 2006-07. More information on this
Labour Markets 43 2008-09 Budget
topic can be found in the Prices and Wages chapter. An available, skilled and plentiful labour supply is crucial to the productivity and economic performance of the economy. There are many factors which both influence and determine the Territory’s labour supply. These will be discussed in the following section. Labour Supply The Territory’s labour market profile differs significantly from that of the rest of Australia, largely as a result of remoteness, transience and seasonality of labour demand and a relatively large Indigenous population. Government strategies to increase employment and the participation rate, and to address skills shortages, play an important role in the Territory. With a relatively young and mobile population, overseas and interstate migration are important sources of labour supply. Population Growth and Population growth and employment growth are highly interdependent, and both Migration interstate and overseas migration are valuable sources of skilled labour for the Territory. Population growth has recovered from the 2003 low point, and there is a reported annual growth of 2.2 per cent to the September quarter 2007. A major driver of the increase is the recovery in interstate migration during 2005, recording the first positive net migration figures this decade. In the year to the September quarter 2007, net interstate migration reported an inflow of 381 people after reporting an outflow of 421 persons in the year to the September quarter 2006. Overseas migration is typically a net contributor to the Territory’s population growth, adding an average of 880 people per year to the Territory’s population since 1997. Net overseas migration has risen to about 1900 persons in the year to the September quarter 2006 and 1400 persons in the year to the September quarter 2007, well above long-term trend levels. For a more detailed discussion on net overseas migration see the Population chapter. Category 457 visa holders are a group of employer-sponsored skilled entrants granted visas for up to four years, provided that there are no suitably skilled Australian workers available. There were 1353 Category 457 visa holders in the Territory at 30 June 2007, up 55 per cent from 871 in 2005-06. Primary grants (excludes accompanying family members) to Category 457 visa holders have risen from 690 in 2005-06 to 880 in 2006-07, an increase of 28 per cent. The major sponsoring industries of these new Category 457 visa holders are health and community services 210 (24 per cent), accommodation, cafes and restaurants 140 (16 per cent) and construction 110 (13 per cent). Participation Rate The participation rate is a crucial determinant of labour supply. The demographic changes occurring both nationally and in the Territory mean that policies aimed at sustaining Australia’s workforce participation rate will become increasingly important. As the Australian population ages and growth in the working age population is exceeded by growth in the older segments of the population, lower labour force participation will place increased pressure on health and aged-care services, and may negatively impact on productivity. In the Territory, labour force participation is a particularly challenging issue. Although the Territory has the highest participation rate of the jurisdictions, this is largely a product of the population’s age profile, with a higher proportion of people in the 20 to 40 year age bracket. However, the Productivity Commission, in a report to the Council of Australian Governments in 2007, stated that in age-standardised terms, the Territory’s labour force participation is the lowest of the jurisdictions, reflecting
44 Labour Markets to a large extent the lower rates of labour force participation in remote Indigenous communities. Remoteness About 25 per cent (or 52 000) of the Territory’s resident population live outside major regional centres and are therefore considered to live in a ‘remote’ area. Of this total, 42 000 (81 per cent) people are Indigenous, and 10 000 (19 per cent) are non-Indigenous. The lack of training and employment resources available locally, and distance from major employment markets, mean employment opportunities may be limited in many of these areas. Developing local economies and creating links between residents of remote areas and existing employment markets is a major challenge. It also means that a significant proportion of the Territory’s potential labour supply is distant from major employment opportunities. Seasonality Consistent with other jurisdictions, a proportion of the Territory’s economic activity and demand for labour is seasonal, in particular, activity and employment in the tourism and agricultural industries. However, these seasonal effects can be exacerbated in the Territory due to the relatively small size of the resident population and pool of available labour. These two industries have historically supplemented their workforce using backpackers and other non-resident labour to fill vacancies. However, maintaining a reliable labour supply can be difficult in these circumstances and is a major challenge for many Territory horticultural producers (such as mangoes and forestry), retail outlets and tourism operators. Young and Mobile Compared to the rest of Australia, the Territory attracts a disproportionately large Workforce number of young, mobile workers who often view their stay as short to medium term. Employment created from a large number of construction, mining and infrastructure projects in the Territory contributes to the trend whereby non-Territory skilled workers are engaged for the life of the project before returning to their resident jurisdiction. These trends are reflected in large interstate migration flows, whereby about 8 per cent of the Territory’s population relocates interstate each year, around four times the level of other jurisdictions (apart from the ACT). This leads to a high rate of employee turnover which imposes significant recruitment and training costs on employers. It also results in a loss of expertise and skill shortages, which can be accentuated by large projects requiring specialised labour. Ageing of the Population In 2005, the Productivity Commission released a publication that analysed the economic implications of an ageing population in Australia over the next few decades. The report found that the proportion of working-age persons (people aged 15-64 years) in Australia is expected to decline against the number of people aged 65 and over in Australia as the ‘baby boomer’ generation reaches retirement age. In other words, there are currently 5.2 persons in the potential workforce for every person aged over 65; by 2044-45 it is expected that only 2.4 persons will be in the potential workforce for every person aged over 65. The report indicates that the Territory, however, is unique amongst the jurisdictions whereby an increase in the proportion of both Indigenous and non-Indigenous working-age persons is projected between 2004 and 2024. DEET reports that this expectation goes against the national trend and will have important implications for expanding the Territory labour force, provided adequate education and training, and opportunities to participate in the labour force and economic development are made available to all Territorians.
Labour Markets 45 2008-09 Budget
Government Strategies A number of major initiatives are currently under way aimed at reducing skill shortages in key industries in the Territory. The Territory Government’s policy, Jobs Plan – Building the Northern Territory Workforce, aims to create a highly skilled and flexible workforce, address skills shortages, and maximise employment opportunities for all Territorians. Jobs Plan is an initiative covering a range of strategies including the expansion of pre-vocational training for apprentices and trainees, provision of financial incentives for employers to take on apprentices and increasing the number and range of school-based apprenticeships. In the 2005-06 Budget, as part of the Jobs Plan strategy, the Territory Government committed to a training program intended to see 10 000 apprentice and trainee commencements over four years. The commitment is to be achieved using the strategies outlined above, with employer incentives offered to businesses in skills shortage areas and small businesses with ten employees or less. In 2007, almost 2800 Territorians commenced an apprenticeship or traineeship, bringing the total number of trainee and apprentice commencements to over 8000 in the last three years. Among all trainee and apprentice commencements since 2005, more than a third were apprentices in traditional trades, almost 40 per cent were women and just over a quarter were Indigenous In early 2005, to address the immediate skilled labour shortages, the Territory Government introduced a Territory Skilled Worker campaign that featured a national, as well as New Zealand, advertising component designed to attract skilled workers and their families to the Territory. As a possible indicator of the success of this campaign, the Department of Immigration and Citizenship reports that between 2004‑05 and 2006-07 the number of skilled migrants arriving in the Territory with permanent visas doubled from 154 to 308. Welfare to Work On 1 July 2006, the Commonwealth introduced Welfare to Work, a series of measures aimed at increasing the Australian labour force participation rate. The legislation specifically addresses the employment requirements associated with the receipt of income support. The Welfare to Work measures seek to increase the participation rate and employment of mature-aged Australians, parents with school-aged children, people with a disability and the long-term unemployed through measures such as increased services to assist people find paid work, while maintaining a strong welfare safety net. Recent studies indicate that the number of unemployed persons who have transitioned into work over the last decade in Australia has increased significantly. Interestingly, the number of disability support pension recipients is estimated to have increased by a similar figure over the same period. There is ongoing discussion regarding changes to Welfare to Work in order to reflect current commonwealth attitudes and policies. Comprehensive information indicative of the former and potential impacts of Welfare to Work in the Territory is not currently available, although a long-term increase in the participation rate in the Territory is expected. Apprenticeships and Apprenticeship and traineeship commencements are a leading indicator of future Traineeships labour supply. Apprenticeship and traineeship completions in the Territory have increased from 2002 to 2007. Apprenticeship numbers in skills shortage trades also increased over this period.
46 Labour Markets Chart 4.4: Apprenticeship and number Traineeship Commencements 3500 and in Training 3000
2500
2000
1500
1000
500
0 2001 2002 2003 2004 2005 2006 2007 Year ended December Commencements In training
Source: Department of Employment, Education and Training
In 2007 in the Territory, apprentices and trainees undertaking training increased by 9.0 per cent to 3262 and apprenticeship and traineeship commencements increased by 6.2 per cent to 2790 (Chart 4.4). Indigenous Employment Indigenous Territorians are a largely under-utilised labour resource. Increasing the labour supply of Indigenous Territorians is a key government priority. In June 2007 ABS released the latest experimental estimates of the labour force characteristics of Indigenous Australians, based on information collected in the LFS. The estimates indicate substantial differences in unemployment rates and participation rates between Indigenous and non-Indigenous Territorians. In 2006, the unemployment rate for Indigenous Territorians was reported as 15.7 per cent, compared to 4.6 per cent for the Territory as a whole. The Indigenous participation rate for the same period was 44.8 per cent, compared to the total Territory participation rate of 70.1 per cent. However, after reporting a decrease in Indigenous employment from 18 300 in 2002 to 12 800 in 2005, contributing both to an increase in estimated unemployment and a decline in the Indigenous participation rate, Indigenous employment was estimated to increase to 15 300 in 2006. ABS cautions that these estimates are subject to significant non-sampling and sampling error and, as such, are substantially less reliable than the labour force estimates for the Territory as a whole. High standard errors associated with the data indicate that the large confidence intervals significantly limit the value of the estimates, particularly in relation to analysing changes in Indigenous employment over time. Northern Territory The Commonwealth Department of Families, Housing, Community Services and Emergency Response Indigenous Affairs (FaHCSIA) is the lead coordinating agency in the Commonwealth’s and Community Northern Territory Emergency Response (NTER). A FaHCSIA media release stated Development that the NTER provides opportunities to review the way Indigenous and mainstream Employment Projects employment services and programs are delivered and how they can be improved, with an emphasis on increasing the economic independence of Indigenous Australians. Part of the NTER has included reform of the Community Development Employment Projects (CDEP) program, intended to transition CDEP participants in the Territory into real jobs, enhance training opportunities and engage mainstream employment services to assist people into work. The reforms have targeted stimulating employment and economic development in Indigenous communities as a stepping
Labour Markets 47 2008-09 Budget
stone to economic independence by reducing welfare dependency, enabling quarantining of income support payments and requiring school attendance. FaHCSIA reported that the Local Government Association of the Northern Territory recently conducted an audit of job opportunities in 52 Territory communities. The audit identified 2955 real jobs, with only 44 per cent of these jobs held by Indigenous people. Vacant positions were identified within most communities, particularly for Aboriginal health workers, Aboriginal community police officers, groundsmen, cleaners and childcare workers. There were also professional positions available for teachers, nurses and tradespeople (electricians, mechanics, carpenters and builders). Across the Northern Territory, there were opportunities recognised in a range of industries including construction, mining, pastoral, retail, hospitality and tourism. Of the 50 CDEP contracts in the Territory, 16 have transitioned to new arrangements, including real jobs, transition activities, employment services and income support, accounting for some 2400 of the approximate by 8000 CDEP participants. The remaining 34 contracts will continue until their expiry on 30 June 2008. The Commonwealth is currently considering reforms to the CDEP program and will provide advice on contractual arrangements after 30 June 2008. Up to 1670 CDEP positions supporting Commonwealth service delivery are expected to be converted into real jobs by 30 June 2008, with over 600 of these jobs created and filled by participants as at April 2008. The Commonwealth is working closely with the Territory Government to assist many CDEP participants to move into municipal services jobs. People are also being supported to take up work in other locations with stronger job opportunities through mobility assistance. Composition of Territory Employment The Territory’s labour market has quite a different composition to the Australian labour market, reflecting its unique industry structure. Government Based on 2006 Census data, employment in government administration in the Administration Territory accounted for about 13.1 per cent of total employment compared to only 4.7 per cent nationally. The high share of employment attributed to public administration in the Territory reflects the diseconomies of providing public services to a small and widely dispersed population. Compared to the 2001 Census, employment in government administration increased as a proportion of total employment by 1.3 percentage points in the Territory and by 1.0 percentage point nationally (Table 4.2). Defence Since the 1990s, the Commonwealth has continued to relocate substantial defence resources to the Territory. This resulted in the number of defence personnel, including civilians, stationed in the Territory increasing from about 2300 in 1990 to around 5400 in 2006. The proportion of Territory residents employed in defence was 6.2 per cent in 2006, an increase of 1.7 percentage points from 1996 and well above the national level of 0.7 per cent (Table 4.2). Although employment growth in defence has been significant in the Territory, it is important to note that defence personnel are not captured in LFS figures.
48 Labour Markets Table 4.2: Employment by Industry Australia Northern Territory Proportion of total employment Proportion of total employment (%) (%) 1996 2001 2006 1996 2001 2006 Agriculture, forestry and 4.2 4.0 3.1 2.9 2.7 2.4 fishing Mining 1.1 0.9 1.2 3.5 2.2 2.0 Manufacturing 12.6 12.2 11.0 4.4 4.2 4.9 Services (including defence) 78.6 80.6 82.1 85.5 88.1 87.5 Electricity, gas and water 0.8 0.7 0.8 0.6 0.9 0.4 supply Construction 6.3 6.7 7.7 7.4 6.2 7.0 Wholesale trade 5.8 5.3 4.8 3.7 3.5 2.8 Retail trade 13.6 14.6 14.3 11.0 12.4 11.5 Accommodation, cafes 4.7 4.9 4.8 6.1 6.1 5.4 and restaurants Transport and storage 4.3 4.3 4.4 4.9 5.2 4.8 Communication services 2.0 1.8 1.5 1.5 1.1 0.9 Finance and insurance 3.9 3.8 3.8 2.0 1.6 1.6 Property and business 9.8 11.1 10.7 7.6 8.4 8.3 services Government 4.2 3.7 4.7 10.6 11.8 13.1 administration Defence 0.7 0.8 0.7 4.5 5.9 6.2 Education 7.1 7.2 7.4 7.4 8.1 8.5 Health and community 9.5 9.7 10.7 11.0 8.8 10.1 services Cultural and recreational 2.3 2.4 2.2 3.0 3.0 2.7 services Personal and other 3.6 3.6 3.6 4.0 4.9 4.2 services Non-classifiable economic 1.4 0.6 1.2 1.1 0.9 1.2 units Not stated 2.0 1.7 1.4 2.7 1.8 2.0 Total 100.0 100.0 100.0 100.0 100.0 100.0
Note: Due to the very high standard errors associated with the ABS estimates of Territory employment by industry derived from the LFS, the above Census data is considered to be a more reliable measure. Source: ABS 2006 Census of Population and Housing Manufacturing Historically, the manufacturing sector has employed a relatively large proportion of the national workforce in a diverse range of industries. In the Territory, however, remoteness from major markets and a small population base has resulted in a relatively small manufacturing sector and a much lower proportion of people employed compared to the national proportion (less than half the national figure) (Table 4.2). Mining Reflecting the Territory’s abundant mineral and energy resources, the proportion of people employed in the mining industry is almost twice as high as it is nationally, at 2.0 per cent, although much lower than in 1996 when mining accounted for 3.5 per cent of Territory employment. Given record commodity prices and exploration expenditure in the Territory in the past three years, further growth in mining activity and employment is expected in the future.
Labour Markets 49 2008-09 Budget
Full-time and Part-time The recent strong growth in ABS-reported employment has been driven by growth Employment in full-time positions, which increased by an average of 3.0 per cent in 2005 and 2006 and by 7.0 per cent in the year to March 2008. Full-time employment growth was partially offset by declining part-time employment, down by an average of 5.8 per cent in 2005 and 2006 and a further decline of 0.5 per cent in the year to March 2008. This has resulted in an increase in full-time employment as a percentage of total employment, up from an average 78.5 per cent in 2005 and 2006 to 79.8 per cent in the year to March 2008. The increasing proportion of full-time employment in the Territory varies from the national employment trends, where the proportion of full-time employment nationally has been declining over the past 20 years, and now stands at 71.7 per cent. The growth in full-time employment in the Territory may reflect the high level of business confidence and a willingness and need to convert part-time jobs to full-time jobs. Data Reliability The strong growth in economic activity in the Territory, as reported by the ABS, for the four years to 2006-07 has not been consistently reflected in ABS-reported resident employment levels or the resident unemployment rate over the same period. It remains Treasury’s view that data quality issues associated with the ABS LFS, including survey sample size and the high degree of volatility in survey estimates, are the cause of the inconsistency and continue to be a concern. Issues with the ABS A number of characteristics of the design and methodology of the ABS LFS limit Labour Force Survey its accuracy for the Territory. The scope of the ABS LFS, combined with issues of volatility and reliability of the resident employment series, can sometimes create a contradictory picture of the state of the Territory economy when resident employment is analysed in conjunction with other economic activity data. The disparity between the LFS employment estimate and other economic indicators, in particular SFD, is due to a number of data quality issues including: • the very large standard errors for Territory labour force estimates; • the scope of the LFS being limited to the ‘usually resident’ population, while SFD captures all economic activity of workers in the Territory, regardless of whether the workforce is resident in the Territory; and • the potential for SFD to include large items that do not have a direct impact on employment numbers in the Territory. Scope of the LFS The ABS LFS reports on those parts of the currently economically active population defined as employed, unemployed or not in the labour force. It does not measure the total number of people working or the total number of jobs in the Territory, as is sometimes presumed. The scope of the LFS is limited to the civilian, usually resident, population of the Territory aged 15 years and over, and does not include: • fly-in fly-out (FIFO) personnel who are usually resident in other jurisdictions; • full-time Australian defence personnel; • personnel usually resident overseas and temporarily residing in Australia; and • diplomatic personnel of overseas governments and non-Australian defence personnel (and their dependants) stationed in Australia. Nationally, these excluded groups have a negligible impact on the number of jobs in the economy, as they make up a relatively small percentage of the Australian population. However in the Territory, due to its relatively small and transient
50 Labour Markets population, these groups can account for a significant proportion of employed persons. The exclusion of these groups from the scope of the ABS LFS leads to a significant differential between resident employment and the number of Territory jobs. Large Sampling Error The LFS is a sample survey and does not directly measure the whole population. The size of a sample can significantly affect the integrity of the survey results as indicative of the total population. Although there have been improvements in ABS sample sizes in the Territory and a high sampling fraction (the proportion of the population in the sample) compared to other jurisdictions, the sample is still relatively small due to the Territory’s relatively small population. This results in volatile estimates with very large standard errors. Standard errors are even greater for estimates of the Territory unemployment rate. Volatility in the estimates is increased by the: • heterogeneous nature of the Territory’s population; • constraints imposed on sampling design as a consequence of many dispersed remote communities; and • transient nature of the population. In addition, and consistent with the method used for other jurisdictions, the ABS adjusts the survey results to ensure that the resulting estimates conform to the characteristics of the total population. While this is essential for generating representative results, in the Territory it can sometimes exaggerate the effect of outliers in the sample.
Table 4.3: ABS LFS Redesign Year 1976 1981 1986 1991 1996 2001 2006 Sampling Fractions Sampling fraction 1 in 100 1 in 100 1 in 115 1 in 75 1 in 85 1 in 86 1 in 54 Source: ABS Labour Force Survey Sample Design, ABS Cat. No. 6269.0, November 2007
With large improvements in sampling fractions (Table 4.3), more recently as a result of changes instituted to the survey in 2006, recent survey data may now provide a more consistent picture of labour force statistics. However, due to budget cuts imposed on the ABS from 2008-09, these improvements will be partially offset by a reduced sample size and consequently increased standard errors. Outlook Understanding the Territory labour market requires analysis of several economic indicators and related data sources. Nonetheless, forecasting is based on LFS data and the reader should be aware of volatility and accuracy issues. Resident employment growth of 2.5 per cent is forecast for 2008-09, underpinned by residential construction and work on major projects and continued migration and tourism growth. A number of larger projects, such as the Darwin Waterfront and construction of the Blacktip pipeline, may have a significant impact on employment demand in the medium term. The ability of Territory employers to attract and retain suitable skilled workers will continue to be a critical factor in determining employment growth in the Territory, as will the effectiveness of Territory Government training initiatives aimed at alleviating skills shortages. In the longer term, increasing Indigenous employment and labour force participation represents a significant challenge, and will be an important factor in maintaining and improving the Territory’s long-term participation rate and employment growth.
Labour Markets 51 2008-09 Budget
52 Labour Markets Chapter 5 Prices and Wages
Key Points »»Darwin’s CPI increased 2.9 per cent in annual terms in 2007, and 3.4 per cent in year-on-year terms. »»Strong wages growth over the two years to 2007, in the Territory and nationally, reflects a tight labour market with skilled labour shortages especially in construction, mining and health. »»In 2007, the WPI increased by 3.9 per cent compared to 4.2 per cent nationally. »»Ongoing shortages of skilled labour are expected to flow through to growth in the Territory’s WPI in 2008-09. »»Growth in Territory Government wages is expected to be consistent with wages policy balancing the need to attract and retain staff within budget constraints. »»Some inflationary pressures are expected in the Territory in 2008, largely reflecting continued growth in rents, fuel costs and food prices. »»Six interest rate rises in the 18 months to March 2008 increased the Australian cash rate to 7.25 per cent, the highest rate since 1994, with possible further rises in 2008.
Prices and wages determine purchasing power. Any increase in prices relative to wages may affect purchasing power and influence the standard of living. The Consumer Price Index (CPI) is one indicator by which the standard of living can be assessed. Consumer Price Index In annual terms, Darwin’s CPI increased by 2.9 per cent in 2007 compared to a 3.0 per cent increase nationally. In more stable year‑on‑year terms, the Darwin CPI increased by 3.4 per cent in 2007, down from 4.4 per cent in 2006. Higher fuel, housing and rent prices over 2007 were the primary drivers of inflation. Darwin, Perth and Brisbane have consistently reported amongst the highest annual inflation rates of the capital cities over the past three years. This reflects the stronger economic and population growth rates in the Territory, Western Australia and Queensland compared to those experienced nationally. This has been largely driven by the global boom in the demand for resource commodities, which has flowed through to high levels of investment expenditure in the mining, construction and property sectors.
Prices and Wages 53 2008-09 Budget
Chart 5.1: Consumer Price Index % 7
6
5 Darwin (year on year) 4 8 Capitals (year on year) 3
2
1
0
-1 99 00 01 02 03 04 05 06 07 08e 09f Year ended December Darwin (quarterly) 8 Capitals (quarterly)
e: estimate; f: forecast Source: Northern Territory Treasury, ABS Cat. No. 6401.0
Table 5.1: Consumer Price Index Consumer Price Index Annual % Change Year on Year % Change As at December Quarter Darwin 8 Capitals Darwin 8 Capitals Darwin 8 Capitals 1997 120.8 120.0 -0.7 -0.2 0.2 0.3 1998 122.7 121.9 1.6 1.6 0.7 0.9 1999 123.6 124.1 0.7 1.8 0.7 1.5 2000 130.6 131.3 5.7 5.8 3.9 4.5 2001 133.5 135.4 2.2 3.1 3.6 4.4 2002 136.2 139.5 2.0 3.0 2.2 3.0 2003 138.5 142.8 1.7 2.4 2.1 2.8 2004 141.1 146.5 1.9 2.6 1.6 2.3 2005 145.4 150.6 3.0 2.8 2.6 2.7 2006 152.6 155.5 5.0 3.3 4.4 3.5 2007 157.1 160.1 2.9 3.0 3.4 2.3 2008e 161.8 164.6 3.0 2.8 3.1 3.3 2009f 166.0 169.5 2.6 2.9 2.8 2.8 Compound Annual Growth % 1997 to 2007 2.7 2.9 2002 to 2007 2.9 2.8
Source: Northern Territory Treasury, ABS Cat. No. 6401.0 Components The largest contributing factor to Darwin’s annual consumer inflation rate in 2007 was rising housing costs. The Australian Bureau of Statistics (ABS) House Price Index reported established house price growth of 13 per cent in Darwin in 2007. House purchases, repairs and maintenance, rent, utilities and property rates and charges contributed 1.3 percentage points to the 2.9 per cent annual inflation rate. Around 50 per cent of this increase was attributable to the house purchase category, reflecting the robust increase in Darwin median house prices through the year. Around 33 per cent was attributable to rising rents, fuelled by strong population growth and low residential vacancy rates. Increased prices for the transportation category of the CPI were the second largest component of the annual Darwin inflation rate, contributing 0.62 percentage points. This reflects the increased prices for crude oil and automotive fuels. The financial and insurance services category was the third largest contributor to annual inflation in Darwin, contributing 0.38 percentage points. Increased interest rates accounted for the majority of the upward movement in this category.
54 Prices and Wages Recreation made a small negative contribution to CPI growth in the Territory in 2007, subtracting 0.22 percentage points. This decrease was due mainly to lower prices for holiday travel and accommodation bookings in the Territory.
Chart 5.2: Annual Percentage Point Food Contribution to Change in Darwin Tobacco and alcohol and National CPI, 2007 Clothing and footwear Housing Household contents Health Transportation Communication Recreation Education Financial services -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 Percentage point contribution Darwin 8 Capitals
Source: ABS Cat. No. 6401.0 CPI 2008 and 2009 Darwin’s annual CPI growth is expected to increase by 3.0 per cent in 2008 compared with 2.9 per cent in 2007. In more stable year-on-year terms, CPI growth in the Territory is forecast to moderate to 3.1 per cent in 2008 and to further moderate to 2.8 per cent in 2009. Higher prices for crude oil are expected to continue in 2008 due to international demand, flowing through to higher petrol and food prices with increased transportation costs. Although contributing to CPI growth, these components are expected to be offset by more substantial decreases in the housing market. In addition, the strong value of the Australian dollar will continue to exert downward pressure on the prices of imported goods and import competing goods. House purchases, which contributed the highest percentage to the inflation rate in 2006 and 2007, are expected to moderate in 2008, with affordability restricting many people from entering the housing market. Interest rate rises by the Reserve Bank of Australia (RBA) and major banks are set to impact on household budgets, reducing the amount of money available for discretionary expenditure. The impact of contractionary monetary policy will be felt in both 2008 and 2009, dampening consumer demand and price pressures. Underlying Inflation and Despite two interest rate increases in 2007 (0.25 percentage points in both August Interest Rates and November 2007), Australian household confidence levels remained buoyant. This was reflected in retail sales data in the Territory and nationally, suggesting households quickly adjusted spending patterns to accommodate the interest rate rises. A tight labour market nationally and ongoing skilled labour shortages were the primary drivers of this resilience as individuals, feeling secure in their jobs, were more willing to continue spending. A strong Australian dollar and Commonwealth tax cuts in the middle of 2007 were also additional factors. This ongoing confidence, coupled with a period of sustained strong growth in fuel prices, flowed through to a strengthening in Australia’s underlying inflation rate (the CPI less volatile items) over the year. Although there are a number of ways to derive a measure for underlying inflation, the RBA has two preferred measures, the trimmed mean and weighted median. The trimmed mean measure ranks all the price changes in the CPI from the largest rise to the largest fall, then trims off the upper and lower 15 per cent, leaving only the middle
Prices and Wages 55 2008-09 Budget
70 per cent of price changes. The weighted median measure ranks all price changes, then takes as the inflation rate the price increase of the median or 50th percentile. In annual terms, the trimmed mean and weighted median (the RBA does not specify a preference for either method as the benchmark for underlying inflation) increased strongly to around 3.0 per cent by the first quarter of 2007, and was a significant factor behind the decision to raise interest rates by a total of 0.5 percentage points over the year. Growth in both CPI measures remained high in the December quarter 2007, prompting the RBA to increase the cash rate 0.25 percentage points in February 2008 and a further 0.25 percentage points in March 2008. This primarily reflects tight labour markets and ongoing skilled labour shortages across Australia. Constraints on growth are not likely to moderate significantly over 2008 and may flow through to increased inflationary pressure on wages nationally. This has the potential to see growth in underlying inflation above 3 per cent, placing pressure on the RBA to further increase rates in the second half of 2008.
Chart 5.3: RBA, Underlying % Trimmed mean Measures of Inflation 3.5 (annual change) 3.0
2.5 Weighted median
Average of two measures 2.0
1.5
1.0 97 98 99 00 01 02 03 04 05 06 07 Year ended June
Source: Reserve Bank of Australia Cost of Living Study The 1995 Report of the Committee on Darwin compared, amongst other factors, the cost of living for wage and salary earners in Darwin, Perth and Sydney. The study concluded that the cost of living in Darwin was 5.5 per cent higher than in Perth and 2.7 per cent higher than in Sydney, with higher costs for food, hospitality and motor vehicles and lower costs for clothing and footwear. Using ABS CPI data, Northern Territory Treasury has updated the results to December 2007. This update suggests that the gap between Darwin and Perth has narrowed to 0.5 per cent, and that Darwin’s cost of living is around 1.5 per cent lower than Sydney’s. Prices growth in Sydney and Perth relative to Darwin is higher for all categories of the CPI except for housing, clothing and footwear, tobacco and alcohol. Fuel Prices Crude Oil Crude oil prices rose steadily in 2007 from $US59 a barrel in January 2007 to a record high of around US$96 a barrel in December 2007 (as measured by the Tapis benchmark). Over 2007, the main drivers of the increases in oil prices have been strong global economic growth, particularly in China, moderate supply growth by non-Organisation of the Petroleum Exporting Countries (OPEC), tightness in global refining inventories and worldwide refining bottlenecks. In addition, ongoing geopolitical tensions in the Middle East have put pressure on crude oil supplies in recent months. The strong value of the Australian dollar against the US dollar has mitigated some of the effects of rising oil prices.
56 Prices and Wages The outlook for 2008 is for crude oil to continue trading at high price levels. In March 2008, the price of New York crude struck a new record high of $US110 a barrel. Another major factor supporting high prices was the dispute between oil‑rich Venezuela and US energy giant ExxonMobil, the world’s biggest oil company. ExxonMobil has taken court orders in New York, London and the Netherlands, freezing $US12 billion worth of assets in those jurisdictions from Venezuela’s state‑owned oil producer PDVSA. The legal battle relates to ExxonMobil’s bid to secure compensation after Venezuela’s government nationalised key oilfields in the Orinoco basin, including two ExxonMobil operations. World oil traders also hold concerns over possible further unrest in Nigeria, Africa’s biggest crude oil producer. Retail Fuel Prices Retail fuel prices in Darwin and regional centres across the Territory are consistently higher than in locations elsewhere in Australia and are a direct consequence of the small size and remoteness of the market. These factors lead to Territory distributors and retail outlets having higher operational cost structures and lower fuel turnover than their interstate counterparts. This in turn limits their ability to achieve significant economies of scale that can be passed on to consumers in the form of lower prices. Higher prices also reflect the absence of widespread competition both at the distributor and retail level (especially outside Darwin, although Katherine is a notable exception at the retail level) and the lack of a large-scale oil refinery. The lack of a refinery and lower volume turnover also results in considerable price ‘stickiness’ whereby fuel prices do not decrease as quickly as falls in crude oil prices, and vice versa.
Chart 5.4: Unleaded Retail Petrol Australian cents per litre Australian cents per litre and Crude Oil Prices 80 160 70 140 Darwin unleaded 60 petrol (RHS) 120
50 100
40 80
30 60 Eight capitals weighted average 20 Crude oil unleaded petrol (RHS) 40 (LHS) 10 20
0 0 98 99 00 01 02 03 04 05 06 07 08 Year ended June
Source: Australian Automobile Association, Reserve Bank of Australia, Energy Information Administration
In 2007, average unleaded petrol prices increased significantly across the Territory, reaching record highs in December 2007 (Table 5.2). This was consistent with the movement in prices observed nationally, which rose steadily through the year as the price of crude oil increased. The Australian Automobile Association (AAA) reports that in 2007, within the Territory, Tennant Creek consistently had the highest fuel prices of the regional centres, reflecting its distance from refineries and low volume turnover (the AAA does not report data for Nhulunbuy). Katherine had the lowest automotive fuel prices in the Territory, reflecting the highly competitive nature of retail outlets in the town.
Prices and Wages 57 2008-09 Budget
Table 5.2: Unleaded Retail Petrol Annual % and Crude Oil Prices Retail petrol price (cpl) December 06 December 07 Change Darwin 125.0 147.4 17.9 Alice Springs 125.7 152.5 21.3 Katherine 125.2 142.5 13.8 Tennant Creek 129.7 157.9 21.7 8 Capitals weighted average 116.5 137.6 18.1 Tapis Crude price (US$ per barrel) 65.5 96.0 46.6 Tapis Crude price (A$ per barrel) 83.3 108.5 30.3
Source: Australian Automobile Association, Energy Information Administration, Reserve Bank of Australia Fuel Taxes and Subsidies The Territory Government does not directly collect any taxes or excises on fuel sold in the Territory, although it does indirectly receive a proportion of the goods and services tax (GST) revenue levied on fuel sales by the Commonwealth. Following the introduction of the GST in 2000, the Commonwealth introduced the Fuel Sales Grant Scheme (FSGS) rebate to compensate motorists for the impact of the GST on regional fuel prices. The FSGS rebate was replaced by a Fuel Tax Credits System in July 2006, which was designed to lower compliance costs and simplify the fuel taxation system. In addition to the Fuel Tax Credit System, the Territory Government continues to provide a retail fuel rebate to Territory motorists of 1.1 cents per litre. Exchange Rates Changes in the exchange rate affect the prices of imported and, to a lesser extent, domestically produced consumer goods and services. On a trade weighted basis, the Australian dollar increased by 5.8 per cent in 2007. This largely reflected the strong performance of the Australian dollar against the US dollar and the Japanese yen, while weakening against the euro. The appreciation against the US dollar reflected the increasing divergence of Australian and US interest rates over the second half of 2007 as US economic growth forecasts were revised downwards. Strong demand for Australian corporate debt by Japanese investors was a primary driver of the appreciation of the Australian dollar against the yen. The Australian dollar was also supported by strong global demand for resource commodities, in particular from China, which flowed through to significant increases in export prices and Australia’s terms of trade. Should US economic growth continue to soften in 2008, the outlook for the Australian dollar is to further appreciate against the US dollar.
Chart 5.5: Exchange Rates US$ per A$ TWI Euros per A$ Yen per A$ (3 month moving average) 1.0 110
100 0.9 Yen (RHS) 90 0.8 US$ (LHS) 80 0.7 TWI (RHS) 70 0.6 Euro (LHS) 60
0.5 50
0.4 40 98 99 00 01 02 03 04 05 06 07 08 Year ended June TWI: trade weighted index Source: Reserve Bank of Australia
58 Prices and Wages Grocery Prices Since 2000, Northern Territory Treasury has conducted regular surveys of grocery prices in most major Territory centres, plus Cairns and Mount Isa for comparative purposes. The latest Grocery Price Survey was conducted in December 2007 (Table 5.3).
Table 5.3: Grocery Price Survey, December 06 June 07 December 07 Annual % December 2006 to December 2007 $ $ $ change Darwin 172.68 172.30 175.67 1.7 Alice Springs 166.31 163.83 167.80 0.9 Katherine 171.20 173.98 177.04 3.4 Yulara 204.50 204.03 209.49 2.4 Nhulunbuy 206.48 202.61 215.52 4.4 Cairns 164.05 162.86 169.88 3.6 Mount Isa 166.77 166.66 174.59 4.7
Source: Northern Territory Treasury
Grocery prices in the Territory, as measured by the survey, reported annual price movement in the cost of the basket of groceries in 2007, with the smallest annual increase of 0.9 per cent reported for Alice Springs, and the largest increase of 4.4 per cent reported for Nhulunbuy. The positive annual growth across all centres largely reflected the 18.7 per cent increase in fuel prices observed across the Territory in 2007 and its impact on packaging and freight costs, especially for regional centres. Prices growth for December 2007 are in line with the general principle that people purchasing an average basket of goods at supermarkets in towns more remote from major supply centres and larger population centres face higher prices than those living closer to major centres. This reflects higher freight costs, which have been affected by significantly higher fuel prices, as well as the smaller market size and reduced competition in these centres. Prices for fruit and vegetables and meat and seafood, which together typically make up around one‑third of the cost of the basket, are highly volatile, reflecting variations in seasonal and other factors affecting supply. As such, variations in prices in these categories can have a substantial impact on the overall cost of the basket in any one survey. Household Expenditure Conducted every five years, the ABS Household Expenditure Survey (HES) is a Survey comprehensive survey reporting differences in incomes and expenditure patterns in households residing in private dwellings across Australia’s capital cities. The latest HES data relates to the 2003-04 financial year. This will remain a useful source of data until 2010 when the 2008‑09 HES is released.
Prices and Wages 59 2008-09 Budget
Table 5.4: Average Weekly 1998-99 2003-04 Expenditure by Category and Darwin 8 Capitals Difference Darwin 8 Capitals Difference Household Income $ $ % $ $ % Goods and Services Current housing costs 149.63 107.40 39.3 187.76 160.39 17.1 (selected dwellings) Domestic fuel and 22.43 18.57 20.8 29.41 23.96 22.7 power Food and non- 157.57 134.58 17.1 172.12 160.37 7.3 alcoholic beverages Alcoholic beverages 35.52 20.63 72.2 38.99 23.58 65.4 Tobacco products 17.16 10.04 70.9 14.43 10.99 31.3 Clothing and footwear 26.66 35.67 -25.3 34.58 38.30 -9.7 Household furnishings 54.09 44.45 21.7 56.06 53.59 4.6 and equipment Household services 55.65 43.48 28.0 64.38 56.73 13.5 and operation Medical care and 31.41 35.03 -10.3 42.50 49.88 -14.8 health expenses Transport 141.63 123.33 14.8 149.58 142.40 5.0 Recreation 121.00 95.88 26.2 188.96 121.55 55.5 Personal care 15.26 15.14 0.8 18.82 18.62 1.1 Miscellaneous goods 78.38 62.98 24.5 87.37 87.01 0.4 and services Total goods and 906.40 747.18 21.3 1 084.95 947.37 14.5 services expenditure Mean gross 1 196.07 957.17 25.0 1 415.00 1 210.00 16.9 household income
Source: ABS Cat. Nos 65350, 65350.055.001
In 2003-04, the Darwin average weekly household income of $1415 remained above the eight capital cities average of $1210, but the differential declined significantly from 25 per cent in 1998-99 to 17 per cent in 2003-04. The decline reflects strong economic conditions in the Territory during the 1998-99 reference period, which was followed by a period of relative weakness. The 2003-04 reference period captures the beginning of a recovery phase. The differential between average weekly household expenditure in Darwin and the eight capital cities average declined from 21 per cent in 1998-99 to 15 per cent in 2003‑04, mirroring the decline in the average income differential. A significant factor in the decline was weaker growth in Darwin housing costs in 2003‑04, which increased by 25 per cent compared to 49 per cent for the eight capital cities. This reflected strong growth in the property market and residential construction nationally, which was not observed in the Territory during this time. Consistent over both survey periods, the additional weekly earnings in Darwin relative to the eight capital cities were mainly allocated to additional expenditure rather than savings.
60 Prices and Wages Wages Strong economic activity in the Territory, combined with tight labour market conditions and ongoing skilled labour shortages, flowed through to wages growth in 2007.
Table 5.5: Wage Price Index 2002 2003 2004 2005 2006 2007 (year on year to December 2007, % % % % % % percentage change) Northern Territory Public 3.2 3.7 3.3 4.8 4.4 2.7 Private 3.1 2.6 3.4 4.1 3.5 4.8 Total 3.1 3.1 3.3 4.5 3.9 3.9 Australia Public 3.3 4.4 4.1 4.6 4.3 4.2 Private 3.3 3.3 3.4 3.9 3.9 4.1 Total 3.2 3.6 3.6 4.1 4.0 4.1
Source: ABS Cat. No. 6345.0
Despite a tight labour market and employer groups reporting ongoing skilled labour shortages, growth in the Territory’s Wage Price Index (WPI) for 2007 was 3.9 per cent, unchanged from 2006. Wages growth was most notable in the private sector, with growth in the WPI increasing by 4.8 per cent in the year compared to 3.5 per cent in 2006. This may reflect ongoing inflationary pressures on wages in the Territory, especially in the construction and mining industries. There has been increased use of category 457 visa holders by employers in the Territory and nationally to alleviate skilled labour shortages. Sufficient data has yet to be made publicly available by the Department of Education, Employment and Workplace Relations to fully assess the impact of imported labour on wages growth in the Territory and nationally. Growth in the Territory’s public sector WPI moderated in 2007, increasing 2.7 per cent, compared to 4.4 per cent in 2006. This primarily reflects the timing of enterprise bargaining agreements (EBAs), most notably the Northern Territory Public Sector 2004-2007 Certified Agreement, covering about 9500 Northern Territory public servants, which expired in the September quarter 2007. A number of newly negotiated EBAs, once finalised, will flow through to the Territory’s public sector WPI. Average Weekly After several years of growth exceeding that reported nationally, growth in average Full-Time Adult Total weekly full-time adult total earnings (AWE) moderated significantly in the Territory in Earnings 2007, increasing by 1.6 per cent to $1112, below the national level of $1159, and fifth highest of the jurisdictions. This may reflect in part the completion of the Alcan refinery expansion at Gove. AWE may also have been influenced by the Australian Fair Pay Commission (AFPC) wages setting timetable, where there is a six month delay for employees on minimum awards. This suggests there may be an upward spike in growth in AWE in the first quarter of 2008. There is insufficient data to assess the effect on AWE by the increased use of category 457 visa holders by employers in the Territory and nationally to alleviate skilled labour shortages. AWE data should be viewed with caution as, unlike the WPI, which is designed to measure changes in the cost of employing a constant quantity and quality of labour, the AWE measure of wages is heavily influenced by compositional changes in the survey sample.
Prices and Wages 61 2008-09 Budget
Chart 5.6: Average Weekly % Full‑Time Adult Total Earnings 9.0 (year‑on‑year change) LNG plant 8.0 construction completed 7.0 LNG plant 6.0 construction commenced 5.0
4.0 Australia 3.0
2.0 Alcan G3 expansion Northern Territory completed 1.0
0.0 98 99 00 01 02 03 04 05 06 07 08 Year ended June Source: ABS Cat. No. 6302.0 Regional Wage and In March 2008, the ABS published Territory regional wage and salary earner statistics Salary Statistics 2004-05 for 2004-05. Compiled from the Australian Taxation Office’s Individual Income Tax Return Database, the statistics provide regional estimates of the number of wage and salary earners and their characteristics, including age, sex, occupation and income. It is important to note that this data set relates to persons aged 15 years and over who have submitted an individual income tax return and for whom wage and salary income was the main source of income for the financial year. This is in contrast to ABS data sets reporting on wages that generally focus on the employment status of a person at a particular point in time, or surveying businesses about employee numbers and payroll. Consequently, this data set is not comparable with other ABS measures of wages such as Average Weekly Earnings or the Wage Price Index.
Table 5.6: Wage and Salary Statistical Subdivision Average Income Median Income1 Earners Aged 15 and Over, Name Number Income ($) ($) ($) 2004‑05 Darwin City 33 735 1 552 099 064 46 009 41 622 Palmerston-East Arm 11 548 507 044 122 43 908 42 148 Litchfield Shire 7 233 323 543 064 44 732 41 236 Finniss 506 19 360 778 38 262 35 336 Bathurst-Melville 290 9 579 364 33 032 28 340 Alligator 1 474 63 789 394 43 276 38 312 Jabiru (T)2 490 24 948 168 50 915 46 297 Daly 462 15 543 423 33 644 28 932 East Arnhem 3 426 175 286 893 51 164 45 081 Groote Eylandt2 338 20 782 153 61 486 53 552 Nhulunbuy2 1 230 64 809 162 52 690 48 336 Lower Top End 4 579 187 826 163 41 019 38 821 Barkly 1 337 51 889 830 38 811 36 060 Central NT 13 705 554 099 519 40 430 36 912 Unknown NT 227 8 516 107 37 516 35 553
1 Median not calculated for areas with fewer than 100 wage and salary earners 2 Statistical Local Area Source: Australian Taxation Office Individual Income Tax Return Data
The data highlight the impacts of the mining industry on incomes in the Territory, and in regional areas in particular, with Groote Eylandt (GEMCO manganese mining operations), Nhulunbuy (Alcan bauxite and alumina operations) and Jabiru (ERA uranium mining operations) reporting the highest average wage and salary incomes
62 Prices and Wages at $61 486, $52 690 and $50 915 respectively. The next two locations reporting higher incomes were The Gardens and Fannie Bay in Darwin. Outlook The Territory economy has potential to maintain its growth momentum in 2008‑09, with continued strong demand for export commodities and buoyant private consumption being the key drivers. However risks for growth include uncertainty in world commodity and financial markets, a continued downturn in the US economy, and higher crude oil and petroleum prices flowing through to higher prices for domestic goods and services, particularly food. Continued pressure in the rental market, ongoing skilled labour shortages, and higher prices for petrol and food are likely to maintain inflationary pressures in 2008. This poses the possibility of further interest rate rises by the RBA in 2008 and suggests there may be pressure on wages growth in the Territory to compensate for increased cost of living. Despite inflationary forces in 2008, year‑on‑year growth in the Darwin CPI is forecast to moderate to 3.1 per cent, driven by a decreasing contribution of housing. Ongoing skilled labour shortages and tightness of the labour market should continue to see wages growth in the private sector above long‑term trend levels. Tight Territory Government budgetary conditions are likely to influence EBAs and flow through to wage constraint in the Northern Territory public sector.
Prices and Wages 63 2008-09 Budget
64 Prices and Wages Chapter 6 External Economic Environment
Key Points »»Global economic conditions are expected to be less stable and less predictable in 2008. »»The outlook for the Australian economy remains favourable, primarily reflecting strong Chinese demand for commodities. »»Risks to the generally positive outlook include the possibility of a greater than expected slowdown in the United States economy.
Northern Territory Economy Demand for Territory goods both internationally and from other Australian states and territories is very important for the Territory economy. Overseas demand constitutes almost 25.3 per cent of Territory final demand, while interstate demand has averaged 12.3 per cent annually since 2002. Exports to Asian markets are one of the key links through which global economic conditions affect the Territory economy. The main products exported from the Territory to Asian markets include crude oil, liquefied natural gas (LNG), mineral ores, live cattle and tourism-related services. The major destination markets for mineral ores are the United States (US), China and Japan. Under contractual arrangements, all LNG is exported to Japan. Live cattle are exported mainly to the Philippines and Indonesia. Oil is exported primarily to Singapore, China, the US and South Korea. Services provided to international tourists, mainly from Europe, Japan and North America, also form an important export component of the Territory economy. Table 6.1 provides a summary of the economic outlook for the major destinations of Territory exports. Global Economy After four years of robust gross domestic product (GDP) and trade growth, conditions in global financial markets have turned from favourable to less stable and less predictable. Global GDP growth eased to 3.6 per cent in 2007 from 3.9 per cent in 2006 and growth, particularly for high income countries, is forecast to moderate further in 2008. The deterioration in financial market sentiment has been associated with a weakening in the outlook for global economic growth, with some economic analysts forecasting a US recession. The US housing sector remains weak, with the fall-out from the sub‑prime mortgage crisis likely to remain a dampening factor in the short to medium term. Growth in the Eurozone, defined as European Union member states that have adopted the Euro currency, and Japan is also slowing. The extent to which the weakness in the major industrial economies will affect the developing world is still unclear. At the global level, the slowing demand for imports by the US has been offset in part by a strengthening of import demand across developing countries, driven by robust domestic demand from large emerging market economies such as China and India. Conditions in China, India and the smaller east Asian economies remain strong. In China, GDP grew by 11 per cent in 2007. While Chinese export growth has moderated, domestic spending is expanding rapidly. In the rest of east Asia, production and export growth generally strengthened through most of 2007. Growth in developing countries should offer a cushion from recessionary conditions in the
External Economic Environment 65 2008-09 Budget
key Organisation for Economic Co-operation and Development (OECD) economies over the 2008 period. Overall, changes in recent economic indicators such as stock market volatility, a weakening US dollar, uncertainty in the financial sector and rising oil prices, appear to support the view that global growth is slowing. This is due to significant weakness in the major industrial economies despite relatively strong growth in the developing world. Despite weaker global conditions, inflation remains a source of concern for many countries, including Australia. Australian Economy In 2007, the Australian economy continued to operate close to full capacity, experiencing labour shortages and capacity constraints. In the year to September 2007, GDP increased 3.4 per cent, a solid increase but below the 10-year average GDP growth rate of 3.6 per cent. Disparate Economic The Australian states and territories reported disparate economic growth in 2006-07 Growth as measured by gross state product (GSP). Strong growth was reported for Western Australia, the Northern Territory, Queensland and the Australian Capital Territory, moderate growth in Victoria and Tasmania and weak growth in New South Wales and South Australia. At the national level, both the private and public sectors made significant contributions to GDP with domestic demand expanding 5.25 per cent. Strong growth in consumer demand has been driven by rising employment and real wages, as well as cuts in income tax. Business investment spending also grew at a fast pace, reflecting investment in plant, equipment and infrastructure. Productive Capacity With demand continuing to grow strongly after a long period of expansion, domestic factors such as a shortage of skilled labour indicate that the economy is operating at close to full capacity. Business surveys, including the Sensis Business Index, have been reporting both high rates of capacity utilisation and high levels of concern about labour scarcity. Unemployment remains around a 30-year low, with the job vacancy rate increasing by 13.5 per cent from November 2006 to November 2007. High levels of business investment under way should assist in alleviating bottlenecks and over time add to the economy’s productive capacity. Agriculture and Cropping The majority of winter cropping areas in southern Western Australia, South Australia, Victoria, New South Wales and central Queensland had an excellent start to the 2007-08 season. However, dry conditions over the remainder of the growing period meant that winter crop production was significantly lower than expectations. Although production of major winter grains in 2007-08 was significantly higher than 2006-07, production remained well below average. Free Trade Agreements Bilateral free trade agreements are expanding market opportunities for Australian exporters and facilitating greater investment in Australia, which has free trade agreements with New Zealand, Singapore, Thailand and the US. Outlook Global Economy Global growth is expected to slow further in 2008, as the effective cost of capital remains elevated for financial institutions, firms, households and governments. This is primarily associated with the US sub-prime mortgage crisis, the effects of which have been felt in Australia with the major banks increasing interest rates independent of the Reserve Bank of Australia (RBA). As well, the RBA increased the cash rate from 6.75 to 7.25 per cent in March 2008. Despite these challenges, an upturn in global growth is projected in 2009 underpinned by continued demand for commodity
66 External Economic Environment resources to fuel China’s domestic demand, a US Government $171 billion plan to stimulate the US economy, and a bottoming out of the US housing downturn. From a global perspective, China and India have increased the supply of unskilled labour into the industrial sectors of these two previously less developed economies. This substantial increase in supply of low-skilled labour reduces the price of labour‑intensive industrial outputs relative to other inputs, notably raw materials. India and China should continue to benefit from their large workforces, at least until the additional labour is absorbed or real wages for their workers improve. Inflation poses a risk to the global economy in 2008, in particular wage pressure due to labour shortages and capacity constraints in the developed economies. Instability in some oil-producing nations, particularly Venezuela, could mean supply shortages resulting in increased oil prices. Consensus Economics has forecast global growth in 2008 to ease to 3.2 per cent and the US economy is expected to slow. The world economy, however, is becoming more resilient and less vulnerable to a greater than expected slowdown in the US economy as a larger number of countries are contributing greater proportions to global growth. Economic growth in 2008 is expected to be strong in China, India and many South East Asian countries. Australia Australia’s international trade is dominated by the export of minerals and the import of manufactured goods. As such, Australia’s terms of trade (that is, the ratio of export prices to import prices) will be significantly impacted by global prices of resource commodities relative to those of traded industrial goods. Despite the slowing in the world economy, Australia’s terms of trade are forecast to rise in the near term. This outlook is largely driven by expected large increases in coal and iron ore contract prices in mid-2008, reflecting ongoing strength in commodity demand from Asian countries, particularly China. The effect of these increases is forecast to be partially offset by declines in base metals and rural export prices from their recent high levels. Together, these developments suggest that the terms of trade will reach new highs in mid-2008, before declining somewhat due to the slowing in global growth and as demand and supply respond to the current high commodity price levels. The Chinese and Indian economies are going to be increasingly important buyers of raw materials. China’s demand for iron ore has increased from 11 per cent to 37 per cent of the total global supply of iron ore in less than a decade. China already demands a significant proportion of world commodities, with the potential for increases, as does India. This has significant implications for Australia’s commodity‑rich economy. Australia’s agricultural commodity sector has been under increasing pressure from drought in a rapidly evolving world economy. Challenges include uncertainty about irrigation water, climate change and high oil prices, as well as the availability and cost of labour. However, heavy rains across many drought-affected areas in late 2007 and early 2008 have improved prospects for the rural sector. Consensus Economics forecasts Australian GDP growth of 3.4 per cent in 2008 led by the resource-rich states of Western Australia, Queensland and the Northern Territory. It also forecasts Australian inflation to be 3.1 per cent in 2008, above the upper end of the RBA’s target band of 2.0 to 3.0 per cent. This indicates future interest rate rises are possible in 2008.
External Economic Environment 67 2008-09 Budget
Table 6.1: Growth (annual percentage change) GDP Growth (%) 2005 2006 2007 2008e 2009f Comment North East Asia China 10.2 11.1 11.4 10.2 9.6 Continued focus on development needs in rural areas to address widening inequality with more funds disbursed to regions for welfare. Pressure to revalue the currency as a way to lower the country’s growing trade surplus.
Korea 4.0 5.0 4.9 4.9 5.1 Inflationary pressures to remain subdued in 2008. This will partly reflect the continued appreciation of the won against the US dollar and the impact of further economic restructuring. Japan 1.9 2.4 2.0 1.3 1.8 Government economic policy to prioritise growth over fiscal reform with general elections in 2008 and commitments for increased public works spending in the countryside.
Taiwan 4.0 4.9 5.7 4.3 4.6 Real GDP growth forecast of around 4 per cent in 2008 driven by domestic demand as unemployment continues downward trend. The government will seek to limit Taiwan’s economic reliance on China yet benefit from the mainland’s strong growth. Hong Kong 7.3 6.8 6.3 4.8 5.1 Hong Kong, as a globally important trade centre port, will benefit from China’s rising levels of international trade by forging closer economic ties and partnership with mainland China in terms of people and resources. South East Asia Philippines 4.9 5.4 6.3 5.8 5.8. Improvement in government’s finances is expected to lead to a decline in total government debt which should in turn lead to greater economic stability and modest acceleration in investment growth. Indonesia 5.6 5.2 6.3 6.2 6.0 Greatly reduced public debt has given the government more freedom in fiscal policy decisions. The central bank is likely to remain prudent, with a firm focus on keeping inflation low. Foreign investment inflows are expected to continue in 2008. Malaysia 5.2 5.9 6.3 5.6 5.8 A major challenge for Malaysia will be coping with competition from China. However China presents opportunity as well as threat and Malaysia’s exports to China are likely to grow rapidly over the next five years. Thailand 4.5 5.1 4.8 4.6 4.9 Following a military coup in 2006, a democratically elected government has been returned in early 2008. Domestic demand has been weakened by uncertainty but positive external trade has propped up the overall economy. Singapore 6.4 7.9 7.7 5.2 5.9 Fiscal policy will be used to improve the country’s appeal as a destination for foreign direct investment. A similar motive will drive its pursuit of free trade agreements with its main trading partners. North America United States 3.2 2.9 2.2 1.4 2.3 After substantial slowing in 2007, GDP is forecast to weaken further with growth expected to fall to 1.4 per cent in 2008. The main concern is that consumer spending will be impacted more seriously than factored into forecasts. A partial reversal is expected in 2009 with real GDP growth of 2.3 per cent. Canada 2.9 2.8 2.7 1.5 2.3 Government budget surplus will deteriorate in 2008 and 2009 as a result of tax cuts introduced in October 2007 and a weakening economy. The Canadian dollar will remain strong against the US dollar due to a weakening US economy. Canada’s medium-term economic fundamentals remain strong. Eurozone 1.5 2.9 2.6 1.5 1.8 The European Central Bank has faced mounting political pressure to prioritise growth prospects over inflation targeting. Oil and food prices have shown little sign of decelerating and the central bank has raised the possibility of rate hikes. Russia 5.5 6.5 7.0 6.8 6.3 Capacity constraints, the slow pace of institutional change and the impact of an appreciating rouble will lead to a decelerating pace of economic expansion. Nevertheless GDP growth will continue to be boosted by high oil export prices. India 8.4 8.4 7.8 8.1 8.4 India’s economic boom will continue albeit at a slightly slower pace. The government is committed to increase spending on health, education and rural welfare projects in a bid to improve living standards outside urban areas. Australia 2.8 2.8 3.9 3.3 3.2 Continued strength of domestic demand, a tight labour market and capacity constraints mean that inflationary pressures are likely to remain strong in 2008‑09. New Zealand 2.1 1.7 3.1 2.0 2.5 The government has backed up its goal of making the country carbon-neutral with a firm plan to meet its greenhouse emission targets. Market opportunities are limited by geographical location, small population and a tight labour market. e: estimate; f: forecast n.a: not available Source: Consensus Economics Consensus Forecasts March 2008 (India: financial year reported) (Russia, Philippines: International Monetary Fund)
68 External Economic Environment Chapter 7 International Trade
Key Points »»In 2007-08, the Territory’s international trade surplus (that is, exports of goods and services less imports of goods and services) increased to an estimated $1.7 billion, up from the $1.5 billion surplus in 2006-07. »»The Territory’s international merchandise trade balance (goods only) increased to an estimated $1.4 billion in 2007-08, up from $1.2 billion in 2006‑07. »»Mineral ores, mineral fuels and cattle dominate international exports in the Territory. In 2007-08, the value of merchandise exports increased by 6 per cent to an estimated $4.3 billion, largely due to increased global commodity demand and prices. »»The major Territory imports are refined fuels, and machinery and equipment (mostly industrial equipment for mining and construction activities). In 2007-08, imports increased by an estimated 2 per cent to $2.9 billion, and are forecast to grow a further 13 per cent to $3.3 billion in 2008-09. The increase in 2007‑08 is primarily due to rising prices of imported mineral fuels and gas feedstock for the LNG plant at Wickham Point. Partly offsetting the increase in the value of mineral fuels imports is weakened demand for machinery and transport equipment imports (particularly for major oil and gas projects), and a reduction in national aircraft imports via Darwin. »»The value of mineral fuel imports is forecast to increase by about 26 per cent in 2008-09, due to continued importation of feedstock gas for the Wickham Point LNG plant and higher fuel prices. »»Territory service exports are forecast to increase 1 per cent in 2007-08 and a further 1 per cent in 2008-09, driven by greater demand for travel services. Territory service imports are forecast to increase 5 per cent in 2007‑08 and increase a further 5 per cent in 2008-09, due to a higher demand for transportation services and travel services. »»Strong growth in merchandise exports is forecast for 2008-09, supported by a third full year of LNG production, manganese from the new Bootu Creek mine and alumina from Alcan’s Gove refinery.
International trade is an integral part of the Territory economy. In 2007-08, the Territory’s international trade surplus increased to an estimated $1.7 billion, with international merchandise trade (goods only) accounting for $1.4 billion of the surplus, a substantial improvement from the $236 million deficit recorded in 2005‑06. The Territory’s positive trade balance is primarily due to the strong demand for, and increased prices of, mineral and energy commodities (such as alumina and manganese), together with weakened demand for manufacturing imports following the completion of the Alcan G3 expansion. Exports in the Territory are dominated by mineral and energy commodities and, to a lesser extent, the agricultural sector. The Territory’s reliance on the mining and energy sector, which is often characterised by projects with long lead times, price fluctuations and exchange rate movements, can substantially impact on the Territory’s trade performance. For example, the commencement of a full year of liquefied natural gas (LNG) production in 2006 has led to an increase in the Territory’s level of exports of almost 50 per cent (Chart 7.1). The volatility in exports was also evident in 1999 and 2000 when production at the Laminaria-Corallina oilfields began, leading to a 105 per cent increase in Territory
International Trade 69 2008-09 Budget
exports. Although the volume of LNG production will remain at current levels for the next five to ten years, the value of production will fluctuate with price changes, impacting on the Territory’s international trade performance. Caution is also required when interpreting international trade statistics for the Territory. Although the importation of some high value capital goods, such as the Northern Endeavour platform in 1999 and 20 passenger aircraft for Jetstar between 2004 and 2006, had a significant impact on Territory imports, there was minimal impact on the onshore economy. In addition, the majority of gold production in the Territory is exported through Perth, and is not considered a Territory international trade export, rather it is regarded as an interstate export. Chart 7.1: Territory International $B Merchandise Trade 6 (moving annual total) 5 Exports 4 Imports 3
2 Trade balance 1
0
-1 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast Source: Northern Territory Treasury, Australian Bureau of Statistics Merchandise Trade Balance Historically, the Territory is a net exporter, largely due to its abundance of mineral and energy resources. In 2007-08, the Territory’s merchandise trade balance is estimated to be a $1.4 billion surplus (merchandise exports exceeding merchandise imports), reflecting the high level of commodity exports from the Territory. The Territory’s major merchandise trading partners include North East and South East Asia (mainly China and Singapore). North America (mainly Canada) is another important trade region. Territory exports, as a ratio of gross state product (GSP), were 29.3 per cent in 2006‑07 (Table: 7.1), compared to the national ratio of 15.8 per cent, reflecting the Territory’s relatively high volume of exports of commodities and LNG. This ratio reflects a jurisdiction’s relative international trade exposure. Western Australia has the highest ratio of exports to GSP at 43.0 per cent, reflecting the high volume of commodities exports. Queensland’s relatively high ratio of exports to GSP also reflects its trade exposure as a result of its commodity exports.
70 International Trade Ratio of Trade Merchandise Merchandise Merchandise Balance to Table 7.1: International Exports ($M) Imports ($M) Trade Balance ($M) GSP/GDP Merchandise Trade, 2006-07 New South Wales 30 557 71 798 -41 241 -12.8 Victoria 20 816 51 600 -30 784 -12.7 Queensland 36 569 27 263 9 306 5.0 South Australia 8 076 6 577 1 499 2.3 Western Australia 54 910 21 437 33 473 26.2 Tasmania 3 078 592 2 486 12.9 Northern Territory 3 934 2 879 1 055 7.9 Australian Capital Territory 8 310 - 302 -1.4 Australia 157 949 182 457 -24 508 -2.5
Source: ABS Cat. No. 5220.0 Merchandise Exports Mineral and energy exports comprise a large proportion of the Territory’s international merchandise exports. Multi‑billion dollar onshore mining and offshore oil and gas extraction projects have a significant impact on the Territory’s economy and trade performance. Other important merchandise exports include live cattle, manufactured goods, and chemicals and related products. Merchandise exports have been volatile in recent years, reflecting the combined impact of falling oil production from the Laminaria-Corallina oilfields, fluctuations in crude oil prices, increased production of LNG at Wickham Point and movements in the Australian dollar. In 2007-08, the value of Territory merchandise exports increased by 6 per cent to an estimated $4.3 billion, primarily due to the increase in mineral ore exports and despite the significant appreciation of the Australian dollar.
Chart 7.2: Territory Merchandise $B Exports by Major Group 6 (moving annual total) 5
Total 4 Mineral fuels1
3
2 Mineral ores 1
Livestock 0 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast 1 Mineral fuels includes LNG exports Source: Northern Territory Treasury, Australian Bureau of Statistics Mineral Fuels In 2007-08, the value of mineral fuel exports is estimated to decrease by 7 per cent to $1.7 billion, to which LNG exports contribute $1.4 billion. The decrease in mineral fuel exports in 2007-08 is attributable to LNG production at Wickham Point decreasing significantly in late 2007 as general maintenance works were carried out. The significant increase in mineral fuel exports in 2006-07 is due to the commencement of LNG exports from the Wickham Point plant. The peak in merchandise exports in mid 2001 (Chart 7.2) was due to oil production from the Laminaria-Corallina oilfields, a weak Australian dollar and increasing oil prices. Despite the strong Australian
International Trade 71 2008-09 Budget
dollar, mineral fuel exports are expected to remain stable at $1.7 billion in 2008‑09 as full production of LNG continues at Wickham Point, offsetting the declining production of oil at the Laminaria‑Corallina fields in the Timor Sea. Mineral Ore The dominant mineral ore exports in the Territory include alumina, manganese, lead‑zinc concentrate and uranium. The value of mineral ore exports increased by 26 per cent to an estimated $2.2 billion in 2007-08, reflecting an increase in demand for, and prices of, such resources. Following Xstrata’s decision to cease underground mining operations at its McArthur River lead-zinc mine in September 2005, a proposal to expand the mine to allow open cut operations was approved by the Territory Government in late 2006. McArthur River mine continued its mining operations from its test pit during the conversion process, with capacity set to increase from 1.8 million tonnes to 2.5 million tonnes in 2008. Livestock Territory livestock exports, more than 90 per cent of which are live cattle, are influenced by the economic conditions in the major importing countries such as Indonesia, as well as other factors including drought and the value of the Australian dollar relative to the currencies of Asian trading partners. In 2007-08, the value of livestock exports from the Territory increased by 6 per cent to an estimated $184 million. This increase is largely due to the combined effects of higher cattle prices and growth in live cattle export demand by South East Asian countries such as Brunei, Indonesia, Malaysia and the Philippines. Although the drought has affected cattle properties in Central Australia, the export of livestock from the Territory is expected to increase a further 6 per cent in 2008-09. In March 2008, the Territory’s cattlemen’s and livestock exporters associations announced that they were meeting with the Vietnamese Government and potential buyers of cattle, possibly adding a new cattle export market in the next two years. Key Export Markets In the five years to 2006-07, about 70 per cent of Territory merchandise exports went to Asia (Chart 7.3). Of all mineral ore exports from the Territory, 36 per cent were sent to North East Asia, with the other major destinations including North America, Japan and Europe. The Territory exports 63 per cent of its mineral fuel to South East Asia, with the other major destinations including Japan and North East Asia. Nearly 95 per cent of all livestock exports were to South East Asia in the five years to 2006‑07.
72 International Trade Chart 7.3: Territory Merchandise Other countries1 Exports, 2002-03 to 2006‑07 (five year average) North East Asia2
North America
Japan
Middle East
Europe
South East Asia
0 100 200 300 400 500 600 700 800 $M Mineral fuels3 Mineral ores Livestock4 Other5
1 Includes the United Kingdom, Africa, South America, New Zealand, Ireland and Central America 2 Excludes Japan 3 Includes LNG exports 4 Predominantly live cattle exports 5 Primarily alumina and may also include beverages and tobacco, manufactured goods, machinery and equipment and miscellaneous manufactured articles Source: Australian Bureau of Statistics
Merchandise Imports In 2007-08, the value of imports is estimated to increase by 2 per cent to $2.9 billion, primarily driven by the increased value of mineral fuel imports, including feedstock gas for the Wickham Point LNG plant, despite the strong value of the Australian dollar. This increase is partly offset by a decline in the value of machinery and equipment imports as major construction projects near completion. This contrasts with the previous three years (2004-05 to 2006-07), when machinery and transport equipment imports were particularly high due to the importation of equipment for major construction projects and the import of aircraft for Jetstar. The Territory’s major international merchandise imports are mineral fuels and machinery and transport equipment (Chart 7.4).
Chart 7.4: Territory Merchandise $B Imports (moving annual total) 4
Machinery and transport equipment Total 3
2 Mineral fuels
Manufacturing Other1 1
0 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast 1 Primarily consists of chemicals and related products, and other unclassified items Source: Northern Territory Treasury, Australian Bureau of Statistics
International Trade 73 2008-09 Budget
Mineral Fuels Gas production at the Wickham Point LNG plant has had a significant impact on the Territory’s international trade balance. Feedstock gas for manufacture into LNG is piped from the Bayu-Undan fields in the Joint Petroleum Development Area (JPDA). The JPDA is jointly managed by Australia and Timor‑Leste and as such is classified as a country for international trade purposes. Half of all feedstock gas from Bayu‑Undan is reported as a Territory import, while the other half piped to the Territory is classified as mineral fuel produced in the Territory. In 2007-08, the value of fuel imports increased by 40 per cent to a historic high of $1.8 billion, a result of the increasing demand for fuel by mining and construction companies. This increase in demand is despite rising oil prices that have been partially offset by the appreciation of the Australian dollar. The solid increase in international fuel imports since 1999 partially reflects a shift in the source of supply, with less being sourced from Australian refineries and more being sourced from Singapore. In 2007-08, the international price of crude oil reached record levels above $US110 a barrel largely due to supply constraints and strong global demand. Machinery and Transport The value of machinery and transport equipment imports decreased from Equipment $777 million in 2006-07 to an estimated $442 million in 2007-08, representing about 15 per cent of Territory merchandise imports. In 2005-06, the peak in machinery and transport equipment was primarily due to Darwin being the first Australian port of call for Jetstar’s fleet of 20 Airbus A320s, contributing more than $900 million to Territory merchandise imports. Machinery and transport equipment imports have now returned to levels reported in 2003-04, following the completion of Jetstar’s fleet purchases in late 2006 and slowing demand for industrial machinery and transport equipment by mining and construction companies. Manufacturing The Territory has a small manufacturing base, with the majority of manufactured products imported from interstate and overseas. Manufacturing imports includes items such as military equipment and building materials. In the five years to 2007‑08, manufactured imports accounted for 14 per cent of international merchandise imports. In 2007‑08, the value of manufactured imports decreased by 32 per cent to an estimated $315 million. This significant decrease is due to the one-off import of re-conditioned US M1A1 Abrams tanks and a variety of military support vehicles in March 2007, resulting in an unusually high manufacturing figure in 2006-07. Other Merchandise Other merchandise imports include food and live animals, beverages and tobacco, Imports crude materials, animal and vegetable oil, chemicals and related products, and unclassified commodities. In 2007-08, other merchandise imports increased by 12 per cent to an estimated $375 million. The majority of this increase in other merchandise imports is attributed to rises in chemicals and related products, increasing 7 per cent in 2007-08 and accounting for about 83 per cent of total other merchandise imports. Key Import Markets In the five years to 2006-07, 60 per cent of Territory merchandise imports came from South East Asia or Europe. South East Asia supplied more than 95 per cent of the Territory’s fuel requirements. In the five years to 2006‑07, Europe was the Territory’s second largest import source, largely due to the one-off impact of Airbus A320 aircraft imports from France (Chart 7.5).
74 International Trade Chart 7.5: Territory Merchandise 1 Imports, 2002-03 to 2006-07 Other countries
(five year average) North East Asia2
North America
Japan
Middle East
Europe
South East Asia
0 100 200 300 400 500 600 $M Mineral fuels Transport Manufacturing Other3
1 Includes the United Kingdom, Africa, South America, New Zealand, Ireland and Central America 2 Excludes Japan 3 Includes beverages and tobacco, food and live animals, crude materials, chemicals and related products, animal and vegetable oils and unclassified commodities Source: Australian Bureau of Statistics Service Exports The Territory’s level of per capita service exports was the highest of all jurisdictions in 2006-07. This was due to the relatively large contribution of the tourism industry in the Territory as well as the Territory’s status as a ‘rest and recreation’ destination for foreign defence personnel. In August 2006, the Australian Bureau of Statistics (ABS) made revisions to the calculation of international trade in services exports, which has led to a significant change in the value of services exports for all jurisdictions. For example, in 2004‑05, the value of Territory travel services exports was reported as $138 million. As a result of the ABS revisions, in 2006-07 Territory travel services exports were valued at $360 million. Previously, travel services exports were apportioned to jurisdictions based on the main state of stay, an indicator more likely to favour larger states. However, the revised methodology utilises the number of stop-over nights, a better indicator of travel services exports. The following service export figures were calculated using the new ABS methodology. Travel Services Travel services exports include the expenditure by overseas tourists, business travellers and students, on services such as meals, accommodation, entertainment, and sightseeing tours. In 2006-07, travel services were valued at $360 million, accounting for more than half of the total Territory services exports. Since 2000‑01, the value of Territory travel service exports has declined by almost 30 per cent (Chart 7.6), largely due to a series of international terrorist attacks affecting worldwide tourism. In 2007-08, the value of travel services exports is expected to increase by about 1 per cent as overseas consumers take advantage of low‑cost carriers providing services to Australia. Government Services Expenditure by foreign government personnel on services such as meals, accommodation, entertainment and sightseeing tours is included as government services exports. The majority of government services exports in the Territory are delivered to visiting defence personnel, particularly from the United States. In 2006‑07, the value of government services exports was $275 million, representing 38 per cent of total Territory services exports. The value of government services exports is expected to decline in 2007-08, as a result of fewer defence missions planned for the Top End region. The decline in the number of major naval ships
International Trade 75 2008-09 Budget
visiting the Port of Darwin is due to a number of factors including operational demands and ability to guarantee berthage.
Chart 7.6: Territory Services $M Exports 1000 900 800 Total 700 600 500 400 Travel services 300 200 Government services 100 Other1 0 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast 1 Includes transportation and communication services Source: ABS Cat. No. 5368.0.55.003 Service Imports Territory services imports are dominated by Territory-based demand for travel services (consumed by Territorians travelling overseas) and transportation services (shipment and freight services provided by foreign operators), each representing close to half of all services imports in 2006-07. The total value of services imports in 2006-07 was $356 million, up from $295 million in 2005-06. In 2007-08, the value of services imports in the Territory is estimated to increase by about 5 per cent as demand for transportation services and travel services continues to strengthen.
Chart 7.7: Territory Services $M Imports 450 400 Total 350
300
250
200 Travel services 150
100 Transportation services 50 Other1 0 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast 1 Includes communication services and confidential items Source: ABS Cat. Nos 5368.0.55.003
76 International Trade Outlook The Territory’s trade surplus is forecast to be $2.4 billion in 2008-09. The merchandise trade surplus is estimated to increase to $2.1 billion, up from the $1.4 billion trade surplus in 2007-08, and a substantial turnaround from the $236 million deficit in 2005-06. The Territory’s balance of trade is forecast to remain in surplus for 2008-09 as a result of factors such as weakening demand for major imports (such as machinery and transport), and strong growth in the value of LNG and mineral ore exports. Merchandise Exports The current value of merchandise exports is estimated to increase by 6 per cent to $4.3 billion in 2007-08 and forecast to increase to $5.4 billion in 2008-09. The growth in merchandise exports is associated with the increase in value of LNG production, manganese from the Bootu Creek mine and increased production from Alcan’s Gove refinery. The value of mineral fuels exports is forecast at $1.7 billion in 2008-09 as the value of LNG production is sustained, offsetting the decline of oil production from Laminaria-Corallina. Commodity prices, particularly in the mining and energy sectors, are expected to continue to increase as Chinese economic growth continues its solid performance, increasing demand and value of Territory commodities exports, despite a forecast slowdown of global growth led by the downturn in US economic conditions. In the next 12 months, the following major resource developments may increase Territory exports: • alumina production at Alcan refinery plant to reach full capacity of 3.5 million tonnes by 2008-09; • production of manganese at the Bootu Creek mine to reach 3.95 million tonnes in 2007-08, increasing to 4.25 million tonnes in 2008-09; • iron ore production at the Frances Creek mine near Pine Creek is expected to increase production from about 530 000 tonnes in 2007-08 to 1.5 million tonnes in 2008-09; and • production of manganese at the GEMCO mine to ramp up in 2009 following the $167 million mine expansion. Merchandise Imports The current value of Territory international merchandise imports is forecast to increase to $3.3 billion in 2008-09, following an increase of 2 per cent to $2.9 billion in 2007-08. The increases in merchandise imports are primarily due to increasing demand for fuel by mining and construction companies and rising oil prices, partially offset by the appreciation of the Australian dollar. Trade in Services The trade services balance is estimated to decrease by 3 per cent to a surplus $349 million in 2007-08 and further moderate to $338 million in 2008-09. Trade services exports are estimated to increase by 1 per cent in 2007-08 with a further 1 per cent increase in 2008‑09. This increase largely reflects greater demand for travel services (in particular personal travel services) as consumers access low-cost airlines such as Tiger Airways and Jetstar. The value of trade services imports is expected to increase by about 5 per cent to an estimated $374 million in 2007-08 and further increase to $392 million by 2008-09. The increase in trade service imports will be driven by higher demand for transportation services and travel services as cheaper airfares strengthen demand.
International Trade 77 2008-09 Budget
78 International Trade Chapter 8 Mining and Energy
Key Points »»In terms of output, mining is the largest industry in the Territory, accounting for 26 per cent of GSP in 2006-07, compared to 7 per cent nationally. »»Mining output is volatile as production is dominated by a small number of large projects. Global supply and demand conditions and the impact of exchange rate movements on competitiveness are key factors affecting production levels and price. »»The value of Territory mining output has grown substantially in recent years, driven by increased gas and condensate production from Bayu-Undan, as well as increases in mineral commodities such as manganese and lead-zinc. »»Further increases are expected in the next few years, driven by increased production and strong growth in prices of several key commodities. »»Mineral and energy production is estimated to increase by 7.7 per cent to $5.6 billion in 2007-08. Higher growth of 34.3 per cent is forecast for 2008‑09. »»In the medium term, high levels of exploration expenditure are expected to continue, supported by ongoing strong commodity prices and Territory Government initiatives.
Mining In terms of output, mining is the most significant industry in the Territory, accounting for 26 per cent of gross state product (GSP) in 2006-07, compared to 7 per cent nationally (Table 8.1). However, its high contribution to GSP is not reflected in its share of Territory employment. According to the 2006 Census, resident employment in the mining industry was 1700 or 2.0 per cent of total resident employment. An additional 5000 employees are associated with the Territory mining and energy industry as fly-in fly‑out (FIFO) workers, manufacturing workers at Alcan’s Gove alumina plant and the Wickham Point liquefied natural gas (LNG) plant, and construction workers on mining and energy projects.
Table 8.1: Mining as a Percentage % of GSP, 2006-07 New South Wales 2.4 Victoria 2.0 Queensland 7.7 South Australia 4.1 Western Australia 27.7 Tasmania 4.5 Northern Territory 25.7 Australian Capital Territory 0.0 Australia1 7.1
1 Mining as a percentage of GDP Source: ABS Cat. No. 5220.0 Mining is a source of Territory Government revenue through royalties for most onshore mining operations. Royalty revenues have grown significantly, increasing by 126 per cent in the three years to 2007-08 to an estimated annual amount of $88.4 million. The Commonwealth also pays a grant to the Territory Government in
Mining and Energy 79 2008-09 Budget
lieu of uranium royalties, estimated at $4.0 million in 2007-08. In addition, royalties based on the production of offshore gas and oil comes under the Commonwealth’s tax jurisdiction. A number of mining commodities are utilised as feedstock for significant value‑adding operations in the Territory, most notably alumina production at the Alcan refinery, which uses bauxite feedstock, and LNG manufacturing at Wickham Point, using gas feedstock from Bayu-Undan. The value of production of these commodities is classified as manufacturing by the Australian Bureau of Statistics (ABS), and is therefore not included in the total output of the mining industry. For more details on these products, see Chapter 9, Manufacturing. In 2007-08, the value of mining and energy production is estimated to increase by 7.7 per cent to $5.6 billion. The increase is largely being driven by growth in the value of production of liquid petroleum gas and condensate from the Joint Petroleum Development Area, as well as increased output of a number of mineral commodities, including manganese, magnetite, gold and bauxite (Chart 8.1).
Chart 8.1: Value of Mining and $ B 8 Energy Production and Processing (nominal dollars) 7
6
5
4 Total Energy 3
2
1 Minerals 0 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast Source: Northern Territory Treasury; Department of Business, Economic and Regional Development; Department of Primary Industry, Fisheries and Mines Minerals Manganese production at Groote Eylandt, lead-zinc production at McArthur River and gold production from The Granites mine in the Tanami region account for an estimated 68 per cent of the total value of mineral production in 2007-08. These three mines are expected to continue to dominate production in the medium term. Bauxite production at Gove also contributes significantly to total mineral production, and is used as feedstock for alumina manufacturing at the Alcan refinery (see Chapter 9, Manufacturing). The McArthur River mine is in the process of being converted from an underground to an open cut operation. Processing of zinc-lead concentrate has continued during the conversion phase using ore mined from the test pit and the initial stages of the open pit. Manganese production from the Bootu Creek mine commenced in June 2006. This has led to manganese contributing a growing share of the total value of mineral production in recent years. Global demand for manganese, which is used in the production of steel, has been driven by strong growth in the demand for steel from China.
80 Mining and Energy Map 1: Onshore Mineral and Energy Resources TIWI ISLANDS MINERAL SANDS PROJECT Zircon/Rutile Melville Island
Bathurst Island NHULUNBUY DARWIN Jabiru RANGER/JABILUKA FRANCES CREEK Uranium GOVE BATCHELOR Iron Ore Bauxite/Alumina Magnesite BROWNS OXIDE UNION REEFS Gold PROJECT Pine Creek Copper/Cobalt/Nickel KATHERINE GROOTE EYLANDT Manganese Mataranka
NORTHERN CEMENT Timber Creek Lime McARTHUR RIVER Borroloola Lead/Zinc/Silver Railway Gas Pipeline
Top Dunmarra REDBANK Springs Copper
Elliott MERLIN Kalkarindji Diamonds
BOOTU CREEK Renner Springs Manganese
Barkly TENNANT CREEK ighwayH THE GRANITES Avon Gold PEKO PROJECT Downs Gold/Magnetite/Cobalt
Barrow Creek
Ti Tree HARTS RANGE Garnet Sands Yuendumu
Highway
Harts Range MEREENIE Pipeline Gas and Oil Field Gas ALICE SPRINGS
PALM VALLEY Stuart Gas Field Yulara 0 100 200 Railway Km
Mining and Energy 81 2008-09 Budget
Other important mineral operations in the Territory include: • the Union Reefs plant and surrounding gold mines located near Pine Creek; • the Frances Creek iron ore mine, near Pine Creek; • the Browns polymetallic deposit of lead, cobalt, copper, nickel and silver in the Batchelor area; • the Peko Tailings project near Tennant Creek, producing magnetite, gold, copper and cobalt; and • the Merlin diamond field southeast of Borroloola. Uranium mining is reported under the ‘Energy’ section below. 2007-08 Mineral The nominal value of Territory mineral production is estimated to increase by Production 14.9 per cent to $2.5 billion in 2007-08 (Chart 8.2). The value of gold production in 2007-08 is estimated to increase by 21.7 per cent to $482 million. Declining production at The Granites mine in the Tanami region has been more than offset by increased production at the Union Reefs plant near Pine Creek. The plant is operated by GBS Gold, and produces gold using feedstock ore from a number of underground and open pit mines in the Pine Creek and Katherine areas. The value of bauxite production is estimated to increase by 52.1 per cent to $254 million in 2007-08. With the Alcan Gove refinery expansion completed, production of bauxite is expected to ramp up over 2007-08 to the new plant’s higher production capacity of 3.8 million tonnes of alumina per annum. The value of lead-zinc production at McArthur River is estimated to decrease by 19.8 per cent in 2007‑08 to $454 million, as increased production volumes are offset by declining prices. Following a decrease in production in 2005-06, due to the cessation of underground mining, production levels have been gradually increasing as work progresses on the conversion of the mine to an open cut operation. The value of manganese production is estimated to increase by 10.5 per cent to $1.1 billion in 2007-08, driven by increased production at both the GEMCO mine at Groote Eylandt and the Bootu Creek mine.
Chart 8.2: Value of Mineral $ B Production and Processing 2.0 (nominal dollars) 1.8 1.6 1.4 1.2 Manganese 1.0 0.8 0.6 Lead-zinc 0.4 Gold 0.2 Bauxite Other 0 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast Source: Northern Territory Treasury; Department of Business, Economic and Regional Development; Department of Primary Industry, Fisheries and Mines
82 Mining and Energy Exploration Mineral exploration in the Territory decreased in 2006-07, the latest year for which data on exploration is available, but still remains at historically high levels. Exploration continues to be supported by high commodity prices and strong global demand, particularly from China. In the Territory, private mineral exploration expenditure (not including exploration for uranium) decreased by 7.6 per cent to $62 million in 2006‑07. However, the latest data indicates that exploration expenditure increased substantially in the first half of 2007‑08, resulting in an increase of 13.7 per cent to $70 million in the year to December 2007 (Chart 8.3). Increased exploration expenditure has been influenced by the Territory Government’s initiative, Bringing Forward Discovery, launched in 2007 and building on the previous initiative, Building the Territory’s Resource Base. The initiative aims to expand publicly available geoscience data, and to promote opportunities for exploration and mining investment in the Territory.
Chart 8.3: Northern Territory $ M Mineral Exploration 100 (moving annual total) 80
60 Total
40 Gold Other minerals 20
0 97 98 99 00 01 02 03 04 05 06 07 08 Year ended June
Source: ABS Cat. No. 8412.0 Energy The significant energy resources in the Territory are oil, uranium, natural gas, LPG and condensate (a light hydrocarbon liquid used to manufacture petrol and petrochemicals, and often found mixed with deposits of natural gas). The Territory’s major energy resources and operations include: • Ranger uranium mine, and undeveloped uranium resources Jabiluka and Koongarra in west Arnhem Land; • onshore gas and oil operations in the Amadeus Basin at Palm Valley and Mereenie; • offshore oil operations at Laminaria-Corallina, Jabiru and Challis/Cassini, and Puffin in the Timor Sea; and • undeveloped offshore gas and condensate deposits, including Greater Sunrise, Evans Shoal, Petrel/Tern and Crux/Argus in the Timor Sea. In addition, 50 per cent of the value of oil and gas production from the Joint Petroleum Development Area (JPDA) is also attributed to the Territory. Currently, the only producing field in the JPDA is Bayu-Undan (gas, LPG and condensate), following the end of production from Elang/Kakatua (oil) in mid 2007. 2007-08 Energy The nominal value of energy production is estimated to increase by 2.4 per cent to Production $3.1 billion in 2007-08, driven largely by the higher value of liquids production from the JPDA, as strong increases in oil and gas prices more than offset decreased production.
Mining and Energy 83 2008-09 Budget
The value of oil production (excluding JPDA) is estimated to decrease by 10.0 per cent to $689 million, driven by lower production at Laminaria‑Corallina. The natural decline in production of the mature field has been exacerbated by the temporary shut down of the Corallina well in September 2007, as repair work is conducted. Full production from Corallina is anticipated to resume in September quarter 2008. The decline in production from Laminaria-Corallina has been partially offset by the commencement of production from the Puffin field in October 2007. Located in the Ashmore and Cartier Islands Adjacent Area, the field was initially forecast to produce 30 000 barrels of oil day (higher than current output from Laminaria-Corallina), however technical difficulties have so far limited production to less than one‑third of this amount. The value of uranium ore output from the Ranger mine is estimated to increase by 10.9 per cent to $303 million, as production recovers from the impact of heavy rains experienced in the March quarter 2007, which had prevented access to higher grade ores. An increase in the realised sales price of uranium from the Ranger mine is also expected to contribute to the growth in the value of production in 2007-08. The value of offshore gas production from the Bayu-Undan field is estimated to decrease by 10.2 per cent to $154 million in 2007-08. Lower output was caused by a planned maintenance shutdown of the offshore facility during September and October 2007. LPG and condensate production from the JPDA is also forecast to decrease due to the maintenance shutdown at Bayu-Undan, although strong price growth will result in the value of production increasing by an estimated 7.6 per cent.
Chart 8.4: Value of Territory $B Energy Production 3.5 (nominal dollars) 3.0
2.5 Total
2.0
1.5 Gas1 Oil 1.0
0.5 Uranium
0.0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07e 08f Year ended June
e: estimate; f: forecast 1 Includes gas, condensate and liquid petroleum gas Source: Northern Territory Treasury; Department of Business, Economic and Regional Development; Department of Primary Industry, Fisheries and Mines Exploration Sustained high oil and gas prices globally have led to a resurgence in exploration activity in the Territory in recent years. Following a tripling of oil and gas exploration expenditure in 2004‑05, expenditure tripled again in 2005-06, to a total of $299 million. Oil and gas exploration expenditure has since declined, falling by 6.6 per cent to $280 million in 2006-07, however this remains significantly higher than the long-term average. Like mineral exploration, increased oil and gas exploration has been supported by the Territory’s Bringing Forward Discovery initiative through the provision of geoscience data to explorers. The initiative has contributed to a major increase in the
84 Mining and Energy Map 2: Timor Sea Oil and Gas number of onshore exploration permits.
Dili JOINT PETROLEUM INDONESIA TIMOR-LESTE DEVELOPMENT AREA Oecusse Abadi Greater Sunrise Lynedoch Barossa Kuda Tasi Kelp Evans Shoal N.T. Kupang Buller Caldita Jahal Buffalo Elang/Kakatua Chuditch Laminaria-Corallina Hingkip Bluff Krill Bayu-Undan TIMOR SEA ASHMORE AND CARTIER ISLANDS ADJACENT AREA Oliver Tenacious Audacious Brontosaurus Maple Jabiru Swan Challis Darwin Puffin W.A. Padthaway Talbot Montara Prometheus Petrel Tahbilk and Bilyara Crux Tern
Ichthys Cornea Blacktip NORTHERN Brewster TERRITORY
Barnett INDIAN OCEAN WESTERN AUSTRALIA
0 100 200
Km
LEGEND Producing gas field Producing oil field Gas pipeline
Discovered undeveloped gas field Discovered undeveloped oil field
Uranium exploration, previously concentrated in west Arnhem Land and dominated by a few companies, expanded significantly in recent years, driven by strong increases in uranium prices since 2001. By June 2006, more than 40 companies were active in almost every geological province in the Territory. Outlook Growth in the total value of mineral and energy production is expected to increase by 34.3 per cent in 2008‑09, resulting in a total value of production of $7.5 billion. The outlook for minerals and energy is determined by global supply and demand, with world economic growth and the exchange rate being major influences on demand. Despite a forecast slowdown in global economic growth, driven in part by the downturn in the US economy, sustained growth in China and other developing countries is expected to support ongoing strong demand for energy and mineral commodities. Although global production has been increasing, output has struggled to keep up with commodity demand due to the long lead time in developing major mining projects, as well as rising construction and operating costs. The international competitiveness of Australian commodity producers may also be enhanced by a forecast moderate depreciation of the Australian dollar in 2008‑09.
Mining and Energy 85 2008-09 Budget
Minerals The value of mineral production in the Territory (excluding manufacturing) is forecast to increase by 54.3 per cent to $3.9 billion in 2008‑09. The increase is due largely to a forecast increase in the value of manganese production, as well as increases in gold and lead-zinc. The rise in the value of manganese production will be driven by further growth in output from Groote Eylandt. GEMCO is in the process of expanding the capacity of the mine’s processing plant, with commissioning expected to be completed by the end of 2008. The resulting increase in output, combined with significant growth in manganese prices, is forecast to lead to an 83.9 per cent increase in the value of manganese production in 2008-09, contributing 36.4 percentage points to total growth in Territory mineral production. The value of gold production is forecast to increase by 41.2 per cent to $681 million in 2008‑09. The increase will be driven by the continued expansion of GBS Gold’s Union Reefs project, incorporating ore feedstock from a number of mines in the region. The increased output is anticipated to add 8 percentage points to total growth in Territory mineral production in 2008‑09. The value of Territory base metal production, comprising mainly lead-zinc concentrate, as well as copper concentrate and zircon, is forecast to rise in 2008‑09 to $615 million. Increased production of lead‑zinc from McArthur River Mine, resulting from an expansion of the mine’s processing capacity, will more than offset a forecast decline in lead‑zinc prices. Production of iron ore at Frances Creek will continue to ramp up in 2008-09, increasing to a total of $102 million, contributing 2.6 percentage points to total growth in Territory mineral production. Energy The value of energy production is forecast to increase by 18.1 per cent to $3.7 billion in 2008-09, driven by increased offshore oil and gas production and higher oil prices. Oil The value of oil production will increase by 44.3 per cent in 2008‑09, as full production from Corallina recommences in late 2008, supported by a full year of production from Puffin. The normal ongoing decline in output from Laminaria- Corallina will resume after 2008-09, however offshore oil volumes may be boosted in the medium term if efforts to address the production difficulties at Puffin are successful. In addition, a number of other marginal oil discoveries in the Timor Sea await further appraisal and/or development, including Audacious, Barnett, Montara, Oliver, Talbot and Tenacious. The Australian Bureau of Agricultural and Resource Economics (ABARE) has forecast a moderate decline in oil prices in 2009, although this may be partially offset by any depreciation of the Australian dollar. In addition, limited spare global production capacity means that potential supply disruptions, such as those associated with geopolitical uncertainty, may result in significant ongoing oil price volatility. Gas Production from Bayu-Undan is forecast to return to normal levels following the planned maintenance shutdown in September and October 2007. The value of gas production is forecast to increase by 11.4 per cent to $172 million in 2008-09, while the value of LPG and condensate production will increase by 13.0 per cent to $2.1 billion. In the medium term, the Territory’s significant offshore gas reserves could lead to a major development phase for gas production and gas-based manufacturing. If efforts to bring more Timor Sea gas onshore are successful, it could be used as feedstock
86 Mining and Energy for new manufacturing industries (see the Manufacturing chapter for more detail). Middle Arm in Darwin Harbour has been identified as a potential site for a major gas‑based industrial estate and associated port facilities. Woodside remains committed to the development of the Greater Sunrise gas field, however the timing and nature of the development remain uncertain. In particular, Woodside has yet to decide on whether to locate the LNG processing facility in Darwin, Timor-Leste or on a floating vessel in the Timor Sea. Woodside has stated, however, that a final investment decision will be made in 2009, with the first shipment of LNG as early as 2013. The Northern Territory’s Power and Water Corporation has signed an agreement with Eni Australia for the purchase of gas from the Blacktip field, a Western Australian administered deposit 100 kilometres west of Wadeye in the Bonaparte Basin. The agreement secures the supply of gas from Blacktip to meet the Territory’s long‑term gas requirements. Construction of the pipeline is expected to begin in the 2008 dry season, with first delivery of gas scheduled for the March quarter 2009. Uranium Following significant growth in uranium spot prices since 2000-01, ABARE is forecasting a moderate decline over the next few years. Despite this, average Australian contract prices are forecast to increase in 2008-09. Larger Australian producers, including Ranger, sell the majority of their production under long‑term contracts, which results in sales prices being only partially influenced by the spot market. In recent years, contract prices have been significantly below the spot price, as many were negotiated when the uranium market was much weaker. In the Territory, uranium production is forecast to return to normal levels in 2008-09, following strong production in 2007-08 as output recovered from the impact on the Ranger operating pit of heavy rains during the previous wet season. The value of production is forecast to fall by 5.8 per cent in 2007‑08, with the decline in production partially offset by higher prices. Energy Resources Australia (ERA) is planning to expand the current operating pit at its Ranger mine, which has the potential to extend the life of the pit to 2012, with most production occurring during 2011. The expansion is possible due to the continuing high price of uranium, which makes it viable to mine and process lower quality ore. ERA’s Jabiluka mine remains on a stand-by care and environmental maintenance status, and the operator has given an undertaking to the traditional owners that mining will not begin without their consent. Reserves at Jabiluka are estimated to be sufficient to maintain production for nearly three decades. Exploration Minerals exploration expenditure in the Territory has recovered significantly in the past three years, following a period of gradual decline over the seven years to 2003‑04, while petroleum exploration has risen to record levels. In the medium to long term, the level of exploration is expected to remain at high levels, consistent with Australian trends and supported by Territory Government initiatives.
Mining and Energy 87 2008-09 Budget
88 Mining and Energy Chapter 9 Manufacturing
Key Points »»The manufacturing industry in the Territory is small in comparison to other states and is dominated by a small number of large companies. »»In 2006‑07, manufacturing activity accounted for 5.4 per cent of GSP ($719 million) and 3.5 per cent of total employment. »»Manufacturing production will continue to grow in 2007‑08 with alumina and LNG production dominating Territory manufacturing. »»In the short to medium term, growth prospects include the helium plant at Wickham Point, metals processing from the Browns Oxide mine at Batchelor and possible increased LNG production from the Sunrise gas field in the Timor Sea. »»In the long term, prospects include Timor Sea energy production and a possible two-train, 8 million tonne per annum LNG development bringing gas onshore to Darwin from the Ichthys gas field in Western Australia.
The manufacturing industry in the Territory is small compared to other jurisdictions, accounting for 5.4 per cent of gross state product (GSP) in 2006-07 compared to 10 per cent nationally. Despite the relatively small size of the manufacturing industry in the Territory, it has grown in recent years, with large manufacturing projects moving towards full production. In 2006‑07, the value of production from the Territory’s manufacturing industry expanded by 2.3 per cent. About 4600 people are employed in the industry, accounting for 3.5 per cent of total employment in the Territory. The manufacturing base in the Territory is also narrow, reflecting the small local market and distance from other major markets. With the exception of export-focused alumina and liquefied natural gas (LNG) production, the majority of Territory manufacturing is for local consumption and includes the manufacture of products for Territory mining companies, printed material and food manufacturing. Composition Chart 9.1 shows the proportions of value added, employment and sales turnover attributable to each sector of the manufacturing industry for the Territory. Value added is defined as the value of gross output at basic prices less the value of inputs used in manufacturing these goods. Chart 9.1: Territory Manufacturing Other manufacturing Sector Selected Machinery and Indicators, 2005-06 equipment manufacturing
Metal product manufacturing Non-metallic mineral product manufacturing Petroleum, coal, chemical and associated product manufacturing Printing, publishing and recorded media Wood and paper product manufacturing Textile, clothing, footwear and leather manufacturing Food, beverage and tobacco manufacturing 0 5 10 15 20 25 30 35 % of manufacturing Employment Sales turnover Value added
Source: Northern Territory Treasury, ABS Cat. No. 8221.0
Manufacturing 89 2008-09 Budget
Metal Products Manufacturing in the Territory has been dominated by metal products manufacturing (primarily manufacturing bauxite to alumina), which typically accounts for about 30 per cent of total manufacturing value added, compared to about 19 per cent nationally, and about 29 per cent of total Territory manufacturing sales turnover in 2005‑06 (Chart 9.1). Although it is much less labour intensive than most other manufacturing sectors, it accounts for about 16 per cent of Territory manufacturing employment due to its large size. Production delays caused by engineering issues for the Alcan G3 refinery expansion hampered the expected ramp-up in production in 2006‑07. Production of 1.7 million tonnes of alumina in 2006‑07 represents a 2.7 per cent decrease on 2005-06 production. The value of production in 2006‑07 is estimated to be $483 million, $22 million lower than 2005‑06. The Alcan expansion is expected to increase production to 3 million tonnes of alumina in 2007-08, increasing to 3.5 million tonnes in 2008-09. The conversion of bauxite to alumina at Gove has accounted for the vast majority of metal manufacturing in the Territory in 2007-08. The construction of cobalt, nickel and copper manufacturing plants in recent times has seen other metal manufacturing making up nearly 10 per cent of the estimated value of metal manufacturing production. The metal production sectors of the manufacturing industry also include sheet metal fabrication and the production of materials used in the construction industry. The relatively high value for metal products manufacturing value added has been boosted by commodity price increases over the past three years, with the outlook for 2008‑09 remaining positive. Fuels and Chemicals Fuels and chemicals manufacturing in the Territory has been growing and, with the completion of the Darwin LNG plant in 2005-06, accounts for about 26 per cent of total manufacturing value added, compared to 14 per cent nationally. This sector also accounts for 15 per cent of Territory manufacturing employment. The importance of this sector has been growing over the past few years as the Territory’s gas‑based processing infrastructure continues to develop due to increasing demand from China and increased exploration investment. Production of LNG at Wickham Point began in February 2006, and has added significantly to the value of Territory manufacturing, producing an estimated 1.7 million tonnes of LNG in 2005‑06. The plant is expected to produce 3.3 million tonnes per annum from 2006-07 onwards for export to Japan, and directly employ 80 to 100 permanent staff. The renewable fuels facility at the Darwin Business Park at East Arm exported its first shipment in early August 2007, shipping 8.8 million litres of bio‑diesel to the United States. Problems with both price and availability of feedstock arose in 2007‑08. In addition, deficiencies in the plant design combined with the feedstock problems to halt bio-diesel production. The Darwin plant has continued to refine crude glycerine to recover fixed costs. Its future is uncertain at this time. Machinery and Equipment Machinery and equipment manufacturing accounts for about 9 per cent of manufacturing value added in the Northern Territory, compared to 20 per cent nationally. This sector is relatively labour intensive, accounting for about 16 per cent of Territory manufacturing employment. Machine and equipment manufacturing in the Territory is focused on servicing the mining and defence sectors, in particular, producing tools and equipment for the
90 Manufacturing maintenance and development of the large defence and mining machinery used throughout the Territory. The maintenance requirements of the large, and still increasing, defence presence has the potential to significantly impact on and increase the contribution of machinery and equipment manufacturing in the Territory. Outlook Alumina production is forecast to reach production limits in 2008‑09, with the expansion of Alcan’s G3 refinery increasing production capacity from 3 million to 3.5 million tonnes per annum. Prior to the expansion of the Alcan facility, bauxite was both exported as a commodity and processed into alumina (for export). With the completion of the expansion to the refinery, Alcan now processes all the extracted bauxite into alumina, no longer exporting bauxite as a raw commodity. BOC Limited will begin construction of a helium plant at Wickham Point in 2008‑09. The plant, which will be the first in the southern hemisphere, will use feed-gas from the LNG plant and is estimated to produce 750 tonnes of helium per annum. Helium has many industrial uses including pressurizing and purging, welding cover gas, controlling atmospheres, leak detection and breathing mixtures. The helium is destined to supply both domestic and South East Asian markets. In the medium to long term, the possibility of bringing more Timor Sea gas onshore offers significant manufacturing opportunities. The agreement between the Timor‑Leste Government and the Commonwealth Government regarding the proportion of the Greater Sunrise field outside the Joint Petroleum Development Area (JPDA) concluded in February 2007, and has opened the door for the development of the Sunrise field. Woodside Petroleum owns a 33.4 per cent share in the Sunrise field and announced in February 2008 that it was accelerating development of the Sunrise project, with a possible start date in late 2009. Production would then follow with the first LNG shipment estimated in 2013. The final investment decision as to how to develop the gas is expected to be made in 2008. Currently, three options are being considered. These include a tie-in to the existing production facilities at the Bayu‑Undan project, a floating LNG plant (probably unlikely due to current limits in technology) and taking the gas onshore to Timor‑Leste. The Timor‑Leste Government is advocating for the gas to come onshore to Timor‑Leste via a 180 kilometre pipeline. This, however, poses serious engineering challenges due to the 3300 metre sub‑sea trench the pipeline would have to traverse. In addition, political instability adds another complication to this option, making Darwin the most likely destination for the LNG processing facility. Other possible gas manufacturing projects include further production of LNG, or gas-based products such as methanol, ethane, ammonia/urea fertilisers and various petrochemicals. Timor Sea gas also has the potential to provide a cheap and efficient energy source for the manufacture of alumina, magnesium and other ore concentrates, and for the production of electricity that could advance local value‑adding opportunities. The construction of a $450 million condensate processing facility at East Arm is another possible project in the medium term. The facility would source condensate from the Timor Sea and North West Shelf for the production of petroleum, diesel, liquid petroleum gas (LPG) and jet fuel.
Manufacturing 91 2008-09 Budget
Further increases in manufacturing production will occur in 2008-09 with the processing and refining of copper, cobalt and nickel at the Browns Oxide mine in Batchelor, which is expected to start production in the second quarter of 2008. In addition, construction of a gold and copper processing plant at the Peko Tailings mine east of Tennant Creek is estimated to begin in the third quarter of 2008, with a cobalt plant scheduled to begin construction in the fourth quarter of 2008. In the long term, there is the possibility of Inpex’s two-train, 8 million tonne per annum LNG pipeline and processing development from the Ichthys gas field in Western Australia’s Browse basin. On 28 February 2008, the Territory Government signed an agreement with Inpex giving the Japanese company permission to assess the viability of processing gas, sourced from Western Australia, in Darwin. Inpex is continuing to work closely with the Territory Government to facilitate production options and plant design at the prospective site at Middle Arm Peninsula. Further discussions regarding this option were held in Tokyo in March 2008 between the Territory Government and Inpex officials.
92 Manufacturing Chapter 10 Construction
Key Points »»The construction industry accounted for about 8.3 per cent of GSP on average over the five years to 2006‑07, and employed about 7.9 per cent of the workforce. »»Projects such as the Alcan G3 refinery expansion at Gove have a huge impact on the value of construction work done in the Territory. They are significant both on a Territory and a national scale and can lead to substantial volatility in the value of construction work done. »»In 2006-07, total construction activity decreased by 12.6 per cent to $2.2 billion, supported by major resource-based engineering projects such as the $3 billion Alcan G3 refinery expansion. »»Declining construction growth in 2007-08 comes as investment for the Alcan expansion, the main driver of engineering work done, is completed. »»Northern Territory construction activity will continue to contract in 2008‑09. However, new mining and engineering based projects will ensure that total construction activity will remain at levels above the historical average over 2008‑09.
Construction comprises residential building, non-residential building and engineering construction. The construction industry plays an important role in the Northern Territory economy, accounting for about 8.3 per cent of gross state product (GSP) on average over the five years to 2006-07 and about 7.9 per cent of total employment. Construction activity in the Territory can be highly volatile, reflecting the impact large resource and infrastructure related projects can have on a relatively small economy. This has been particularly evident over the last decade. At the beginning of this decade, construction activity slowed markedly in the Territory as economic and population growth weakened following the completion of the major defence force relocation to the Top End (Chart 10.1). This slowdown continued until mid 2001 when construction for the $1.3 billion Alice Springs to Darwin railway commenced, and was further boosted in 2002 by the start of development of stage 1 of the $2.7 billion Bayu-Undan liquids and gas field project in the Timor Sea. Construction activity reached record levels in 2005-06 during the construction phases of the $2 billion Darwin Liquefied Natural Gas (LNG) plant (and associated subsea pipeline) at Wickham Point and the $3.1 billion Alcan G3 alumina refinery expansion at Gove. Since peaking in 2005-06, total construction activity has been declining in the Territory, reflecting the completion of construction for the LNG plant in December 2005 and the Alcan refinery expansion in December 2007. As a result, total construction activity in the Territory decreased by 12.6 per cent to $2.2 billion in 2006‑07. Without any new multi-billion dollar projects, total construction activity is expected to continue its decline over the remainder of 2007-08.
Construction 93 2008-09 Budget
Chart 10.1: Territory Construction $B Work Done 3.0
2.5 Total
2.0
1.5 Engineering
1.0
0.5 Residential
Non-residential 0.0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast Source: ABS Cat. No. 8752.0, Northern Territory Treasury
Although major projects such as the Alcan expansion create a significant number of jobs in the Territory, this is not necessarily reflected in resident employment figures reported by the Australian Bureau of Statistics (ABS). The primary reason is that the very large scale of these projects, combined with a limited pool of skilled local workers, results in a strong reliance on fly-in fly-out (FIFO) employees who are not attributed to Northern Territory resident employment levels by the ABS labour force survey. This means the official employment contribution of the construction industry in the Territory underestimates the actual employment contribution. Similarly, such major projects can have a huge impact on the value of construction work done and cause substantial volatility in reported activity. However, the impact of these projects on underlying economic activity may be less substantial due to their location, often in remote areas or offshore, use of FIFO workers and the importation of equipment and construction materials from outside the Territory. Residential Construction Residential construction includes the building of new houses and other residential buildings (townhouses, units), residential conversions (converting non-residential buildings into residential buildings), and alterations and additions to existing residential buildings. Residential construction activity occurs in both the private and public sectors. In 2006-07, residential construction accounted for about 16.8 per cent of total construction. Demographic, social and economic factors have strong influences on the demand for residential dwellings and, in turn, on residential construction. Residential construction is closely linked to population growth and the underlying strength of the economy, while other key factors affecting the demand for housing include: • the rate of new household formation; • the distribution of income and wealth; • the availability and cost of land and housing; • the price of new dwellings relative to existing dwellings; • government housing policies; and • availability and cost of finance. In the short term, interest rates and business and consumer confidence are also major influences on the building cycle.
94 Construction In 2006-07, total residential building work done, in real terms, remained near its highest level in almost a decade, down just 0.2 per cent to $372.7 million from one year earlier (Chart 10.2). Construction work done for new houses increased by 7.5 per cent to $171.8 million, while other residential work done decreased by 7.6 per cent to $137 million. Alterations and additions, which were at the highest levels in over 30 years in 2006‑07, declined by 2.8 per cent in the year to $64.6 million. Strong population growth, declining vacancy rates, relatively high rental yields and various government housing initiatives such as the HomeNorth scheme have been significant drivers of residential construction activity over the past few years. These factors are expected to continue to contribute to increasing residential construction activity in the Territory in 2007-08. Territory residential construction activity is estimated to increase by 2.2 per cent in 2007-08. Private residential building activity is expected to increase modestly, as growth in other dwellings (units, townhouses and apartments) construction more than offsets weakness in activity for houses, alterations and additions. The weakness in private sector house construction reflects the impacts that rising interest rates, declining home loan affordability and rising land and construction prices have had on demand. Public sector construction activity is estimated to strengthen in 2007‑08, primarily reflecting construction work done at the Lyons estate in Darwin and Territory Government employee and Indigenous housing projects throughout the Territory.
Chart 10.2: Territory Residential $M Building Work Done 500 450 400 Total 350 300 250
200 Houses 150
100 Other residential 50 0 Alterations and additions 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast Source: ABS Cat. No. 8752.0, Northern Territory Treasury Non-Residential Building Non-residential building includes hotels, shopping centres, factories, offices, schools, hospitals and cinemas. The level of private sector investment in non‑residential building is determined by several factors, including the adequacy of existing capital stock, interest rates, anticipated future demand and general business confidence. Public sector expenditure on non-residential building is targeted to meet medium to long-term needs and provide social and economic infrastructure such as schools, hospitals and roads. In 2006-07, non-residential construction activity, in real terms, increased by 7.4 per cent to $306.4 million. Large declines in public sector non‑residential construction activity were more than offset by a large increase in private sector activity.
Construction 95 2008-09 Budget
Private Sector Non- In real terms, private sector non-residential construction increased by 43.7 per cent Residential Construction to $208.9 million in 2006-07, supported by projects such as the Darwin Convention Centre (DCC) and the Mantra Pandanas development. Despite the anticipated completion of these two projects in the latter half of 2007‑08, private sector non‑residential construction activity is expected to remain at high levels during the year supported by work done for the: • $100 million Vibe and Medina hotels at the Darwin Waterfront; • $35 million Tiwi Gardens retirement village redevelopment; • $30 million Crocosaurus Cove development; • $30 million SkyCity Darwin Casino redevelopment; • $15 million Darwin Airport Inn; and • $12 million Pandanas office suites. Activity will be further supported by a number of new warehouse developments particularly around Darwin, with one of the largest being the $20 million Metcash Trading Warehouse at the Darwin Business Park. Public Sector Non- Declining public sector non-residential construction activity in 2006‑07 was driven Residential Construction by the conclusion of major works relating to the 1st Aviation Regiment relocation to Robertson Barracks and the Bradshaw Field Training Area in mid-2006. Nevertheless, public sector construction activity in 2006-07 was supported by Territory Government investment including expenditure associated with: • the Darwin Waterfront (excluding the DCC which, although funded through a public private patnership, is categorised as a private sector project by the ABS); • Middle Years high school developments in Darwin and Palmerston; • a new secondary schooling facility at Wadeye; • upgrades to the Alice Springs Hospital; • the Darwin football stadium; and • the Mararra fire station. In 2007‑08, public sector non-residential construction activity is estimated to have increased due to increased work by the Territory Government. Major Territory Government non-residential construction activity in the year related to: • ongoing facilitation and delivery of the Middle Years schooling infrastructure program; • continued development of the Desert Knowledge Precinct including the Desert People’s Centre in Alice Springs; and • commencement of construction for the Casuarina and Galwin‘ku police stations. Total growth in non-residential building activity is estimated to moderate to 1.2 per cent in 2007-08 before declining by 4.8 per cent in 2008-09 (Chart 10.3).
96 Construction Chart 10.3: Territory Non- $M Residential Building Work Done 400 (moving annual total) 350 Total
300
250 Private
200
150
100 Public 50
0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate f: forecast Source: ABS Cat. No. 8752.0, Northern Territory Treasury Engineering Construction Historically, engineering construction activity in the Territory, as for Australia, has been dominated by public sector activity related to infrastructure developments. Since the start of construction for the Adelaide to Darwin railway in mid‑2001, engineering construction activity in the Territory has been primarily driven by large private sector resource projects. This trend continued into 2006‑07, although at lower levels than in previous years. In 2006-07, engineering construction work done in the Territory, in real terms, decreased by 18.2 per cent to $1.5 billion. This primarily reflects the majority of work related to the Alcan refinery expansion having been completed by mid‑2007. Other major engineering projects undertaken in the year included work for the: • $100 million Puffin oilfield development project by Australian Energy Developments (AED) in the Timor Sea; • $110 million conversion of operations at the McArthur River mine; and • $750 million Blacktip project by Eni Australia. The Blacktip project involves the construction of an onshore gas treatment plant near Wadeye with two connecting pipelines, one to the Blacktip gas field in the Joseph Bonaparte Gulf (situated in Western Australian waters), and the other to the existing Amadeus Basin to Darwin pipeline. Commissioning and start up are scheduled for the last quarter of 2008, with the first gas to be delivered to the Power and Water Corporation early in 2009. Based on current projects, growth in engineering activity will decline by an estimated 47.6 per cent in 2007-08, although remaining at relatively high levels. Major engineering projects under way in the year include: • ongoing work for the Blacktip project; • the $US700 million Montara, Skua and Swift oilfields projects in the Timor Sea; • the $140 million Browns Oxides project at Batchelor; • commencement of construction of the $167 million GEMCO manganese processing expansion at Groote Eylandt; • community infrastructure for the Darwin Waterfront project including construction of the wave pool, roads and parking;
Construction 97 2008-09 Budget
• upgrading of the Victoria Highway to improve flood immunity, including bridges at Big Horse and Little Horse creeks; • continued development of the Red Centre Way; and • commencement of work for the $126.6 million Weddell power station by the Power and Water Corporation. Power and Water In early 2007, the Territory’s Power and Water Corporation announced that it would Corporation invest $592 million on capital upgrades over the next five years, with another $222 million directed to its repairs and maintenance program. The largest project over this period will be the construction of the $126.6 million Weddell power station (servicing the Darwin-Katherine network) which commenced construction in 2007. The first generator came on line in late January 2008 with a second due for completion in 2008. A third generator will be constructed within the next five years. In Alice Springs, construction is expected to start on a $41.7 million power station (including transmission lines) at Brewer Estate in April 2008, with completion by October 2008. Montara, Skua and Swift Coogee Resources is currently developing the $US700 million Montara project oilfield projects located around 650 kilometres west of Darwin in the Timor Sea. The project involves converting an existing oil tanker into a floating production, storage and offloading (FPSO) vessel that will be moored at the Montara oilfield with tie-backs to the Skua and Swift/Swallow fields via flowlines. First production for Montara is expected in the third quarter of 2008. As Coogee Resources is leasing the FPSO, its impact on Territory engineering construction activity will be allocated by the ABS over the life of the project, not when it is first moored to the oilfield. As such there is no spike in activity expected over 2007‑08 and 2008‑09. Consequently, this project and other similar ones (for example the AED Puffin project) operating in the Timor Sea will have less impact on activity in the short term than is suggested by its capital expenditure program.
Chart 10.4: Territory Engineering $B Work Done 2.5
Total 2.0
1.5 Private
1.0
0.5 Public
0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate f: forecast Source: ABS Cat. No. 8762.0, Northern Territory Treasury Construction Outlook Given the uncertainty surrounding many of the factors influencing the decision to proceed with construction activity, timing can be unpredictable. These factors include the investment climate, access to capital, the outlook for global economic growth, commodity prices, the value of the Australian dollar and perceptions about the Territory’s comparative advantages. In recent years, acute skilled labour shortages in the construction sector have also been a primary driver behind project timelines
98 Construction being significantly extended, making this one of the primary risks to the accuracy of construction forecasts. In real terms, Territory construction activity is forecast to decrease by 13 per cent to $1.3 billion in 2008-09. The value of residential construction is forecast to decrease by 0.8 per cent to $378 million, non-residential construction to fall by 4.8 per cent to $295 million and engineering construction to decrease by 21.1 per cent to $635 million. Residential Construction In real terms, residential construction work done is forecast to decrease by 0.8 per cent to $378 million in 2008-09. Ongoing construction activity related to a number of high rise apartment developments in the Darwin central business district and increased public sector expenditure on housing, supported by the Commonwealth’s Northern Territory Emergency Response and the Territory Government ‘Closing the Gap’ initiatives are expected to largely offset declining levels of private sector house construction and alterations and additions activity. Major residential developments under construction in 2008-09 include: • the joint venture development of the Darwin suburb of Lyons ($280 million). • the One30 Esplanade high rise apartment development ($100 million); • the residential component (Wharf One apartments) of the Darwin Waterfront ($60 million); Defence Single LEAP Housing developments are proposed at both the Robertson and Larrakeyah Phase 2 Project barracks, which will increase the supply of accommodation. This project, called Single Living and Environment Accommodation Precinct (LEAP) phase 2, has plans to construct 686 individual units at Robertson Barracks and 232 units at Larrakeyah Barracks. This project has the potential for a public private partnership that will boost local construction. Construction at the Larrakeyah Barracks is proposed to commence in mid-2009 (with completion by mid-2011), while construction for the Robertson Barracks units is proposed to commence in mid-2010 (with completion by 2012). Population and employment growth, although forecast to moderate in 2008‑09, will also continue to support overall residential construction activity in the Territory. Non-Residential After three years of relatively high levels of activity, Territory non-residential building Construction work is forecast to decrease by 4.8 per cent to $295 million in 2008‑09. This primarily reflects the completion of the DCC and Mantra Pandanas serviced apartments in early 2008. Nevertheless, the decline in non‑residential construction is expected to be partly offset by activity associated with projects such as the: • $150 million Chinatown development (Stage 2); • $100 million Northern Territory Airports retail development near the Darwin airport; and • $33 million Gilligan’s backpacker resort in Alice Springs; Engineering Construction In real terms, Territory engineering construction activity is forecast to fall by 21.1 per cent to $635 million in 2008-09, as the Alcan G3 project draws to a close. Nevertheless, ongoing development of projects such as the $750 million development of the Blacktip gas field in the Joseph Bonaparte Gulf, and the commencement of the $167 million GEMCO manganese processing expansion at Groote Eylandt, will ensure that engineering activity in the Territory remains at levels above the historical average in 2008-09.
Construction 99 2008-09 Budget
Major Defence Projects A number of major Defence projects are currently in development that will impact significantly on public sector construction activity (engineering and non‑residential) in the Territory from 2008-09 and beyond. RAAF Base Darwin This project, expected to commence in late 2008 and be completed by late 2010, will Redevelopment Stage 2 upgrade existing facilities including fuel farms, workshops, fitness centre and airfield lighting, and construct a new logistics headquarters. Robertson Barracks The Robertson Barracks Redevelopment will provide new and upgraded facilities Redevelopment for training, emergency response, working accommodation and equipment support. The Land 907 facilities project will provide parking and working accommodation for heavy tank transport vehicles and other tank support services. The Hardened and Networked Army project will provide additional live-in accommodation, working accommodation and other support facilities. RAAF Base Tindal This project plans to expand and upgrade existing and construct new working Redevelopment Stage 5 accommodation and augment electrical and water supply infrastructure. RAAF Base Tindal This project will provide facilities and infrastructure at RAAF Tindal to support the Airborne Early Warning introduction of the new airborne early warning and control aircraft. The scope of work and Control Facilities includes new taxiways, operational facilities and working accommodation. Long Term Outlook Despite an expected slowdown in global economic growth in 2008, the Territory construction sector is expected to continue to benefit from the ongoing boom in demand for resource commodities especially from China and India. Highlighting this, a number of world-scale resource projects are currently being planned throughout the Territory for potential development over the coming years. Wickham Point LNG Plant ConocoPhillips and its joint venture partners are currently in the process of shoring Expansion – Train 2 up additional gas resources so as to expand production capacity at the Wickham Point LNG plant. The construction of an additional production train (Train 2) would increase capacity from the current 3.4 million tonnes per annum to around 10 million tonnes per annum. In addition to the Caldita and Barossa fields, ConocoPhillips is exploring the possibility of sourcing gas from the Greater Sunrise liquids and gas field. Greater Sunrise Following ratification of the International Unitisation Agreement and the Certain Maritime Arrangements in the Timor Sea Treaty in January 2007, Woodside announced that it would proceed to explore development options for the Greater Sunrise liquids and gas field in the Timor Sea. Greater Sunrise has an estimated 6 trillion cubic feet of natural gas. The company is aiming to make a final investment decision for the project sometime in 2009, with the production of first gas and condensate from 2013. Woodside is currently looking at three options to develop the field including: • linking with the existing Bayu-Undan project in the Timor Sea and the Darwin‑based LNG plant; • a floating LNG facility; or • an offshore development linked to a newly constructed LNG plant in Timor-Leste. Private sector analysts estimate that the capital expenditure required to develop the Greater Sunrise field could be in excess of $6 billion. As at April 2008, Woodside and the other joint venture partners (Shell, ConocoPhillips and Osaka Gas) had yet to announce a decision on their preferred development
100 Construction option for Greater Sunrise. Furthermore, development is contingent on the project receiving legal, regulatory and fiscal certainty from both the Timor-Leste Government and the Commonwealth. Inpex LNG Plant at In February 2008, the Territory Government signed a project facilitation agreement Middle Arm Peninsula with Japanese oil and gas company Inpex to evaluate the possibility of constructing an LNG plant at the Middle Arm Peninsula, near Darwin. If successful, gas would be sourced from Inpex’s Ichthys field and transported 850 kilometres via a subsea pipeline to an 8 million tonne per annum LNG plant. In April 2008, the company undertook a range of technical and engineering studies to fully assess the Darwin option and compare it to its current preferred option of processing the gas on the Maret Islands off the Kimberley coast in Western Australia. Dow Pacific In mid 2007, Dow Pacific announced that it would investigate the possibility of Chemical Plant building a $3 billion chemical plant in the Territory. If the project proceeds, it is estimated that 4000 construction workers will be required during the construction phase, with an additional 500 during the operational phase. The plans are contingent on sufficient gas resources being secured. Crux Liquids Project Nexus Energy is proposing to undertake a US$1 billion development at the Crux liquids and gas field located 700 kilometres north-west of Darwin. The development will entail mooring a floating, production storage and offloading facility (classified as engineering construction activity by the ABS) at the field and the construction of a number of wells and interconnecting pipelines. Condensate and LPG will be extracted, with natural gas re‑injected back into the well. A final investment decision is expected in 2008 with the potential of liquids production from 2010. Browns Sulphide Project Compass Resources NL is currently undertaking a feasibility study of its proposed $750 million Browns Sulphide project near Batchelor. A number of production scenarios are currently being examined with the potential for production to commence in 2010 or 2011. Nolan’s Rare Earth and Arafura Resources is currently in the process of assessing the feasibility of Phosphate Project developing the Nolans rare earths-phosphate-uranium deposit located approximately 135 kilometres north of Alice Springs. If the study proves successful and government approval is forthcoming, the company is proposing to freight the ore by train to Darwin where it will be processed at a $300 million plant. As the Territory continues to develop as a service and manufacturing hub for the northern Australian mining and energy sectors, further opportunities are likely to be created for the Territory construction industry.
Construction 101 2008-09 Budget
102 Construction Chapter 11 Residential Property Markets
Key Points »»Residential property, as defined in this chapter, is a key factor influencing residential construction activity and includes the sale and availability of residential land, movements in residential property markets and government public housing initiatives. »»Residential property markets in the Territory have performed strongly over the past five years. »»Land sales in the Territory, driven by strong population and economic growth, peaked in 2007 and have been declining since. Nevertheless, a number of new residential subdivisions are planned for release over the next few years that will help to moderate prices growth for land and, in turn, help to alleviate pressures on affordability. »»Prices growth for houses and other dwellings moderated in most major centres in 2007, reflecting the impact that rising interest rates and falling affordability levels have had on demand. »»Home loan affordability in the Territory declined to its lowest level on record in 2007. Nevertheless, the Territory continues to have the second highest level of affordability of the jurisdictions.
In this chapter, residential property consists of activities that are closely linked with residential construction. Residential property markets are subject to strong fluctuations in activity, real estate prices and sales volume. Activity in property markets is cyclical, fluctuating to reflect underlying demand that, in turn, depends on economic and demographic factors. The fluctuations in activity are also associated with financial capital flows into and out of investment in real estate. Residential property market activities include the sale and availability of residential land, movements in residential property market prices and sales numbers and government public housing initiatives. Land The completion of the defence build up and a general downturn in the onshore economy from 2000 to 2003 saw land sales in the Territory decline over the period. Land sales began a steady improvement in line with stronger housing demand in 2004 before reaching peak levels in 2007, largely driven by strong property market activity and population growth. In 2007, land sales increased by 27.1 per cent in the Territory. Palmerston accounted for 67.8 per cent of all residential land sales, while the Strangways and Bagot town planning divisions in the Litchfield Shire accounted for 25.1 per cent of sales and Darwin accounted for 5.4 per cent of sales (Chart 11.1).
Residential Property Markets 103 2008-09 Budget
Chart 11.1: Territory 1200 Residential Land Sales (number, moving annual total) 1000
800 Total
600 Palmerston
400
200 Strangways and Bagot Darwin Alice Springs 0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Year ended June
Source: Australian Valuation Office Darwin Darwin’s newest suburb, Lyons, is a joint public-private sector development of approximately 690 residential lots on ex-defence land near Lee Point. Since the first stage release in November 2006, 117 residential lots have been made available by ballot to the general public. A Stage 7 release consisting of over 20 lots was expected to come onto the market in April 2008. If the current take up of lots continues, it is anticipated that the Lyons subdivision will be complete by the end of 2009, at which time Defence Housing Australia (DHA) expects to begin developing the new suburb of Muirhead. Muirhead is about 152 hectares of land located adjacent to Lyons. DHA plans to develop up to 500 blocks to house defence personnel and their families, with the rest to be sold to the private sector for residential housing. Development approval has been obtained for a 94 small lot subdivision in the Frances Bay area, as well as a 22 lot infill subdivision within the Parap area. These developments, combined with the continued construction of medium and high density dwellings, will continue to provide a wide array of housing options in the inner Darwin area. In 2007, the Territory Government announced that it would be releasing surplus land at Berrimah Farm for light industrial (20 hectares) and residential development (80 hectares). Around 700 residential dwelling lots are expected to be made available. Palmerston Strong population growth from 1995 to 1998, combined with the limited supply of land for housing development in Darwin, was the primary stimulus for the rapid growth of Palmerston. Palmerston’s ready supply of land has seen unprecedented take up of land in the suburbs of Rosebery, Farrar, Gunn (The Chase) and Durack (Fairway Waters). Demand has recovered rapidly from the low levels experienced in 2002‑03, bolstered by owner-occupier and investment demand, and supported by increased home ownership incentives offered through the Territory Government’s HomeNorth Scheme. In response to the high demand, the Territory Government sought expressions of interest for the development of Bellamack in September 2007. Stage 2 of the process is currently under way and involves the submission of detailed proposals to the Government by developers. The approximate development area of Bellamack is 90 hectares, with a potential yield of more than 700 lots. Around 15 per cent of the lots will be retained for first homebuyers and public housing. It is anticipated that the first lots will be released onto the market in mid‑2009.
104 Residential Property Markets The next area for development in Palmerston is the eastern side of Mitchell Creek. Evaluation and land capability studies of the area are due to begin in 2008 in preparation for future release. Alice Springs In Alice Springs, a shortage of residential land for development over the past decade was associated with native title restrictions on the release of Crown land. An Indigenous Land Use Agreement (ILUA) between the Northern Territory Government and the Lhere Artepe native title holders was finalised in April 2004. The agreement led to the release of 40 residential blocks in the subdivision of Stirling Heights. In November 2007, auction of the second stage release at Larapinta, comprising 39 residential lots including six lots for first homebuyers, was sold to a local development company. Further stages of Larapinta will require additional ILUAs to be negotiated. An ILUA currently under negotiation with the Lhere Artepe native title holders has progressed with the potential for the release of up to 70 lots at Mt Johns Valley. Into the future, Mt Johns Valley is expected to provide about 600 residential lots. In the private sector, there remain about 25 urban lots available at the North Edge subdivision. Preliminary works have commenced on a 62 rural lot subdivision in Ragonesi Road, with the developer proposing 256 lots in six stages. Approval has also been obtained for a 94 rural lot subdivision on Stegar Road. Residential Housing Housing Prices Movements in property markets continue to be the largest influence on the residential construction sector in the Territory. The residential building industry and property markets are subject to strong fluctuations in activity, real estate prices and sales volumes. The Territory did not participate in the national housing price boom that occurred over the period between 1998 and 2002. However, since mid-2002, Territory housing prices have experienced strong growth in line with strengthening population and economic growth rates. In the December quarter 2007, the Real Estate Institute of Australia reported that the median price for a unit in Darwin, at $309 000, was the third lowest of the capital cities while the median house price, at $412 500 was the fourth lowest.
Chart 11.2: Capital City Median $000 House and Unit Prices, 600 December quarter 2007 500
400
300
200
100
0 Hobart Adelaide Brisbane Darwin Canberra Perth Melbourne Sydney Units Houses
Source: Real Estate Institute of Australia
Residential Property Markets 105 2008-09 Budget
Territory House Prices The Real Estate Institute of the Northern Territory (REINT) reports that Palmerston had the largest increase in median house prices over the past five years (up by 103.2 per cent) followed by Darwin (up by 98.3 per cent), Katherine (up by 86.5 per cent), Alice Springs (up by 72.4 per cent) and Tennant Creek (up by 46.4 per cent).
Table 11.1: Median House Prices Darwin Palmerston Katherine Tennant Creek Alice Springs Median Annual Median Annual Median Annual Median Annual Median Annual December price change price change price change price change price change quarter $000 % $000 % $000 % $000 % $000 % 2002 208.0 9.5 187.0 10.5 144.0 3.8 70.0 -17.6 181.0 5.7 2003 230.0 10.6 202.5 8.3 147.0 2.1 74.0 5.7 225.0 24.3 2004 260.0 13.0 240.0 18.5 158.0 7.5 76.5 3.4 250.5 11.3 2005 328.0 26.2 300.0 25.0 169.7 7.4 89.5 17.0 280.0 11.8 2006 370.0 12.8 342.5 14.2 225.0 32.6 100.0 11.7 281.0 0.4 2007 412.5 11.5 380.0 10.9 268.5 19.3 102.5 2.5 312.0 11.0 Average annual 14.7 15.2 13.3 7.9 11.5 growth rate (%) 5 year growth 98.3 103.2 86.5 46.4 72.4 rate (%)
Source: Real Estate Institute of the Northern Territory
Strengthening economic and population growth, relatively low interest rates and increasing investor confidence were the primary drivers of house price growth in Darwin and Palmerston over this period. Strong growth in house prices in Katherine reflect a number of additional factors such as increased public sector activity (especially following the commencement of the Commonweath’s Northern Territory Emergency Response (NTER) in 2007) and limited releases of new residential land onto the market over recent years. Relatively low levels of land release and residential construction activity in Alice Springs, coupled with strengthening demand for housing, have been some of the primary drivers of growth in house prices in Alice Springs over the past five years. As with Katherine, the Emergency Response has also led to increased demand for housing in Alice Springs, which in turn has been reflected in the strong growth in house prices reported over 2007. Annual growth in median house prices strengthened in Alice Springs over 2007, however in other major centres price growth moderated. Despite slowing rates of growth, Katherine recorded the strongest growth in median house prices increasing by 19.3 per cent to $268 500 followed by Darwin (up 11.5 per cent to $412 500), Alice Springs (up by 11 per cent to $312 000), Palmerston (up by 10.9 per cent to $380 000) and Tennant Creek (up by 2.5 per cent to $102 000). Territory Other The ‘other dwellings’ market (townhouses, apartments and units) tends to be Dwellings Prices significantly more volatile than the market for houses, with prices fluctuating with the release of major new developments, changes in investor sentiment and distinct cycles of under and over supply. REINT reports that Katherine experienced the strongest growth (up by 92 per cent) in median other dwelling prices in the five years to December 2007 followed by Palmerston (up by 90.8 per cent), Darwin (up by 85 per cent) and Alice Springs (up by 68.3 per cent).
106 Residential Property Markets Table 11.2: Median Unit Prices Darwin Palmerston Katherine Alice Springs Median Annual Median Annual Median Annual Median Annual price change price change price change price change December quarter $000 % $000 % $000 % $000 % 2002 167.0 10.6 141.5 28.6 112.0 n.a. 129.0 7.5 2003 160.0 -4.2 125.0 -11.7 156.5 39.7 124.5 -3.5 2004 175.0 9.4 134.5 7.6 95.5 -39.0 179.5 44.2 2005 242.0 38.3 193.0 43.5 136.3 42.7 200.0 11.4 2006 300.0 24.0 245.0 26.9 170.0 24.8 212.5 6.3 2007 309.0 3.0 270.0 10.2 215.0 26.5 209.5 -1.4 Average annual 13.1 13.8 13.9 10.2 growth rate (%) 5-year growth rate (%) 85.0 90.8 92.0 62.4
Source: Real Estate Institute of the Northern Territory
Over 2007, Katherine recorded the strongest growth in the median price of other dwellings, increasing by 26.5 per cent to $215 000, followed by Palmerston (up 10.2 per cent to $270 000) and Darwin (up by 3 per cent to $309 000). Alice Springs recorded a decline in other dwelling prices (down by 1.4 per cent to $209 500) over the year. Sales Volume Sales numbers for both houses and other dwellings in the Territory continued to decline in 2007. The Australian Valuation Office reports that the number of house sales declined by around 5 per cent in 2007, following a decline of 4.4 per cent in 2006. Sales of other dwellings fell significantly more than houses during 2007, declining by 8.7 per cent, following an 11.2 per cent decline in 2006. The decline in sales numbers since 2005-06 reflects both the impact of strongly rising prices and six interest rate rises by the Reserve Bank of Australia over this period. Chart 11.3: Territory House and 6000 Other Dwelling Sales (number) Total 5000
4000
3000 Houses
2000 Other dwellings 1000
0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Year ended June Source: Australian Valuation Office Vacancy Rates Territory rental vacancy rates were at relatively high levels for several years until early 2002, reflecting a general over supply of residential properties. Since then, vacancy rates have fallen to historically low levels that indicate demand has significantly outpaced supply. REINT reports the average residential vacancy rates in 2007 as: • Darwin – 1.4 per cent for houses and 1.3 per cent for units; • Palmerston – 1.7 per cent for houses and 1.6 per cent for units;
Residential Property Markets 107 2008-09 Budget
• Alice Springs – 2.8 per cent for houses and 2.6 per cent for units; and • Katherine – 1.8 per cent for houses and 2.0 per cent for units.
Darwin Palmerston Katherine Alice Springs Table 11.3: Overall Vacancy Rates December quarter % % % % 2002 6.8 6.9 7.2 4.9 2003 7.2 4.6 4.1 7.0 2004 4.1 4.7 5.6 8.1 2005 4.4 3.4 3.0 3.7 2006 4.6 2.0 4.2 7.1 2007 2.1 2.2 1.0 2.0
Source: Real Estate Institute of the Northern Territory Rental Prices Historically low vacancy rates across the Territory and strong demand for rental properties led to significant growth in weekly rental prices in 2007. According to the REINT, the median rental price for a three-bedroom house in Darwin increased by 42.9 per cent (to $450 per week) over the year to the December quarter 2007. Palmerston recorded the next highest increase (up by 25 per cent to $400 per week) followed by Alice Springs (up by 10.9 per cent to $355 per week) and Katherine (up by 9.1 per cent to $300 per week). Rental growth for other dwellings followed a similar trend.
Table 11.4: Median 3-bedroom Darwin Palmerston Katherine Alice Springs House Weekly Rental Prices Median Annual Median Annual Median Annual Median Annual Rent change Rent change Rent change Rent change December quarter $ % $ % $ % $ % 2002 230 -2.1 220 10.0 235 -6.0 260 4.0 2003 260 13.0 250 13.6 245 4.3 260 0.0 2004 270 3.8 260 4.0 250 2.0 270 3.8 2005 300 11.1 300 15.4 260 4.0 280 3.7 2006 315 5.0 320 6.7 275 5.8 320 14.3 2007 450 42.9 400 25.0 300 9.1 355 10.9 Average annual 14.4 12.7 5.0 6.4 growth rate (%)
Source: Real Estate Institute of the Northern Territory
REINT reports that weekly rental prices for a two-bedroom unit in Darwin increased by 50 per cent to $360 per week over the year to the December quarter 2007. Palmerston recorded the next highest increase (up by 36 per cent to $340 per week), followed by Katherine (up by 12.5 per cent to $270 per week) and Alice Springs (up by 12 per cent to $280 per week).
108 Residential Property Markets Table 11.5: Median 2-Bedroom Unit Darwin Palmerston Katherine Alice Springs Weekly Rental Prices Median Annual Median Annual Median Annual Median Annual rent change rent change rent change rent change December quarter $ % $ % $ % $ % 2002 180 -5.3 150 -3.2 185 -15.9 185 2.8 2003 180 0.0 160 6.7 185 0.0 190 2.7 2004 210 16.7 173 7.8 200 8.1 210 10.5 2005 220 4.8 200 15.9 190 -5.0 220 4.8 2006 240 9.1 250 25.0 240 26.3 250 13.6 2007 360 50.0 340 36.0 270 12.5 280 12.0 Average annual 14.9 17.8 7.9 8.6 growth rate (%)
Source: Real Estate Institute of the Northern Territory
The relative strength of growth in rental incomes compared to housing prices over 2007 has seen a recovery in rental yields in most regions across the Territory. Rental Yields The gross rental yield for a 3-bedroom house in Darwin gradually declined over the past five years, to a multi-year low of 4.1 per cent in the September quarter 2006. This reflects growth in median house prices outstripping the growth in median rental prices over this period. Since then, yields have steadily recovered to 5.7 per cent in the December quarter 2007, as rental prices have increased at a significantly faster rate than house prices. Rental yields for the other regions have followed a similar trend with the exception of Katherine, where they continue to decline. The decline in Katherine reflects the impact of the booming property market driven by factors previously highlighted. In the December quarter 2007, Alice Springs recorded the highest gross rental yield for a 2-bedroom unit in the Territory at 6.9 per cent, followed by Katherine and Palmerston (both at 6.5 per cent) and Darwin (6.1 per cent). The large increases in rents and property prices recorded in the Territory over the past few years have significantly outpaced the growth of wages and salaries. Consequently, both home loan and rental affordability have also declined significantly. Housing Affordability After peaking in late 2001, home loan affordability (as reported by the Real Estate Measures Institute of Australia [REIA] and Deposit Power) in the Territory has been in steady decline, reaching record low levels in the December quarter 2007 (Chart 11.4). In annual terms, home loan affordability in the December quarter 2007 declined (that is, worsened) by 7.9 per cent in the Territory, with approximately 23.3 per cent of average family income allocated to loan repayments. Nevertheless, the Territory continues to have the second most affordable housing of the jurisdictions, behind the Australian Capital Territory.
Residential Property Markets 109 2008-09 Budget
Chart 11.4: Home Loan Affordability Index number 90
80
70
60 Northern Territory 50
40 Australia 30
20
10
0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Year ended June
Source: Real Estate Institute of Australia and Deposit Power
The 4th Annual Demographia International Housing Affordability Survey: 2008 reports that Darwin’s median house price is equivalent to 5.9 times median Darwin household income. The Demographia publication ranked Darwin’s housing affordability the 171st lowest of the cities in the survey (227 cities in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States). Nevertheless, of the 28 cities surveyed in Australia, Darwin ranks as the ninth most affordable. Strong increases in rents over the past few years have seen rental affordability also decline significantly in the Territory. According to REIA and Deposit Power, 26.1 per cent of a family’s income was required to meet rent payments in Darwin in the December quarter 2007, compared with 18.7 per cent in the December quarter 2006. This is the second highest proportion in the capital cities behind Tasmania and represents a significant turnaround in rental affordability over 2007. In the December quarter 2007, 23.3 per cent of a family’s income was required to meet average loan repayments for the purchase of a home compared to 26.1 per cent to meet rental payments. This indicates that it was cheaper to purchase a home in the Territory in the December quarter 2007 than to rent.
Chart 11.5: Proportion of Income % Needed to Meet Rent Payments 30
25
20
15
10
5
0 ACT Vic WA SA NSW Qld NT Tas Dec quarter 2006 Dec quarter 2007
Source: Real Estate Institute of Australia and Deposit Power Dwelling Size The ABS publication Australian Social Trends 2001 (the most current year that data is available) reports that between 1993 and 2000 the size of both new public sector and private sector houses increased. Over this time period, the size of new private sector houses increased by 20.9 per cent to 220m2 in the Territory, while the size of
110 Residential Property Markets new public sector houses increased by 38.1 per cent to 163m2. At the national level, the size of new private sector houses increased 22.2 per cent 231m2 while the size of new public sector houses increased 31.5 per cent to 171m2. These figures indicate that while the level of house prices has increased substantially, the size of newer homes has increased relative to the size of existing dwellings, and this ‘quantity effect’ accounts for some of the price growth. The 2006 Census reported that in the Northern Territory, the proportion of dwellings with four or more bedrooms increased to 18.2 per cent, up 2.4 percentage points from the proportion reported in the 2001 Census (Table 11.6). Nationally the proportion of dwellings with four or more bedrooms in the 2006 Census was 28.1 per cent, an increase of 2.9 per cent on the proportion reported in the 2001 Census.
Table 11.6: Proportion of Dwellings Year ended December 2001 2006 with Four or More Bedrooms (%) Northern Territory 15.8 18.2 Australia 25.2 28.1
Source: Census 2001, Census 2006 Public Housing In the Territory, the main provider of housing assistance is Territory Housing, which manages the Territory Government’s Indigenous, public and government employee housing stock. DHA manages defence housing. These organisations provide partially or fully subsidised accommodation to eligible low‑income earners, Indigenous Territorians, public sector employees and defence personnel. The number of households in public housing in the Territory is relatively high, with 2006 Census data reporting that 8.3 per cent of dwellings were identified as public housing. Territory Housing Territory Housing owns and manages more than 6850 dwellings throughout the Territory, consisting of public housing, government employee housing (GEH) and industry housing. Public housing is located in urban and town centres, while GEH and industry housing is predominantly in remote Indigenous communities. Public housing dwellings occupied by government employees in urban areas are currently being sold off, with the proceeds earmarked for upgrading police GEH in remote areas. As at January 2008, a total of 51 houses had been sold, raising $15 million towards the program. A further 16 houses and 14 units are earmarked for sale over the year. In 2006-07, Territory Housing invested a total of $42 million in the building and construction industry to support economic activity throughout the Territory through construction, repairs and maintenance of housing. Significant projects included the investment of $2.5 million in the construction of nine new government employee dwellings in remote localities and the completion of a $2 million renovation and upgrade of the Stuart Lodge complex in Alice Springs. In addition, $0.93 million in grants to community organisations were awarded to construct, purchase, upgrade and repair buildings under the Community Housing Program and the Crisis Accommodation Program. HomeNorth Territory Housing supports home ownership in the Territory through the HomeNorth Xtra Scheme. The scheme provides assistance to low and middle income households which are unable to obtain finance through private sector financial institutions. Since the inception of the scheme on 1 July 2005, Territory Housing has funded 625 loans and shared equity purchases to the value of $120.5 million. In May 2007,
Residential Property Markets 111 2008-09 Budget
the scheme was reviewed and amended to better target low and middle income clients in larger household structures. Indigenous Housing There are currently more than 6900 dwellings in Indigenous communities across the Territory. In 2005-06, a new Indigenous Housing and Infrastructure Agreement and Common Policy Framework were finalised and signed by respective Commonwealth and Northern Territory Government ministers. Under the Agreement, the Territory Government will deliver the housing and housing-related infrastructure components in accordance with a broad framework agreed with the Commonwealth. In late 2006, the Territory Government announced the investment of an extra $100 million in remote housing over the next five years, and that Territory Housing would assume responsibility for remote housing provision. This will include extending a public housing management framework to remote areas. Subsequently, the Commonwealth committed $140 million to strategic housing and infrastructure projects in several major communities and town camps. This was complemented in May 2007 by another Commonwealth announcement that a new Indigenous housing program would begin from 1 July 2008, to be known as the Australian Remote Indigenous Accommodation program (ARIA). During 2006-07, $25.2 million was invested in the construction of 64 new dwellings, while 66 dwellings were upgraded and renovated in remote areas. The Territory Government provides support to Indigenous community housing organisations (ICHOs) to increase their capacity to train and employ Indigenous people in all roles related to providing Indigenous housing, infrastructure and essential services. In 2006-07, $16.7 million of Territory funding was provided to 70 of the 73 ICHOs for Indigenous housing repairs and maintenance. In September 2007, the Territory Government and the Commonwealth signed a Memorandum of Understanding for a funding commitment of $793 million over four years. This included all existing commitments and $513 million in new funding, to be utilised for Indigenous housing and essential infrastructure. The program will deliver: • around 750 new houses including new subdivisions; • over 230 new houses to replace houses to be demolished; • over 2500 housing upgrades; • essential infrastructure to support new houses; and • improvements to living conditions in town camps. Defence Housing DHA provides housing for defence personnel through its ownership of dwellings, development activity, and through the leasing of properties from the private sector. DHA-managed stock in the Territory increased from about 1250 dwellings in 1992 to 2248 dwellings in June 2007.
112 Residential Property Markets Chapter 12 Tourism
Key Points »»Tourism plays a significant role in the Northern Territory economy, creating demand and generating employment in a range of different industries, including hospitality, retail trade and transport. »»Since 2003-04, tourism’s contribution to the economy has been measured by a new method, called a Tourism Satellite Account. »»In 2006-07, tourism gross value added was estimated by Northern Territory Treasury to be $945 million. Tourism accounted for 7.8 per cent of Territory GSP. Tourism consumption was $2.5 billion in 2006-07, which is 25 per cent of the Territory’s total final consumption expenditure. »»Total visitor numbers and nights in the Territory, including international, domestic overnight and domestic same day visitors, increased noticeably in 2006‑07. Total visitor expenditure increased by 19.1 per cent in 2006-07 supported by continued growth in interstate and international expenditure. »»In 2007-08, a consolidation of tourism activity is expected in the Territory after strong growth in 2006-07, with the long-term outlook broadly positive.
Introduction Tourism plays a significant role in the Territory economy, contributing relatively more to gross state product (GSP) than in any other jurisdiction. Unique flora, fauna and geographical features, as well as Indigenous art and culture, are key attractions for visitors. Cruise and defence force ship visits also make a significant contribution to Territory tourism. The growth in tourism over any period typically reflects prevailing economic conditions both domestically and internationally. Factors such as exchange rates and growth in disposable household income are key drivers. Tourism expenditure is largely a discretionary component of consumer expenditure and, as such, both income growth and consumer confidence can have a significant effect on tourism activity. International tourism is particularly sensitive to geopolitical conditions and health concerns, while the availability and cost of airfares and fuel prices can also impact on tourism activity in the Territory. Visitor numbers are also influenced by regular events in the Territory such as the Darwin Cup, Arafura Games, Masters Games and defence exercises, as well as large one-off events in other jurisdictions such as the Commonwealth Games, from which there is a flow-on of visitors to the Territory. Concepts and Definitions of Tourism Concept of Tourism Tourism is defined differently to other standard industries, such as manufacturing or transport, as it is defined by the nature of the consumer (demand side), rather than the process by which goods and services are produced (supply side). That is, tourism activity and expenditure is defined by the status of the customer as a visitor, while non-tourism activity and expenditure is defined by the status of the customer as a resident. Tourism is a component of many other standard industries, as tourists create demand in a range of industries including accommodation, cafes, restaurants and food outlets, cultural and recreational services, retail trade and transport. In some standard industries, a high proportion of output is directly linked to tourism, while in others, only a small proportion may be attributed to tourism.
Tourism 113 2008-09 Budget
Tourism comprises the activities of visitors travelling to, and staying in, places outside their usual environment for not more than one consecutive year for leisure, business and other purposes. This identifies tourism as more than just leisure travel, also including travel for business, health, education, religious and other reasons. It includes most short‑term domestic and international travel away from the normal place of residence. Definitions of Tourism Standard Australian Bureau of Statistics (ABS) measures of production are not Measures available for tourism. As tourism output is included, in varying degrees, in all industries, the ABS uses a satellite account to extract the tourism contribution in all industries and then totals them to get a proxy measure of total tourism activity in the Australian economy. The ABS produces a Tourism Satellite Account (TSA) which calculates a measure of tourism activity using the national accounting framework. The ABS does not currently provide this at a state level. However, in collaboration with Tourism NT, the Northern Territory Tourism Satellite Account (NT TSA) has been developed by the Sustainable Tourism Cooperative Research Centre (STCRC). The STCRC has produced tourism satellite accounts for each jurisdiction. In October 2007, STCRC released a revised version of the NT TSA, providing estimates of the value of tourism activity in the Territory for 2003-04. The TSA and the NT TSA measure the direct economic contribution of tourism to the economy, that is, where a direct physical or economic relationship exists between the visitor and producer of the good or service. The direct economic contribution primarily measures the immediate effect of expenditure made by visitors. For example, a visitor may purchase a meal from a restaurant; the direct economic contribution to the economy of the purchase is measured by the transfer of funds from the visitor to the restaurant. The flow-on effects of expenditure made by visitors are known as the indirect economic contribution of tourism or indirect tourism demand. Indirect tourism demand accounts for other industries, not in direct contact with tourists, whose goods and services support the direct demand for tourism goods and services by the industries in direct contact with tourists. For example, where a visitor purchases a steak from a restaurant, indirect tourism demand is generated for the cattle farmer. To complement the estimates of the direct contribution of tourism in the TSA, Tourism Research Australia (TRA) has recently undertaken a detailed analysis of the indirect effects of tourism activity using economic modelling at the national level. The combined measures of the direct and indirect economic contribution of tourism provide a more complete account of tourism activity. Currently, the ABS and TRA do not publish a measure of indirect tourism demand for the Northern Territory, but this is an avenue of future research. Of the measures of tourism activity generated from the TSA and NT TSA, tourism gross value added (TGVA) and tourism consumption are discussed in this chapter. TGVA is a supply side measure, while tourism consumption is a demand side measure. The measures are defined as follows. • TGVA measures the value of tourism-related final goods and services produced in all industries, less the value of inputs used to produce these goods and services. TGVA effectively measures the value of tourism-produced goods and services at the final stage of production. In addition, TGVA excludes net taxes (taxes paid less subsidies received). TGVA provides a measure of tourism’s contribution to the economy from the industry or supply side.
114 Tourism • Tourism consumption measures actual and imputed expenditure by a visitor, or on behalf of a visitor, for and during their stay at the destination. Tourism consumption measures the total market value of the goods and services consumed by visitors, including the value added at each stage of the production process, not just the final stage of production. TGVA measures the value added only at the final stage of production. Tourism consumption measures the value added at each stage of production, therefore it is significantly larger than TGVA. Tourism Measures 2003-04 to 2006-07 Northern Territory Treasury has used the 2003-04 NT TSA estimates of TGVA and tourism consumption as a benchmark for tourism activity and has moved them forward using both TRA expenditure data and ABS data as indicators, to estimate the contribution of tourism to the economy in 2006-07. Table 12.1 presents the three measures of tourism for the Territory.
2 2 2 Table 12.1: Tourism Measures for 2003-04¹ 2004-05 2005-06 2006-07 the Northern Territory % % % 2003-04 to 2006-07 $M $M change $M change $M change TGVA 616 742 20.5 828 11.5 945 14.2 Tourism Consumption 1 787 2 094 17.2 2 095 0.1 2 495 19.1
1 Revised 2003-04 NT TSA October 2007. STCRC expects the 2005-06 NT TSA may be available in 2009 2 Estimated by Northern Territory Treasury Source: Northern Territory Treasury, Tourism Research Australia, Tourism NT, Sustainable Tourism Cooperative Research Centre
Since 2003-04, TGVA has reported solid growth in line with the broadly based expansion across the Territory economy. In 2006-07, TGVA was estimated at $945 million in the Territory, up 14.2 per cent from 2005-06. Between 2003-04 and 2004-05, tourism consumption is estimated to have grown by 17.2 per cent. This was consistent with growth in total visitor numbers, driven by strong increases in domestic overnight visitors. In 2005-06, tourism consumption growth stabilised in line with visitor numbers and nights. The Territory experienced 19.1 per cent growth in tourism consumption in 2006-07, consistent with strong growth in total visitor activity in the Territory. NT TSA Estimates Using the TSA method, which is an internationally recognised methodology adopted by the ABS and STCRC, the values of TGVA and tourism consumption are calculated at industry level, with the collective industry totals being the overall measure of the contribution of tourism to the economy. Under international TSA standards, each industry is classified according to the proportion of its output that is consumed by visitors. There are three industry classifications in the TSA – tourism characteristic industries, tourism connected industries and all other industries. • Where at least 25 per cent of an industry’s output is consumed by visitors, an industry is known as a ‘tourism characteristic industry’. An example is the accommodation industry. • Where an industry’s output is consumed by visitors in volumes which are significant for the visitor and/or the producer, this industry is known as a ‘tourism connected industry’. An example is the retail trade industry. • Industries that do not produce tourism products, although some of their products may be consumed by visitors, are classified as all other industries.
Tourism 115 2008-09 Budget
Tourism Gross Using the STCRC 2003-04 figures as a base, Northern Territory Treasury Value Added estimates that in 2006-07, the first measure in Table 12.1, TGVA was $945 million in the Territory. Among tourism characteristic industries, air and water transport is the largest single contributor to tourism gross value added, contributing $197.2 million. (For more information on air and water transport, see the Transport and Communication Infrastructure chapter.) The accommodation and cafes, restaurants and food outlets industries are also major contributors to TGVA, contributing $120.3 million and $98.8 million respectively. Among the remaining tourism characteristic industries, travel agency and tour operator services contribute $72.9 million, taxi transport contributes $18.1 million and motor vehicle hiring contributes $25.3 million (see Chart 12.1).
Chart 12.1: Tourism Gross Travel agency and tour operator services Value Added $72.9M All other industries $99.9M Taxi transport $18.1M
Air and water transport $197.2M
Total tourism connected industries $312.4M
Motor vehicle hiring $25.3M Accommodation $120.3M Cafes, restaurants and food outlets $98.8M
Source: Northern Territory Treasury, Sustainable Tourism Cooperative Research Centre
Total tourism connected industries, including manufacturing, other transport, clubs, pubs, taverns and bars, and retail trade, are estimated to have contributed $312.4 million to TGVA in 2006‑07. The residual component of TGVA, all other industries, was valued at $99.9 million in 2006‑07 in the Territory (see Chart 12.1). Tourism Consumption The third measure reported in Table 12.1 is tourism consumption. In 2006-07, tourism consumption was estimated by Treasury to equal $2494 million. Tourism consumption is derived from Tourism Research Australia (TRA) expenditure data and is adjusted by STCRC to include a number of additional components, including prepaid airfares and package tours purchased overseas, as well as imputed non-market services such as actual and imputed rent on holiday houses. In 2006-07, total visitor expenditure in the Territory was estimated by TRA to increase by $314 million to $1.96 billion, some 80 per cent of tourism consumption. Total visitor expenditure comprises international visitor expenditure, domestic overnight visitor expenditure and same day visitor expenditure. In 2006-07, international, domestic overnight and same day visitor expenditure increased by $40 million, $254 million and $20 million respectively in the Territory (Table 12.2). The Territory recorded the highest growth in total visitor expenditure of the jurisdictions in 2006-07, at 19.1 per cent. Nationally, total visitor expenditure rose by 8.1 per cent (Table 12.2).
116 Tourism Table 12.2: Visitor Expenditure, International Domestic Overnight Same Day Total 2005-06 to 2006-07 $M % change $M % change $M % change $M % change NSW 5 586 12.6 12 157 5.1 4 569 5.6 22 312 7.0 Vic 2 981 19.5 7 967 0.5 3 226 11.6 14 174 6.4 Qld 3 667 8.2 11 945 7.1 3 072 18.1 18 684 9.0 SA 454 -11.3 2 711 5.0 931 4.0 4 096 2.7 WA 1 543 18.2 4 530 13.8 1 296 6.8 7 369 13.4 Tas 242 14.7 1 456 -2.1 435 12.4 2 133 2.3 NT 423 10.4 1 419 21.8 119 20.2 1 961 19.1 ACT 203 36.2 930 13.1 249 27.7 1 382 18.5 Australia 15 098 12.7 43 122 6.0 13 897 10.2 72 117 8.1
Source: Tourism Research Australia
Tourism is worth more to Territory residents than in any other jurisdiction. Illustrating the importance of tourism to Territory residents, the Territory records the highest level of total visitor expenditure per head of resident population at $9122, compared to $3431 nationally (see Chart 12.2). The significant difference in the level of visitor expenditure per resident is largely due to the Territory’s relatively small resident population compared to other jurisdictions and the relatively high number of visitors.
Chart 12.2: Tourism Expenditure $ Per Head of Resident Population, 10 000 2006-07 8 000
6 000
4 000
2 000
0 NSW Vic Qld SA WA Tas NT ACT Australia Source: Northern Territory Treasury, Tourism Research Australia, ABS Cat. No. 3101.0 Tourism Visitors International Visitors In 2006-07, international visitor expenditure in the Territory is estimated at $423 million, up from $360 million in 2005-06. The growth in international visitor expenditure is largely attributed to an increase in average nights spent in the Territory per international visitor. International visitors spent an average of nine nights in the Territory in 2006-07, an increase of 1.2 nights from 2005-06. As a share of total Territory visitor expenditure however, international visitor expenditure decreased marginally to 22 per cent in 2006-07 due to strong growth in domestic overnight and same day visitor expenditure.
Tourism 117 2008-09 Budget
Chart 12.3: Territory Visitors 000 3000
2500 Total visitors
2000
1500 Domestic overnight visitors 1000
Domestic day visitors 500 International visitors 0 01 02 03 04 05 06 07 Year ended June
Source: Tourism Research Australia Domestic The domestic overnight visitor category includes both interstate and intra-Territory Overnight Visitors overnight visitors, with interstate visitors accounting for around two‑thirds of total visitors. The domestic overnight market is typically the largest contributor to tourism visitor expenditure in the Territory. In 2006-07, domestic overnight expenditure increased by $254 million to $1419 million and comprised 72 per cent of total visitor expenditure in the Territory. The increase in domestic overnight visitor expenditure in 2006-07 is largely attributed to the strong growth in domestic overnight visitor numbers and interstate and intra‑Territory visitor nights in the Territory, increasing by 8.0 per cent, 18.5 per cent and 15.4 per cent respectively (Chart 12.3). Holiday visitors formed the majority of interstate visitors to the Territory in 2006‑07. The key factors affecting Territory domestic overnight tourism activity in 2006-07 appear to be: • relatively high levels of consumer and business confidence; • increased competition and capacity of low-cost airline carriers; • continued growth in accommodation capacity; and • robust labour force conditions nationally. In addition, trends in the intra‑Territory component of domestic overnight tourism activity may also be impacted by higher fuel prices in the Territory than in southern states and competition from other household goods and services. Same Day Visitors Same day visitor expenditure largely represents intra-Territory visitors, although interstate same day visitors are a minor component. In 2006-07 in the Territory, same day visitor expenditure increased by 20.2 per cent to $119 million, despite same day visitor numbers declining by 2.3 per cent. Same day visitor expenditure made up 6.0 per cent of total visitor expenditure in the Territory. The solid increase in same day visitor expenditure and moderation in visitor numbers may be attributable in part to prices growth in tourism products in the Territory, meaning fewer people are spending more due to higher prices. For further insight into tourism activity indicators, see figures and comments in Table 12.3 at the end of the chapter.
118 Tourism Tourism NT Tourism NT is a Territory Government agency responsible for the development of tourism in the Territory and advising the Minister on all matters relating to tourism. Tourism NT markets and influences the development of the Northern Territory as a competitive tourism destination. Its activities are focused on leisure (that is, holiday) and meeting/conferences/incentive travel markets. These market segments can be more readily influenced through marketing activities. Outlook The Northern Territory Tourism Forecasting Panel was established by Tourism NT in April 2006 to provide tourism forecasts for the Territory using a combination of industry intelligence and time series modelling provided by TRA forecasting analysis. The panel consists of members from tourism-related government and business organisations, and provides three‑year forecasts for visitor numbers, nights and expenditure in the Territory. Results from the December 2007 panel meeting include the expectation of an overall consolidation of tourism activity in the Territory in 2007-08 and 2008-09 after strong growth in tourism indicators in 2006‑07. Solid growth is forecast for 2009-10, with total visitor numbers and expenditure expected to increase by 3.5 and 2.4 per cent respectively. However recent interest rate rises in Australia, combined with a strengthening of the Australian dollar, may dampen an otherwise buoyant domestic and international tourism market. The panel expects moderate growth in international visitor numbers, nights and expenditure in the Territory in 2007-08, as the Australian dollar is expected to remain strong and international attention turns to China for the 2008 Olympic Games. Increases in airline seating capacity are expected in late 2008, which should relieve peak period seat shortages and contribute to strong growth in Territory visitor numbers in 2008-09 and 2009-10. Continued strong business links with Asia and the completion of the Darwin Convention Centre and the new cruise ship terminal are also expected to contribute to positive growth in international tourism activity and expenditure in the Territory in 2008‑09 and 2009-10. Increased domestic airline seating capacity in 2008 is expected to contribute to some positive growth in interstate tourism activity in the Territory in the medium term while having a dampening effect on intra-Territory tourism activity at the same time. The Central Australian region will be exposed to a new interstate market as Tiger Airways continues flights on a Melbourne-Alice Springs route from March 2008. In 2008-09, the panel expects a moderation in interstate visitor nights to have a dampening effect on interstate expenditure as low-cost carriers provide the opportunity for more visitors to have shorter stays in the Territory. Intra-Territory tourism activity is expected to suffer in the short term, with visitor numbers and nights expected to fall by 1.9 per cent and 7.9 per cent in 2008-09. After five years of reporting negative growth in the Territory, intra-Territory expenditure is expected to improve over the next two years before returning to its recent downward trend. Intra-Territory expenditure is forecast to increase by 16.7 per cent in 2007‑08, and by 2.7 per cent in 2008-09.
Tourism 119 2008-09 Budget
Table 12.3: Tourism Indicators Year on 5 yr Average Northern Territory 2005-06 2006-07 Year % change Growth Comment Total Visitor Numbers (000)1 2 303 2 359 2.4 0.6 In 2006-07, total visitors to the Territory Domestic day 923 902 -2.3 0.6 increased by 2.4%, attributed to solid growth in domestic overnight visitors. Domestic overnight 1 017 1 098 8.0 1.4 International 363 359 -1.1 -1.5 Visitor Nights (000) 9 225 10 782 16.9 1.6 Visitor nights experienced strong growth in Intrastate 1 063 1 227 15.4 -5.9 2006-07 after zero growth in 2005-06. An increase in interstate visitors was the key Interstate 5 322 6 309 18.5 4.4 contributor to growth. International 2 840 3 246 14.3 0.3 Average Nights per visitor 6.7 7.4 10.7 1.0 After negative growth in 2005-06, solid Intrastate 2.9 3.3 11.1 0.4 growth in average nights per visitor was reported for all visitors in the Territory Interstate 8.1 8.7 7.5 -2.7 in 2006-07, indicating that visitors are International 7.8 9.0 15.6 1.9 lengthening their stays.
Total Expenditure ($M)2 1 624 1 961 20.8 n.a. After a weak performance in 2005-06, Domestic Overnight 1 165 1 419 21.8 n.a. expenditure in the Territory reported strong growth in all categories, supported by an International 360 423 17.5 n.a. increase in total visitor numbers and total Domestic Day 99 119 20.2 n.a. visitor nights. In 2006-07 in the Territory, Average Expenditure per visitor 1 177 1 346 14.4 n.a. expenditure per visitor and expenditure per night recorded 14.4% and 3.3% growth Domestic 1 146 1 292 12.8 n.a. respectively. This also reflects higher prices International 992 1 178 18.8 n.a. for tourism products. Average Expenditure per night 176 182 3.3 n.a. Domestic 182 188 3.2 n.a. International 127 130 2.8 n.a. International backpacker numbers (000)3 92 94 2.6 -1.6 In 2006-07, backpacker numbers and nights Backpackers as a proportion of international 25% 26% 1ppt n.a. in the Territory continued to recover to visitors long‑term levels. The increasing availability and attractive profile of backpacker Backpackers as a proportion of total visitors 7% 6% -1ppt n.a. accommodation is expected to contribute to International backpacker nights (000) 664 670 0.9 -1.9 growth in backpackers.
Self-drive visitors entering NT (000)4 241 212 -12.2 1.9 Total self-drive visitors entering the Territory Domestic 194 171 -11.9 3.8 and self-drive visitors within the Territory decreased in 2006‑07, reflecting a fall in International 47 41 -13.8 -4.4 intra-Territory visitors, higher fuel prices and Self-drive visitors within NT (000) 510 473 -7.2 -5.0 more affordable air travel. Domestic 439 397 -9.6 -5.5 International 71 76 7.3 -2.2 Cruise ship visits* 44 43 33.3 14.9 Cruise ship visits were up in 2006-07, while defence ship visits and visit days Defence ship visits* 59 47 -10.6 -6.6 reported negative growth, due to operational Defence ship days* 214 149 -19.2 -11.8 demands.
Selected National Park Visitors (000) 1 234 1 260 2.1 -1.6 National park visitor numbers in the Territory Kakadu5 196 216 10.0 2.6 increased by 2.1% in 2006-07. Visitation to Kakadu and Litchfield national parks 6 Uluru-Kata Tjuta 354 338 -4.5 -2.6 experienced strong growth, while the other Nitmiluk 234 234 -0.1 -0.6 major parks reported a moderation in growth, Watarrka 219 214 -2.1 -5.1 reflecting increased visitor numbers to the Top End. Litchfield 231 258 11.8 -0.8
*Calendar year data. n.a.: not available 1 International and domestic tourism data are obtained from the TRA International Visitor Survey and National Visitor Survey and are calculated using different methodologies 2 International expenditure includes package expenditure and domestic expenditure includes airfares and long distance traffic costs 3 This data series shows the number of people who spent one or more nights in backpacker/hostel accommodation on their trip to the Territory 4 These figures are subject to high volatility and should be interpreted with caution 5 Kakadu National Park visitor numbers are generated using calibrated vehicle counters 6 Uluru-Kata Tjuta National Park visitor numbers represent ticket sales and do not include children under 16 years of age who have free entry Source: Tourism Research Australia, Tourism NT, Darwin Port Corporation, Department of Business, Economic and Regional Development, Parks Australia, Department of Natural Resources, Environment and the Arts
120 Tourism Chapter 13 Retail and Wholesale Trade
Key Points »»Retail and wholesale trade accounted for 6.1 per cent of Northern Territory GSP and 14.1 per cent of resident employment in 2006-07. »»In 2007, real retail turnover grew by 7.7 per cent in the Territory despite the uncertainty surrounding future increases in interest rates and petrol prices. »»Territory real retail turnover is forecast to increase by 6.2 per cent in 2007-08 and moderate to 4.2 per cent in 2008-09.
Retail trade is the trade in goods for resale to final consumers for personal or household consumption or in selected repair activities via stores and, increasingly, online. It also includes repairs to household equipment and motor vehicles. Wholesale trade is the resale of new or used goods to businesses and institutional users. Wholesalers buy large quantities of goods from producers, and resell them in smaller quantities. This structure allows for the efficient transfer of goods by wholesalers acting as intermediaries in the process of bringing goods from producers to the final customer. By way of example, Mintech is one Territory chemical wholesaler offering chemicals to offshore and onshore miners, such as the Bayu‑Undan project. A significant proportion of the Territory’s economy is made up of the retail and wholesale trade industries. The combined contribution of these industries to gross state product (GSP) was 6.1 per cent in 2006-07, with retail trade the larger, and directly contributing 4.1 per cent to GSP. In comparison to other Australian states, the contribution to GSP by wholesale trade is relatively small in the Territory at 2.0 per cent, compared to an average of 4.6 per cent nationally. The remoteness and small population of Territory centres tend to be unfavourable for many wholesale activities. Therefore, a significant amount of wholesale activity occurs interstate, with goods for retail in the Territory sourced directly from interstate wholesalers. Although retail trade is a significant contributor to the Territory’s GSP, the contribution to resident employment is considerably larger, accounting for 12.2 per cent of resident employment and reflecting the labour intensive nature of the industry. The combination of wholesale and retail trade accounts for 14.1 per cent of total resident employment.
Retail and Wholesale Trade 121 2008-09 Budget
Table 13.1: Retail and Employment 2007 GSP/GDP 2006-07 Wholesale Trade Wholesale Wholesale Retail Trade Trade Retail Trade Trade No. No. %1 000 %1 000 %2 $M %2 $M New South Wales 15.8 525.7 4.1 137.6 5.5 17 617 4.9 15 793 Victoria 15.1 386.1 5.2 132.9 5.5 13 428 5.5 13 306 Queensland 16.5 346.6 3.7 77.2 7.0 13 087 4.6 8 571 South Australia 15.9 120.3 4.6 35.1 5.9 3 881 4.0 2 604 Northern Territory 12.2 13.1 1.9 2.0 4.1 551 2.0 265 Western Australia 13.5 147.1 4.1 44.7 4.7 6 050 3.5 4 432 Tasmania 15.5 34.7 3.6 8.1 6.7 1 293 3.5 670 Australian Capital 9.9 18.6 1.9 3.6 4.5 944 1.8 369 Territory Australia 15.4 1 592.1 4.3 441.1 5.7 56 851 4.6 46 010
1 Percentage of the total national/state/territory employed. 2 Percentage of total national/state/territory GSP/GDP. Source: ABS Cat. Nos 5220.0, 6291.0.55.003 Consumption Profile The Australian Bureau of Statistics (ABS) conducts a Household Expenditure Survey (HES) every five years. The latest, for the 2003-04 period, reported that the average weekly household expenditure for Darwin was $1085, the highest of all the capital cities. In addition, the HES reported that for all households in the Territory, average weekly expenditure was $1044, considerably higher than the national average of $893. However, this figure should be treated with caution since the scope of the HES as defined by the ABS excludes very remote districts and Indigenous communities, which account for about 23 per cent of the Territory population. If the scope of the HES was expanded to include all areas of the Territory, average weekly earnings and expenditure would be lower because the excluded population is largely dependent on income support. The HES reports that consumers in Darwin spend more than the national average in most of the household expenditure categories. Higher prices for many items in the Territory are associated with higher freight costs and less competition, resulting in higher retail prices. Indexing the HES income and expenditure data using the change in the Consumer Price Index (CPI) over the three years from 2003-04 to 2006‑07 increases Darwin average weekly household expenditure to $1249 in 2006‑07. Darwin reports the highest weekly expenditure ahead of Canberra ($1205) in 2006‑07. Retail turnover is a major component of household consumption expenditure, which in turn is a significant component of final demand and economic growth. The indexed 2006‑07 HES data reports that Darwin household expenditure increased at the fastest rate in the following categories (in descending order): • automotive fuel; • tobacco products; • health expenses; and • housing.
122 Retail and Wholesale Trade Drivers of Retail and Wholesale Trade The economic environment and population growth are the main drivers of retail and wholesale turnover. Population Population growth impacts positively on both retail and wholesale trade by supplying labour, increasing the number of consumers and generating a favourable environment for the establishment of new businesses. Since December 2004, Territory population growth has been above the national average, coinciding with strong economic growth. Through the year to September 2007, the Territory’s resident population increased by 4616 to 216 503. The major contributor to this increase was natural increase. Net interstate migration continues to challenge the Territory, with a small gain in 2006-07 after negative net interstate migration in calendar year 2006. Household Disposable Household disposable income is a major driver of retail trade turnover. The 2006 Income and Debt Census reports that the Northern Territory has the second highest median household income of the states and territories, at $1192 per week. Latest data from the Australian Taxation Office reports that the average individual taxable income for the Territory, at $38 823 for 2004‑05, was the third highest of the jurisdictions and above the national average. Both these measures support relatively stronger retail turnover in the Territory. At the national level, in the year to September 2007, the ABS reports real net disposable income growth of 4.8 per cent (in seasonally adjusted terms). Stable average weekly earnings growth, combined with personal income tax cuts, saw household income growth outpace consumption spending growth, improving the net household savings ratio to 3.2 per cent in the September quarter 2007, compared to -0.2 per cent in the September quarter 2006. The household savings ratio is calculated by deducting household final consumption expenditure from household disposable income. In addition, the growth in the value of both housing and financial assets has increased household net worth. This ‘wealth effect’ has been linked to increased consumer spending. Chart 13.1 shows the ratio of total household assets to income, financial assets to income, and total household debt to income.
% Chart 13.1: Household Assets 900 and Debt – Percentage of Annual 800 Household Income Total assets 700
600
500
400
300 Financial assets 200 Debt 100
0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Calendar Years Source: Reserve Bank of Australia
Total household assets, as a percentage of household disposable income, increased at an average annual rate of 4.4 per cent over the four years to September 2007. This mainly reflects growth in house prices (the primary asset of many households) and financial assets (such as superannuation). In September 2007, total household
Retail and Wholesale Trade 123 2008-09 Budget
assets were eight times annual household disposable income. The household debt to disposable income ratio has grown at a higher rate than the household assets to income ratio, surging by an average annual rate of 13.9 per cent in 2002-03 (reflecting house price increases in many southern capital cities), before increasing by an average annual rate of 4.7 per cent in the two years to September 2007. This again reflects increases in house prices and increased average mortgage sizes. Household debt continued to grow in 2006‑07 with housing debt increasing 13 per cent (see Chart 13.2). With this increase in personal debt, consumers are more sensitive to interest rate increases than in the past. The recent increases in the official cash rate in November 2007 and February and March 2008 have combined to dampen growth in consumer spending in the second half of 2007-08.
Chart 13.2: Household Debt Ratios % – Debt as a Percentage of Assets 30 Housing 25
20 Total
15
10
5
0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Calendar Years
Source: Reserve Bank of Australia
Chart 13.2 shows housing debt as a percentage of housing assets compared to the total asset to debt ratio for households. In September 2007, average Australian housing debt was 25.5 per cent of the value of housing assets. In comparison, in September 2007, total debt was 16.9 per cent of total assets. The significantly higher housing debt to asset ratio reflects the substantial increase in house prices and mortgages in recent years. Nevertheless, because only 34 per cent of Australian householders are buying their home, the total debt to asset ratio is somewhat lower. The widening gap between the housing debt ratio and the total debt ratio since 1990 shows the increase in recent years of housing costs. For example, in 1990 the difference between the two ratios was 2.3 percentage points, whereas in 2007 this has widened to 8.6 percentage points. Employment The strong economic growth of 5.6 per cent reported for the Territory economy in 2006-07 has continued into 2007-08, resulting in strong employment growth. In the year to February 2008, resident employment in the Territory grew by 5.1 per cent and the ABS reports average weekly earnings in November 2007 of $1116, an increase of $21 in the year. The robust employment environment and a Territory participation rate of 73.1 per cent, 7.8 percentage points higher than the national average, reflects the strength of the Territory economy during 2007-08. Consumer confidence in the Territory was high in late 2007, in contrast to some other Australian jurisdictions. Consumer Sentiment Consumer confidence predominantly influences discretionary spending, particularly for more expensive items and non-essential goods, such as travel, which are often purchased on credit. Subdued consumer confidence may result in delayed purchases and the propensity for consumers to substitute lower priced items, while strong consumer confidence supports high levels of discretionary spending.
124 Retail and Wholesale Trade Sensis undertakes a nationwide quarterly survey designed to measure the confidence and behaviour of Australia’s consumer population. The survey is weighted to reflect age, gender and location based on the latest ABS population figures. The March quarter 2008 Sensis Consumer Report found that Territory consumers were the second most confident in the nation, with 56 per cent feeling confident about their financial prospects for the year ahead (Chart 13.3). The main reasons Territory consumers gave for feeling confident were ‘having a good or secure job’, followed by ‘everything is going well’. Those consumers who were worried about their financial prospects for the year ahead cited their main concern as rising interest rates. The prime concern for Territory consumers in the March quarter 2008 was rising petrol prices. Nationally, consumer confidence fell markedly in the March quarter 2008 to a net balance of 44 per cent. This represents the largest quarterly drop in confidence level since the start of the Sensis Consumer Report in May 2004. Interest rates were the main concern across all gender, age and socio-economic groups. Security in the job market was the main reason for confidence.
Chart 13.3: Consumer Sentiment, % March Quarter 2008 70
60
50
40
30
20
10
0 ACT NT WA Vic Qld SA NSW Tas
Source: Sensis March 2008 Consumer Report
Interest Rates In February and March 2008, and in August and November 2007, the Reserve Bank of Australia (RBA) raised the official cash rate in response to rising growth in aggregate demand and inflation fuelled by housing costs and high petrol prices. In January and March 2008, independently of the RBA, some banks raised the interest rates they charge on their loan products, citing higher credit costs. The Lags of Monetary Policy report by the RBA found that there is generally a lag of up to 18 months between interest rate movements and changes in consumer behaviour. It appears consumer spending was largely unaffected by the three official interest rate increases in 2006, although there was a significant softening in commitments for housing finance for owner occupation. In 2007, retail turnover was strong nationally and even stronger in the Territory, with the year on year real retail growth rates around 8.0 per cent throughout the year. Retail spending has shown resilience despite the emergence of global uncertainty and rising interest rates. This may in part be attributable to strong employment growth and the positive consumer sentiment regarding the strength of the Territory economy in 2007. However, consumer confidence fell sharply in early 2008 and is expected to be further impacted by the latest increases in the cash rate, which has taken the banks’ average variable rate mortgage to around 9.3 per cent.
Retail and Wholesale Trade 125 2008-09 Budget
Retail Trade Turnover Moderate growth of 2.7 per cent in real retail turnover in 2005 was followed by growth of 5.8 per cent in 2006. High levels of consumer confidence, relatively low interest rates, wages growth, steady population growth and competitively priced imports, particularly from China, helped to boost growth in retail spending. In 2007, year on year retail turnover growth continued to strengthen, increasing 8.0 per cent in March 2007 as consumers shrugged off uncertainty surrounding interest rates and fuel prices. The continuing strength of the local construction and mining industries and solid employment growth saw retail growth remain strong throughout the rest of the year, despite two further interest rate increases, to record 7.7 per cent growth in 2007. Retail Turnover by Sector Food Expenditure on food is by far the largest category in retail sales and accounts for about 45 per cent of all retail sales in the Territory, noticeably higher than the national average of around 40 per cent. The higher than national average expenditure on food in the Territory is largely accounted for by freight costs and the less competitive retail market, both leading to higher prices. In 2007, expenditure on food in the Territory increased by 9.8 per cent to exceed $1.0 billion (see Chart 13.4). The growth in expenditure on food is predominantly accounted for by the increase in population and higher average food prices. The food category consists of supermarket and grocery items, fish and poultry, fruit and vegetables, liquor, bakery products and takeaway food. Hospitality and Services Hospitality and services expenditure, which includes hotels, pubs, taverns, clubs, cafes and restaurants, video hire outlets, and hairdressing and beauty salons, decreased by 5.8 per cent to $371 million in 2007, following 6.1 per cent growth in 2006. This is the second largest expenditure category in the Territory. Despite strong tourism numbers in 2007, this decrease comes as a result of a shift in discretionary spending between categories. It may be that expenditure in this retail category is the most responsive to changes in disposable income. Consumer spending may have shifted to other need areas, such as housing and transport, possibly due to the impact of rising interest rates and petrol prices on household budgets. Other This category includes retailing in department stores, jewellery, gardening, pharmaceuticals, cosmetics and flowers. In 2007, expenditure in other retailing increased to $371 million, an increase of 3.6 per cent over 2006. Household Goods Household goods retailing recorded very strong growth in 2007 with total turnover reaching $349 million, an increase of 22.1 per cent compared to 2006. Household goods include furniture and floor coverings, domestic houseware, appliances and hardware. Demand for household goods is closely linked to dwellings investment. Clothing and Soft Goods The category of clothing and soft goods comprises clothing and clothing accessories, footwear and textiles. During 2007, turnover increased by 12.4 per cent to $112 million. Recreational Goods Recreational goods, the smallest category, includes sport and camping equipment, toys and games, marine equipment, newspapers, books and stationery, and photographic equipment, and increased by 11.8 per cent to $56 million in 2007.
126 Retail and Wholesale Trade Chart 13.4: Territory Real Retail $M Turnover (moving annual total) 1000 Food 800
600
Household goods 400 Hospitality and services
Other 200 Recreational goods Clothing and soft goods
0 92 94 96 98 00 02 04 06 08e Year ended June
e: estimate Source: Northern Territory Treasury, ABS unpublished data
Retail and Wholesale Retail and wholesale floor space is expecting strong growth in 2008-09, with a Developments $20 million wholesale grocery warehouse in Darwin Business Park at East Arm expected to be completed by November 2008. The completion of retail space at the Darwin Waterfront will progressively increase retail space through 2008-09. Smaller commercial and residential retail development projects in Darwin City due for completion in 2007-08 will add to these major projects. High levels of vacant retail space in the Darwin central business district are expected to be maintained in 2008-09 as increases in innercity population lag behind growth in retail floor space. Recent trends in retailing have seen an increasing shift from traditional store‑front based retailing to online retailing. To match this shift, the ABS has adjusted its categories of retailing to include non‑store retailing and retail commission‑based buying and/or selling. The ABS reports for 2005‑06 wages and salary were $1.2 million for non-store retailing and retail commission-based buying and selling, while sales of goods and services for this subdivision reached $22.3 million, making up less than 1.0 per cent of both total Territory sales, and compensation of employees. While currently at low levels sales in this category of retailing are expected to grow strongly in the future, both adding and subtracting from retail in the Territory as spending moves away from store‑front retailing. Outlook Nationally, retail trade turnover is forecast to grow by 3.0 per cent in 2007‑08 compared to 4.0 per cent in 2006‑07. Solid wages and employment growth are expected to be the main drivers in retail growth. Territory retail turnover in 2007-08 is expected to exceed the national average and is estimated to grow by 6.2 per cent. The strong growth in retail turnover in the Territory is consistent with forecast strength in the resource industry over 2007-08. The commodity boom, strong construction activity and employment and population growth are expected to maintain a stable level of consumer confidence that will maintain a healthy retail turnover through 2007-08, despite the dampening effect of rising interest rates. In 2008-09, retail turnover is expected to weaken at both the national and Territory level as the economy feels the full effect of the contraction in monetary policy. The negative effect of the November 2007, and February and March 2008 interest rate rises will be felt across all states, decreasing discretionary spending and slowing retail trade.
Retail and Wholesale Trade 127 2008-09 Budget
Following strong growth in 2007-08, Territory retail turnover growth is expected to moderate in 2008-09 to 4.2 per cent, largely due to the interest rate rises and their effect on discretionary spending. The continuing strength of the Territory’s construction and commodity sector, with its close economic relationship to China, will prevent a contraction in retail trade turnover and will be supported by strong wages and employment growth. The outlook beyond 2008-09 is positive, with large projects expected to commence in the medium term.
128 Retail and Wholesale Trade Chapter 14 The Public Sector
Key Points »»The public sector consists of Commonwealth, Territory and local government activity including defence. The public sector is a major contributor to the Territory economy, providing a wide rage of economic and social services. This chapter deals primarily with the public sector, excluding defence. »»In 2006-07, the non-defence public sector accounted for about 25.1 per cent of SFD, which is higher than most other jurisdictions. Defence contributes a further 7.6 per cent, taking the total to 32.7 per cent. »»The non-defence public sector is the largest employer in the Territory, accounting for about 26 per cent of total employment in 2006-07. »»The size of the non-defence public sector relative to the size of the Territory economy has declined over the past two decades, reflecting the maturing and diversification of the Territory economy.
The public sector includes Commonwealth, Northern Territory and local government activity. The focus of this chapter is the non-defence public sector in the Territory; defence activity is discussed in more detail in Chapter 15. Despite declining in relative size over the past two decades, the public sector in the Territory remains a significantly larger component of the economy than in most other jurisdictions, accounting for about 25.1 per cent of state final demand (SFD) in 2006‑07. Nationally, the public sector accounted for just 20.0 per cent of domestic final demand (DFD) (Chart 14.1). The Australian Capital Territory (ACT) has a larger public sector than the Northern Territory, due to its large Australian Public Sector (APS) presence.
Chart 14.1: Public Sector % Expenditure as a Proportion 60 of SFD, 2006-07 50
40
30
20
10
0 Qld WA Vic NSW SA Tas NT ACT Aust Non-Defence Defence
Source: ABS Cat. No. 5206.0 Expenditure In 2007-08, public sector consumption and investment expenditure in the Territory was an estimated $4.9 billion, a 2.9 per cent increase on 2006‑07. In relative terms, public sector expenditure is much higher in the Territory than in most other jurisdictions. In 2006-07, public sector expenditure was $16 886 per capita, compared to $9700 per capita nationally. The ACT had the highest public sector expenditure per capita at $52 200 and South Australia the lowest at $8604. As a proportion of SFD, Territory public sector expenditure is also the second highest
The Public Sector 129 2008-09 Budget
(25.1 per cent) behind the ACT (51.9 per cent). The relatively high level of public sector expenditure in the Territory reflects, among other factors, the relatively high cost of providing core government functions to a small, widely dispersed population, with a significant Indigenous component. Since 1991-92, public sector expenditure as a proportion of SFD has declined, reflecting both the ongoing development and diversification of the Territory economy (Chart 14.2). Over this period, SFD has increased by an annual average of 5.8 per cent, with the private sector contribution to SFD growing by 6.7 per cent compared to the public sector component growth of 3.4 per cent. Although the decline in public sector expenditure as a proportion of SFD has also occurred nationally, the rate of decline in the Territory has been much faster. The proportion of Territory SFD attributed to the public sector has declined from about 35 per cent in 1991-92 to about 25 per cent ($3.6 billion) in 2006-07. Over the same period, the national proportion declined by just 3 percentage points, from about 23 per cent to 20 per cent. Chart 14.2: Public Sector % Expenditure (excluding defence) 40 as a Proportion of SFD 35 Northern Territory
30
25
20 Australia
15 91 93 95 97 99 01 03 05 07 Year ended June Source: ABS Cat. No. 5206.0 Consumption Expenditure In 2006-07, public sector consumption expenditure, including wages and salaries, office supplies, consultancy services and consumption of fixed capital, accounted for 86.0 per cent of total public sector expenditure in the Territory, and around one‑third (34.1 per cent) of total consumption (public and private). Territory and local governments accounted for 77 per cent of total public sector consumption, and the Commonwealth accounted for the remaining 23 per cent. In the 15 years to 2006-07, the level of public sector consumption expenditure has increased by about 65 per cent to $3.1 billion (Chart 14.3), but nevertheless has declined as a proportion of total consumption expenditure from about 41 per cent to 34 per cent. This reflects the growing significance of private sector (household) consumption expenditure in the Territory.
130 The Public Sector Chart 14.3: Components of Public $B Sector Consumption Expenditure 4 (excluding defence) Total 3
2 Territory and local government
1
Commonwealth
0 91 93 95 97 99 01 03 05 07 Year ended June
Source: ABS Cat. No. 5206.0 Investment Expenditure Public sector investment expenditure is volatile and can experience large fluctuations from year to year due to the small size of the Territory economy and the impact of funding for large one-off projects. Examples include works on the bulk liquids berth, railway access, land reclamation and wharf extensions of the East Arm Wharf bulk loading facility, and headworks, soil decontamination and provision of community infrastructure at the Darwin Waterfront. Other projects contributing to recent growth in public investment include works done on the Red Centre Way, Darwin industry fuel terminal oil pipelines, expansion works on Territory schools and a number of projects aimed at the delivery of Indigenous housing services across the Territory (Chart 14.4). In 2006-07, public sector investment accounted for 13.9 per cent of total public sector expenditure and 12.8 per cent of total investment. Territory and local governments accounted for 61 per cent of the public sector investment, public corporations such as the Power and Water Corporation accounted for 29 per cent, and the Commonwealth for the remaining 10 per cent.
Chart 14.4: Components of Public $M Sector Investment Expenditure 800 (moving annual total)
600 Total
400
Territory and local government 200
Commonwealth
0 96 97 98 99 00 01 02 03 04 05 06 07 Year ended June
Source: ABS Cat. No. 5206.0 Employment The public sector is the largest employer in the Territory, accounting for about 26 per cent of total employment in 2006-07. The Territory Government accounts for 74 per cent of public sector employment, the Commonwealth for 13 per cent and local government for the remaining 13 per cent.
The Public Sector 131 2008-09 Budget
In the Territory since 1997-98, public sector employment is estimated to have increased at an annual average rate of 2.1 per cent (Table 14.1), more than total resident civilian employment (1.9 per cent) over the same period. Local government employment increased by an annual average rate of 2.9 per cent over the period, due in part to growth in the number of local governing bodies (largely community governments in remote areas), as well as growth in Community Development Employment Projects (CDEP), although not all CDEP programs were administered by local councils. Northern Territory Government employment increased at an annual average rate of 2.3 per cent, while Commonwealth employment experienced zero per cent annual average growth over the period. In late 2007, the Commonwealth placed a moratorium on the dismantling of CDEP that had begun in the Territory in mid-2007 and announced CDEP reforms including, where possible, converting some CDEP positions into public sector jobs. These changes, combined with local government reforms, are expected to have some impact on public sector employment in the Territory. Table 14.1: Wages and Commonwealth Territory Local Salary Earners Year ended June Government Government Government Total 1998 3 500 16 200 2 625 22 325
1999 3 550 16 000 2 600 22 150 2000 3 450 15 975 2 600 22 025 2001 3 550 16 675 2 600 22 825 2002 3 850 17 050 2 950 23 850 2003 3 450 17 925 2 900 24 275
2004 3 400 18 625 3 325 25 350 2005 3 475 19 475 3 425 26 375 2006 3 400 19 850 3 275 26 525 2007 3 500 20 200 3 550 27 250 2008e 3 500 20 400 3 500 27 400 Compound Annual Growth 1997-98 to 2007-08e 0.0 2.3 2.9 2.1 2002-03 to 2007-08e 0.3 2.6 3.8 2.5
e: estimate Source: Northern Territory Treasury, ABS Cat. No. 6248.0.55.001
Employment data referenced in Table 14.1 is based on the Australian Bureau of Statistics Wage and Salary Earners (WSE) Public Sector data series, which reports on the number of paid public sector positions in the Northern Territory across a range of industries such as health, education and general government. In 2006, the proportion of Territory residents working in the public sector (31 per cent) was larger than the national proportion (16 per cent). The majority worked for the Territory Government (53 per cent) and about one‑third worked for the Australian Government (32 per cent). More females than males worked for the Territory Government (62 per cent). The Office of the Commissioner for Public Employment (OCPE) provides a measure of Northern Territory public sector employment, based on the full‑time equivalent positions in the general government sector. This measure includes employees under the Public Sector Employment and Management Act, uniformed police, employees
132 The Public Sector of Tourism NT, employees of the Aboriginal Areas Protection Authority and ministerial staff. The OCPE measure excludes Charles Darwin University, Centralian College, Batchelor Institute of Indigenous Tertiary Education, Northern Territory Rural College, Menzies School of Health Research, Territory Insurance Office and Legal Aid Commission, which would be included in industry categories rather than in general government. From 1983 to 2007, public sector employment increased by 14 per cent. In calendar year 2007, the average number of full-time equivalent Northern Territory Public Service employees was 16 051, a 1.5 per cent increase from the calendar year 2006 average of 15 808. In 2007, the majority were permanent employees (74 per cent) and temporary employees (22 per cent), with the remainder casual employees. Indigenous Employment From June 2006 to December 2007, the number and proportion of self-identified Indigenous employees in the general Northern Territory Government sector increased from 1166 (7 per cent of total full‑time equivalent positions) to 1339 (8 per cent), an increase of 15 per cent. Increased Indigenous employment reflects initiatives to promote Indigenous career development, as well as a possible increase in the propensity for employees to self-identify as Indigenous. Outlook The public sector will continue to play an important role in the Territory economy with modest growth in the public sector expenditure expected in 2007‑08, reflecting continued works on the Darwin Waterfront and the middle schools project. Public sector employment growth is expected to moderate or possibly decrease slightly in 2007‑08, although to remain at about one-third of total employment. This is largely due to completion of major government initiatives to recruit more police, nurses and teachers in 2006-07, although impacts on future employment growth from changes to CDEP and local government reforms in the Territory remain uncertain.
The Public Sector 133 2008-09 Budget
134 The Public Sector Chapter 15 Defence
Key Points »»The defence presence in the Territory has more than doubled since the early 1990s, with the number of defence personnel and their families increasing from 6223 in June 1992 to an estimated 13 165 in June 2008. »»Of all the Australian permanent defence force personnel, 10 per cent are based in the Territory. Recurrent defence expenditure by the Commonwealth in the Territory totalled $1.08 billion in 2006‑07. »»Recently completed defence activities include the replacement of the 1st Brigade’s fleet of Leopard tanks with 59 re-conditioned United States M1A1 Abrams tanks, 41 of which are in the Territory. »»The Territory’s economy will benefit from new and ongoing local supply and support contracts.
The Territory is an integral component of Australia’s security strategy by virtue of location. The strategic decisions outlined in the Defence White Paper 2000 have placed a greater emphasis on national security and increasing capabilities to respond to threats of terrorism, international emergencies and coastal surveillance. The Commonwealth will release a new Defence White Paper in 2008. The Australian Defence Force (ADF) is committing significant resources to increase its land, air and sea capabilities by gradually upgrading the current fleet of tanks, patrol boats, aircraft and helicopters Australia-wide. Major Territory defence sites are an important component of Australia’s northern borders protection and will greatly benefit from the increase in capabilities from the acquisition of the Abrams tanks, Tiger helicopters and the Armidale Class patrol boats. Defence will remain an important element of the Territory economy for the foreseeable future. Defence Force Activity The defence force presence in the Northern Territory is made up of the three primary services – Army, Navy and Air Force – along with other groups involved in support and coordination functions. Major defence sites in the Northern Territory include: • Larrakeyah Barracks in Darwin, which includes Headquarters Northern Command; • Robertson Barracks near Palmerston; • HMAS Coonawarra in Darwin; • RAAF Base Darwin; • RAAF Base Tindal near Katherine; • the Joint (United States and Australia) Defence Facility Pine Gap near Alice Springs. Other defence sites include the Naval Fuel Installation (Stokes Hill), Joint Logistics Unit North (in Winnellie), Defence Establishment Berrimah, Bradshaw Field Training Area (near Timber Creek), Mount Bundy Field Training Area (near the Mary River), Delamere Bombing Range (near Katherine) and the Jindalee Operational Radar Network (JORN) facility near Alice Springs.
Defence 135 2008-09 Budget
Army The largest operational base in the Territory is Robertson Barracks, which is home to the Army’s 1st Brigade. The defence force build up during 1992-2001 primarily reflected the major relocation of the 1st Brigade to the Territory over this period. In March 2007, the 1st Brigade’s former fleet of Leopard tanks was replaced with 41 re‑conditioned United States M1A1 Abrams tanks (plus a variety of support vehicles). The Abrams tanks were ready for deployment in July 2007. The North West Mobile Force (NORFORCE) surveillance unit monitors the remote northern borders, more than 1900 kilometres of coastline, for poachers, illegal fishing and illegal immigration. When at full operational level, NORFORCE has more than 600 personnel, mostly reservists. It is one of the largest employers of Indigenous Territorians, after the Northern Territory Government, with around 420 Indigenous part-time reservists. Navy Border protection is the primary focus of the Royal Australian Navy (RAN) operations in the Territory. Darwin home ported patrol boats play an integral role in the surveillance of Australia’s northern approaches and form part of Operation Resolute, which targets illegal fishing and smuggling in Australia’s northern waters. HMAS Coonawarra is home to the majority of the RAN’s Armidale Class patrol boats. Ten of these patrol boats are home ported in Darwin, of which two vessels operate out of Port Dampier in Western Australia at any one time, with crew and services provided from Darwin. These patrol boats have replaced the former fleet of ten Fremantle Class patrol boats that were decommissioned in early 2007. The new fleet will increase the RAN’s surveillance and response capabilities, such as the apprehension of illegal fishing vessels. Construction at the naval base to provide accommodation for the larger Armidale Class patrol boats began in early 2005 and is being completed in stages to allow for the continued operation of the naval base. Construction is scheduled for completion in mid-2008. Air Force The main operational and strategic Air Force base in the north of Australia is the Royal Australian Air Force (RAAF) Base Tindal, home to a Fighter Attack F/A18C fighter squadron. In addition, RAAF Base Darwin is home to No. 396 Combat Support Wing, which commands squadrons based in Darwin, Townsville and Butterworth (Malaysia), and is used as a base for surveillance aircraft. RAAF Base Darwin is the forward operating base for RAAF operations and exercises, and regularly hosts foreign aircraft during these exercises. In the Territory, the RAAF also operates the Delamere Bombing Range facility (south-west of Katherine) and one of Australia’s three JORN surveillance units (near Alice Springs). Headquarters Headquarters Northern Command (HQNORCOM), based at Larrakeyah Barracks, Northern Command is the joint force headquarters responsible for the defence of northern Australia. Its jurisdiction includes the Territory, north Queensland and the northern half of Western Australia. HQNORCOM is engaged with the Joint Offshore Protection Command and is responsible for the implementation, coordination and management of offshore maritime security, including the protection of offshore oil and gas assets. Joint Defence Facility The Joint Defence Facility at Pine Gap is a component of the United States’ global Pine Gap missile defence and early warning system. The facility is jointly administered by the Australian and United States defence departments. It employs an estimated 900 personnel (of whom half are Australian) and, together with more than 3000 dependants, this facility is responsible for about 12 per cent of the Alice Springs population.
136 Defence Defence Population The Territory has 10 per cent of all Australian permanent defence force personnel, a significant contribution to its population of 214 975 (as at 30 June 2007), which accounts for just 1 per cent of the total Australian population. More than 6 per cent of total defence expenditure occurs in the Territory (Table 15.1).
Table 15.1: Population, Permanent Defence Defence Total Australian Defence Force Members and Personnel1 Expenditure Population % % % Defence Expenditure Proportions, 2006‑07 New South Wales 31.9 32.2 32.8 Victoria 11.1 15.6 24.8 Queensland 23.2 22.4 19.9 South Australia 5.1 6.2 7.5 Western Australia 7.3 8.8 10.0 Tasmania 0.3 1.6 2.3 Northern Territory 10.2 6.2 1.0 Australian Capital Territory 9.5 6.9 1.6 Australia 100.0 100.0 100.0
1 Excludes civilians, reserve forces and personnel serving overseas Source: Department of Defence, ABS Cat. No. 3101
In 1992, the Territory’s population was boosted by the Army Presence in the North (APIN) program, which involved the relocation of about 2300 defence personnel to Darwin over the period 1992-2001 from Holsworthy in New South Wales and Puckapunyal in Victoria. Since the first major relocation in the early 1990s, the Territory’s total defence community (including personnel and their families) has increased from 6223 in June 1992 to an estimated 13 165 in June 2008. This represents about 6.0 per cent of the Territory’s population, up from 3.7 per cent in June 1992. In June 2008, 443 civilian defence personnel and 780 reservists will be based in the Territory. The most recent defence relocation to the Territory was the 1st Aviation Regiment from Queensland in 2006, which increased the total number of defence personnel and their families in the Territory by an estimated 300 people. The number of defence force personnel based in the Territory (including Department of Defence civilians, but excluding reservists) increased from 2569 in June 1992 to an estimated 5451 in June 2008. This comprises an estimated 3460 army personnel, 540 navy personnel, 1008 air force personnel, totalling 5008 military personnel, plus 443 defence civilians (Chart 15.1).
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Chart 15.1: Defence Personnel number (000) Stationed in the Northern Territory 6 Total defence personnel
5
4 Army
3
2 Civilians Air force 1 Navy
0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
Source: Department of Defence, ABS Cat. No. 3101, unpublished ABS data
The defence presence contributes to the Territory economy through consumption and investment expenditure as well as through the partners of defence personnel, often skilled, who enter the Territory’s labour force. Defence personnel do not, however, contribute to the official employment statistics published by the Australian Bureau of Statistics (ABS) which, for reasons of definition, focus on resident civilian employment. Because of this, ABS employment statistics under-record the number of jobs in the Territory by at least 5 per cent (refer to chapter 4, Labour Market). The 2003 Defence Census found that around 56 per cent of defence partners who are not permanent defence force members worked full time, forming an important source of labour for the economy. Of all defence partners, 48 per cent had formal qualifications (bachelor degree or higher, certificate or diploma, trade or vocational qualification) and 22 per cent were undertaking some form of study. Outcomes from the Defence Census 2007 are expected to be released in mid-2008. Defence Recurrent Expenditure Defence recurrent expenditure (which includes weapons and platforms, salaries and other operational expenses) is an important contributor to the Territory economy. The ABS estimates that defence recurrent expenditure in the Territory was $1.08 billion in 2006‑07, equivalent to 8.1 per cent of the Territory’s gross state product, up from $967 million in 2005-06 (Chart 15.2).
Chart 15.2: Defence Recurrent $ M Consumption Expenditure in the 1000 Northern Territory 800 Total
600
Operational 400 Salaries
200
0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Year ended June Source: Northern Territory Treasury, Department of Defence, ABS unpublished data
138 Defence Defence Salaries Salaries paid to defence personnel equalled $474 million in 2006‑07, representing about 44 per cent of total recurrent defence expenditure (Chart 15.2). The increase in defence expenditure reflects a rise in salaries attributable to the deployment of Territory defence personnel to Iraq. Defence salaries and defence personnel and family purchases are an important contributor to consumer demand in the Territory. Strengthening consumer demand in turn stimulates other areas in the economy such as employment growth. The increase in salaries in part reflects a rise in the number of defence personnel deployed on missions to Timor during 2004-05 and Iraq during 2006‑07. The flow-on effect of defence salaries on private consumption expenditure in the local economy has continued to be an important contributor to growth in the Territory. Defence Operational In 2006-07, defence operational expenditure totalled $537 million and accounted Expenditure for just over half of total defence recurrent expenditure in the Territory (Chart 15.2). This expenditure category includes items such as weapons and platforms and other defence (including ammunition, transport costs, catering and office supplies). Defence Industry Defence contracts are also an important contributor to operational expenditure. The value and number of defence contracts with Territory businesses has increased, as well as greater levels of outsourcing of defence services. In 2006‑07, the Department of Defence estimates that the defence presence in the Northern Territory was supported through local contracts with a total value just under $200 million. The increased capacity of local businesses to meet specialised defence requirements has contributed to the growth in defence operational expenditure in the Territory. Business relationships between the ADF and local enterprises have provided opportunities for new capacity and capability to be developed, broadening and enhancing the local economy. Examples of contracts awarded locally in 2006‑07 include: • more than 100 local contractors involved in the supply and support services for the new Armidale Class patrol boats, which includes the provision of medical and security services; and • the Bradshaw Field Training Area project saw 90 per cent of its $65 million worth of contracts awarded to local businesses, including subcontracting projects to local Indigenous communities in remote areas. Defence Housing Since 1992, residential construction booms in the Territory have been impacted by defence demand for housing. The relocation of defence personnel and their families to the Top End has resulted in a significant increase in the Territory’s population, with an associated increase in demand for housing and other goods and services. Defence Housing Australia (DHA) currently manages 2290 dwellings in the Territory, with the majority located in Darwin and Palmerston (Chart 15.3). The stock of defence housing grew strongly between 1992 and 1999, with average annual growth in DHA dwelling stock of 9.4 per cent. The decline in total dwelling stock over the two years to June 2005 is largely associated with a decline in new acquisitions and a decline in the number of properties leased to DHA (which is generally for a term of 12 years) to more sustainable levels.
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Chart 15.3: Defence Housing number Australia (DHA) Dwelling Stock 3000
Total 2500
2000 Darwin and Palmerston
1500
1000
Katherine 500 Alice Springs 0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June
e: estimate; f: forecast Source: Northern Territory Treasury, Defence Housing Australia
The composition of defence housing varies to accommodate the different living arrangements of defence families. The number of off-base properties has increased nearly three-fold since the early 1990s. As at June 2007, the number of off-base properties in Darwin was 988, Katherine 185, Alice Springs 61 and Nhulunbuy 16. On-base property numbers included RAAF Base Darwin 408, Larrakeyah 131 and RAAF Base Tindal 193. Planned Housing Developments Lyons The creation of the new $280 million Darwin suburb of Lyons is well under way with DHA releasing the first houses for defence families in August 2007. The Lyons development is a joint venture between DHA and the Canberra Investment Corporation, which will provide 650 fully serviced residential land allotments. Of these, at least 300 blocks, positioned throughout the development, will be supplied to ADF members and their families. DHA has been taking delivery of 75 lots per year, since 2006, with an additional 75 lots made available to the public every year. Muirhead In late 2006, DHA purchased 152 hectares of land at Muirhead (adjacent to Lyons) at a total value of $18 million. DHA plans to commence the development of the new suburb in 2009-10 to coincide with the conclusion of the Lyons development in 2011. Muirhead has the potential to yield more than 700 allotments, a proportion of which will be made available for sale to the public. This residential construction by DHA will ensure that defence demand for new housing is met to replace older housing both on and off base. Larrakeyah Barracks There is a proposed redevelopment of the Larrakeyah Barracks, involving major renovations to the older DHA stock. As a result of the renovations, the on-base housing stock is expected to decrease. Tindal Defence houses at RAAF Base Tindal in the Northern Territory continue to be upgraded as part of an $18 million major refurbishment program. This program includes upgrading amenities to provide additional living/family areas, master bedrooms, new kitchens and internal repainting. Alice Springs There are no planned defence housing developments for Alice Springs in the foreseeable future.
140 Defence Defence Capital Expenditure Two projects that the Department of Defence is undertaking are upgrading of the Bradshaw Field Training Area Infrastructure and the Darwin Naval Base Patrol Boat Facilities. These upgraded facilities will provide increased capabilities and support existing infrastructure.
Table 15.2: Approved Major Capital Cumulative Facilities Projects Total Estimated Expenditure to 2007-08 Expenditure 30 June 2007 Estimate $M $M $M Bradshaw Field Training Area Infrastructure 72.6 64.5 2.0 Darwin Naval Base – Patrol Boat Facilities 19.2 9.8 5.4
Source: Department of Defence Bradshaw Field Training This project provides engineering services and infrastructure to allow the use of Area Infrastructure Bradshaw as a field training area for the 1st Brigade. Works include roads, training force maintenance area, base camp, range control and caretaker facilities. The residual works are scheduled for completion by 2008-09. Darwin Naval Base Patrol This project provides upgraded facilities at HMAS Coonawarra for the new Armidale Boat Facilities Class patrol boats. Construction commenced in early 2005 and is being completed in stages to allow for the continued operation of the naval base and to support the staged introduction into service of the Armidale Class patrol boats. The revised expenditure estimate reflects actual achievement in 2006-07. The project is scheduled for completion in 2008-09.
Table 15.3: Major Projects Expenditure under Consideration by the Current Status $M Commonwealth Government RAAF Darwin Redevelopment Stage 2 In development 49.8 in 2007-08 Robertson Barracks Redevelopment In development 72.0 RAAF Tindal Redevelopment Stage 5 In development 58.7 RAAF Tindal Airborne Early Warning and Control Facilities In development 64.2
Source: Department of Defence
The major projects outlined in Table 15.3 are subject to parliamentary clearance from the Commonwealth. As these major projects were initiated by the previous Commonwealth, there is an element of uncertainty around the timeframes currently in place. RAAF Darwin This project, if approved, will upgrade existing facilities including fuel farms and Redevelopment Stage 2 workshops and construct a new logistics headquarters, with the Commonwealth committing $49.8 million. At peak construction, it is expected that around 50 construction industry jobs will be created, offering opportunities for skilled consultants, local sub-contractors and the construction industry in general during the construction period. Once approved, construction is expected to commence in early 2009, with completion expected in 2011. Robertson Barracks This project comprises three individual project elements: the Robertson Barracks Redevelopment Redevelopment project, Land 907 facilities project and the Hardened and Networked Army facilities project, with the Commonwealth committing $72 million. The Robertson Barracks Redevelopment will provide new and upgraded facilities for training, emergency response, working accommodation and equipment support. The Land 907 facilities project will provide parking and working accommodation for heavy tank transport vehicles and other tank support services. The Hardened and
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Networked Army project will provide additional working accommodation and other support facilities. If approved, construction is expected to commence in early 2009, with completion expected in 2010. RAAF Tindal This project comprises a number of elements to expand and upgrade existing Redevelopment Stage 5 working accommodation, construct new working accommodation and to augment electrical and water supply infrastructure, with the Commonwealth committing $58.7 million. If approved, construction is expected to begin early 2009, with completion expected in late 2010. RAAF Tindal Airborne This project, if approved, will provide facilities and infrastructure at RAAF Base Tindal Early Warning and to support the introduction of the new Airborne Early Warning and Control aircraft, Control Facilities with the Commonwealth committing $64.2 million. The scope of work includes new taxiways, operational facilities and working accommodation. If approved, construction is expected to begin in early 2009, with completion expected in late 2010. Defence Operations, Exercises and Deployments Operation Resolute Defence force personnel based in the Territory are involved in the ongoing primary defence operation, Operation Resolute. This defence operation is conducted to protect Australia’s Exclusive Economic Zone from illegal fishing, smuggling and unauthorised arrivals. Operation Overwatch Territory-based defence personnel play a significant role in Australia’s military involvement in Iraq as part of the Overwatch Battle Group (West), particularly in the areas of transport, security, air traffic control and medical support. Operation Outreach Operation Outreach is the Australian Defence Force contribution to the Commonwealth’s Northern Territory Emergency Response (NTER). This contribution to the whole of government effort is primarily centred on provision of operational command elements and the delivery of logistical support services such as vehicular and airborne transport, communications, temporary accommodation, contracting support and general sustainment support. Defence’s contribution to the NTER is $19 million over 2007-08. Approximately 130 defence personnel are involved, with members from NORFORCE supported by detachments from Navy, Air Force and other units from around Australia. Direct funding from the Commonwealth in 2006-07 for these activities was $15.5 million, of which $8 million has been spent. Department of Defence estimates that 70 per cent of the expenditure would contribute to the Northern Territory economy. Army Aboriginal The Army Aboriginal Community Assistance Program (AACAP) is an ongoing Community Assistance commitment that reinforces the strong association between Army and the Indigenous Program people of Northern Australia. It is a joint initiative between the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) and Army that aims to improve health and living standards in Aboriginal communities. Army provides soldiers and equipment to complete project management, construction, health care and training support to communities. The program has facilitated the provision of essential housing, infrastructure, health and training support provided to remote communities across Australia. AACAP mainly operates in the Northern Territory but some projects have been undertaken in Western Australia, South Australia and Queensland. AACAP projects have been allocated $20 million for the three-year period 2006-09.
142 Defence Defence Exercises Defence exercises are regularly staged in the Territory and adjacent waters. These provide a major boost to the economy through supply and support contracts and increased visitor numbers. In 2007-08, the Territory hosted three major exercises: • Exercise Albatross Ausindo 2007 was a combined Royal Australian Air Force and Indonesian Air Force maritime surveillance exercise held off the coast of Darwin in July 2007. • Exercise Talisman Sabre 07, a biennial exercise conducted between 19 June and 2 July 2007, was held primarily at Shoalwater Bay in Central Queensland. Some defence activities were carried out at Bradshaw Field Training Area and at Delamere Bombing Range. • Exercise Arnhem Thunder was held for two weeks in August 2007 and involved around 500 Air Force personnel and 25 aircraft. Other Defence-Related Activities The Territory also benefits in a direct way from visiting naval ships and in an indirect way from the Territory Government’s involvement in defence-related support activities. Navy Ships A large number of RAN and international navy ships visit the Territory when regular exercises, rest and recreation, and naval or humanitarian missions occur. Examples include relief operations in response to the 2004 Asian tsunami and 2005 East Timor civil disturbance. These visits provide a significant economic contribution, particularly the expenditure by sailors on shore leave and re-supply and service stopovers in Darwin. Ships remain in port for an average of four days, with crew sizes between 100 and 1000. The Defence Support Division of the Territory Government estimates that each Royal Australian Navy and United States Navy sailor spends about $228 a day while in Port. In 2007, 47 major naval ships visited the Port of Darwin for a total of 149 ship visit days, compared to 59 navy ships and 214 ship visit days in 2006. The decline in the number of major naval ships visiting the Port of Darwin is due to a number of factors including operational demands and ability to guarantee berthage. Defence Support Division The defence presence in the Territory provides significant opportunities for local industry. In 2003, the Territory Government established the Defence Support Division (DSD) to help facilitate the growth of Territory industry capability to capture defence‑related opportunities. The DSD has taken on the additional role of Defence Community Liaison to help support defence organisations such as the Defence Community Organisation, Defence Housing Authority and Defence Families Association to assist defence personnel and their families posted to the Territory. Defence Outlook Darwin’s position at Australia’s northern approach will remain of strategic relevance to Australia’s defence. The most recent relocation of the 1st Aviation Regiment will increase already significant levels of defence investment and consumption expenditure in the Territory. The replacement of patrol boats and tanks based in the Territory, and the arrival of the Tiger helicopters, will provide opportunities for local business to undertake maintenance and other defence‑related support activities, as well as attracting national and international businesses to the Territory. The Territory’s total defence community (including personnel and their families) is forecast to increase from an estimated 12 935 in June 2007 to 13 165 by June 2008. The number of permanent defence force personnel is forecast to increase by 100 over 2007-08 to 5451 by June 2008. This increase is expected as a result of the recruitment efforts made by the ADF to boost personnel numbers across Australia.
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The $280 million Lyons development project will boost the Territory economy over the next five years with the construction of an estimated 650 houses. The Northern Territory Government has allocated 54 hectares of land close to Robertson Barracks for the development of an industry park to include a Defence Support Hub. This will provide a location for the defence support industry to grow and align its capability to deliver support to the armoured and non-armoured vehicles based at the barracks. New long-term support contracts for the defence platforms based in the Northern Territory are expected to create new jobs and contribute to the economy. In 2008-09, the Territory is to host two major defence exercises: • Exercise Singaroo, to be held in July 2008, is a biennial naval and air exercise between Australia and Singapore, conducted in the Arafura Sea off the Territory coast; and • Exercise Pitch Black 08, to be conducted in July/August 2008, a biennial exercise involving the RAAF and air forces from France, Singapore, Thailand, the United Kingdom and the United States. It is the RAAF’s largest exercise, involving about 1500 defence personnel.
144 Defence Chapter 16 Transport and Communication Infrastructure
Key Points »»With a small, widely dispersed Territory population and small local market relative to major markets in southern Australia, good transport and communication links are critical to ongoing development in the Territory. »»Rail remains an important transport link providing regular passenger services between Darwin and Adelaide. Volumes of freight continue to grow, with further opportunity for regional development particularly in the movement of bulk mineral ores. »»The Territory’s road network continues to be improved with upgrade work to infrastructure, bridges and flood mitigation. »»Air transport provides Darwin with links to international, interstate and intrastate destinations for passenger movement and freight transfer. »»Access to information and communications technology to the large percentage of Territorians living in remote areas remains a priority.
The transport and storage industry includes all entities mainly engaged in providing passenger or freight transport by road, rail, water or air; terminal facilities for passengers or freight; services related to transport such as car parking, stevedoring, harbour services, navigation services, airport operation; booking, travel, freight forwarding, crating or customs agency services; and storage facilities. It also includes entities mainly engaged in operating pipelines for the transportation of oil or gas, on a contract or fee basis. The communications industry covers telecommunications, postal and courier services. Also discussed in this chapter are television, radio broadcasting and media services, which are counted by the Australian Bureau of Statistics (ABS) as part of the cultural and recreation industry. Newspaper publishing and other news dissemination, often thought to form part of the communications industry, are included by the ABS as part of the manufacturing industry. As the Territory economy continues to grow, so too does the need for transport and storage, and communication infrastructure. Transport and storage contributed 4.1 per cent to the Territory’s gross state product (GSP) in 2006-07. The communications industry (as defined by ABS) contributed 2.0 per cent to the Territory’s GSP in 2006-07.
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Table 16.1: Transport and Transport Communication1 Total Communications Production as a % % % Proportion of GSP/GDP, 2006-07 New South Wales 4.2 2.6 6.8 Victoria 4.5 3.2 7.7 Queensland 5.6 2.3 7.9 South Australia 4.3 2.3 6.6 Western Australia 5.1 1.9 7.0 Tasmania 4.8 2.2 7.0 Northern Territory 4.1 2.0 6.1 Australian Capital Territory 1.9 2.4 4.3 Australia 4.6 2.5 7.1
1 As defined by ABS, being Telecommunications and Postal Source: ABS Cat. No. 5220.0 Transport Remoteness, geographical size and dispersed population mean long distance transportation and storage become increasingly important as the Territory economy and population continue to grow. Growth in the mining sector, along with increased freight volumes and tourist numbers passing through the Territory, continues to develop and contribute to the Territory economy. Transport and storage activity accounted for around $554 million or 4.1 per cent of the Territory’s GSP in 2006-07, up from 3.7 per cent in 2005‑06. This growth contributed 0.2 percentage points to the total GSP growth of the Territory economy Four main components of the Territory’s transport industry are road, rail, sea and air. Each sector facilitates the movement of people, goods and services to, from and around the Territory. Road The Territory is served by three national highways which provide links to Queensland (Barkly Highway), South Australia (Stuart Highway) and Western Australia (Victoria Highway). The national highway network is the backbone of the road network system across the Territory and provides the only sealed road links between the Territory and the rest of Australia. The Territory road network consists of more than 36 000 kilometres of road. About 22 000 kilometres are managed by the Territory Government, including 12 per cent classified as national highways, 19 per cent classified as arterial roads and 69 per cent classified as secondary or local roads. The remaining approximately 14 000 kilometres of roads, primarily for distributing traffic within local areas, are administrated by local governments. In 2007-08, AusLink expenditure on roads in the Territory is estimated at $46 million. Along with maintenance and widening activities, this includes major works to overcome flooding problems on the Victoria and Stuart highways, including bridge works. Upgrading blackspot locations on roads servicing the pastoral, tourism and mining industries and improving access for remote communities are also being conducted. Improvements to the Victoria Highway include pavement strengthening and lifting at the Victoria River Floodplain through high level bridges at Victoria River, Joe Creek, Lost Creek and Sandy Creek and should result in reduced road closures caused by
146 Transport and Communication Infrastructure flooding. Improving of community and mining roads such as the Port Keats Road and Tanami Road remains a priority. In 2007-08, Northern Territory Government expenditure on roads will be approximately $77 million. In April 2008, it was announced that the Territory Government, in partnership with the Commonwealth, would allocate $110 million to extend Tiger Brennan Drive. When complete, the work will include a flyover and a 7 kilometre road extension to the Stuart Highway. The $6.5 million stage one extension of Tiger Brennan Drive is scheduled for completion by the end of 2008. Stage one will upgrade a section of Berrimah Road to dual lane to address congestion experienced during peak hours and reduce commuting time between Darwin, Palmerston and rural areas. Extending Tiger Brennan Drive is an important infrastructure project that will build on the economic opportunities of East Arm Port, providing better access for trucks and trains to deal with increased transport and freight volumes. Rail The Adelaide to Darwin railway was completed in January 2004. Freightlink, the railway operator, began rail transport operations with five freight services a week capturing 85 per cent of the competitive interstate freight market within three months of starting up. Freightlink continues to provide the primary linehaul service along Australia’s central freight corridor connecting Darwin with freight services in Adelaide and other states. The value of the railway to the development of the Northern Territory economy continues to be demonstrated by results, with a surge to record levels of both bulk and general freight in 2006-07. The railway continues to demonstrate its long‑term potential to the economic development of both South Australia and the Northern Territory. The net tonnage carried increased 67 per cent from 668 081 tonnes in 2005‑06 to 1 112 885 tonnes in 2006‑07. The railway has acted as a catalyst for the development of the resources sector throughout the Northern Territory and South Australia by offering an alternative cost-effective way to move large quantities of bulk ore and materials for shipment to overseas markets. Through its subsidiary, OM Manganese Ltd (OMM), OM Holdings Ltd (OMH) operates the Bootu Creek manganese mine, located 110 kilometres north of Tennant Creek. Bootu Creek manganese is mined exclusively for OMH Group’s wholly-owned Qinzhou smelter, in south-west China. OMM was the first mine to enter into a contract to haul manganese by rail from the Bootu Creek operation to the Port of Darwin and is expected to produce 550 000 tonnes of ore annually. Territory Resources Ltd’s Frances Creek mine near Pine Creek commenced operations in July 2007, with FreightLink carrying iron ore to the Port of Darwin bulk minerals discharge facility. The first shipment of 65 000 tonnes of iron ore was loaded on 28 September 2007 destined for China. Another mining company, Oxiana, has announced plans to transport copper concentrate by rail from its Prominent Hill mine, south-east of Coober Pedy, to the Port of Darwin, commencing in 2008. The table below shows there is potential for more mining operations in the Northern Territory and South Australia to use rail to move their product to the Port of Darwin.
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Table 16.2: Potential for Rail to Company Project Location Product Support Mining Operations GBS Gold Union Reefs Pine Creek Gold ore Territory Iron Frances Creek Pine Creek Gold ore OM Holdings Bootu Creek Tennant Creek Manganese Territory Iron Warrego Tennant Creek Magnetite Peko Rehab Peko Tailings Tennant Creek Magnetite Arafura Resources Nolans Bore Alice Springs Rare earths Olympia Resources Harts Range Alice Springs Garnet sands Altona Resources Arkaringa Arkaringa SA Coal Goldstream Cairn Hill Coober Pedy SA Magnetite/copper/gold Goldstream Peculiar Knob Coober Pedy SA Iron ore BHP Billiton Olympic Dam Roxby Downs SA Copper/uranium/gold
Freightlink plans to invest around $8 million in 2007 and 2008 to provide additional track infrastructure along the corridor and in Darwin, with additional leased rolling stock (defined as engines and wagons) to support the expansion of the minerals business. Linking southern markets with international markets, the railway has proven its ability to move large quantities of bulk commodities between Darwin and Adelaide in less time than by sea. This capacity was increased in early 2006, with the introduction of wagons capable of carrying road fuel tankers and wagons with the ability to double‑stack containers. The Adelaide to Darwin railway is making steady progress toward achieving its objective of converting users of road freight transport to rail freight transport, especially with Coles and Woolworths now major users of rail on this corridor. Expansion of Australian Defence Force (ADF) activities in the Northern Territory and South Australia has seen an increase in military equipment movement on this corridor. In early 2008, the ADF expects to have rolling stock available to carry heavy equipment, including Abrams tanks, to and from Darwin. Great Southern Rail operates the Ghan passenger train service between Adelaide and Darwin. The service consists of a twice weekly return trip from Adelaide to Darwin, with scheduled stops of several hours duration at Alice Springs and Katherine. About 63 000 passengers were carried in 2007. Expansion of the Ghan passenger train service is planned for 2008 to emulate the world’s most luxurious railway journeys in a bid to appeal to the high end of the tourism market. Platinum cabins will have all the modern comforts with 24-hour room service. The cabins will have a distinctly Australian character in timber finishes, colours and fabrics. Sea The Port of Darwin is a naturally occurring deep water port located in the Top End of the Northern Territory. Geographically, it is Australia’s closest port to the Association of South East Asian Nations (ASEAN) markets, making it Australia’s northern gateway port. This strategic geographic location is fundamental to the high volume of trade flowing through the port in recent times and will play a significant role in growth into the future.
148 Transport and Communication Infrastructure The port facilities at East Arm are connected to the national rail network through the Adelaide to Darwin railway to allow seamless movement of goods, including bulk mineral and bulk liquid trades. Integration of port facilities with the railway supports the Territory Government’s vision of establishing Darwin as a regional transport and logistics centre and an integral part of the AustralAsia trade route. The original Port of Darwin concept was primarily geared towards a container focus. However, with the increased demand for energy and resources, particularly from China, there has been a significant shift toward creating a multipurpose facility, an example being the construction of a $24 million bulk minerals ship loader. The expanding gas and mineral industries rely heavily on the high quality, efficient and congestion free infrastructure that is now in place at the East Arm Port. Darwin Port is well equipped to handle container and general cargo, bulk mineral and bulk liquids including petroleum, live cattle, and offshore oil and gas rig services. The Darwin Port Corporation also operates facilities for non-trading vessels. These include cruise, naval, fishing and pearling vessels. The port plays a significant role as a supply, service and distribution base supporting research and exploration of the oil and gas reserves in the nearby Timor Sea. Total trade across the Port of Darwin’s wharf facilities for 2006-07 increased by 384 000 tonnes or 35.6 per cent on 2005-06 total tonnage. The port is the location of the Darwin Liquefied Natural Gas (LNG) facility. LNG production in the region is responsible for 3.5 million tonnes of export trade annually. There were 52 LNG carrier calls completed during 2006-07 at the Port of Darwin’s LNG facility, making it Australia’s second major LNG hub. A growing number of mining projects are benefiting from the installation of a $24 million bulk materials export facility at East Arm Wharf. The first wagons of bulk iron ore from Territory Resources were delivered in June 2007. Territory Resources expects to export 750 000 tonnes of iron ore during 2007-08. OMM exported 383 245 metric tonnes of bulk manganese during the year and forecast its 2007-08 tonnage to increase to 650 000 tonnes per annum on the back of dry bulk exports, mainly from the Bootu Creek mine near Tennant Creek. The first shipments of bulk sulphuric acid were delivered during May 2007, the start of a new 171 000 tonne per annum trade. The sulphuric acid is imported by Orica and stored at the port in a purpose-built facility by Vopak. Sulphuric acid is used in a leaching process for the treatment of ore. Darwin has been nominated by Oxiana Limited as the preferred export port for copper concentrate from its Prominent Hill mine in South Australia. Securing the Oxiana business was an important milestone for the Port of Darwin and it is expected that around 240 000 tonnes will pass through the port each year. The Port of Darwin is also Australia’s number one port for live cattle exports. Petroleum products remain the dominant import cargo, accounting for 71 per cent of the port’s import tonnage. Petroleum product imports increased by 4.4 per cent in 2006-07, in line with increased economic activity in the Territory. Air Air transport continues to be an important enabler of economic growth in the Northern Territory. Major airports capable of jet aircraft operations are Darwin, Alice Springs, Ayers Rock and Nhulunbuy. Darwin airport is an international gateway and capable of handling the largest aircraft currently in operation. Alice Springs airport receives international charter flights from Japan on a seasonal basis.
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Airports are critical infrastructure and play a key role in generating economic growth. Airport Development Group (ADG) owns and operates three airports in the Northern Territory – Darwin International, Alice Springs and Tennant Creek airports, with more than 60 full-time staff. In total, the on-airport and off-airport businesses employed more than 1600 people in 2006-07. During 2006-07, ADG reported an increase in revenue of 32 per cent. The strong performance was driven by growth in revenue across all airports, a result substantially underpinned by 16 per cent growth in the Darwin domestic market, 11 per cent growth in international traffic and a 3 per cent growth in the Alice Springs market. Growth was also supported by the opening of the Bagot Road commercial precinct. Construction of the Osgood Drive and Bagot Road intersection provides easy access to a Bunnings warehouse retail store. ADG funded $31 million of capital projects during 2006-07. Security upgrades and enhancements continued in line with Commonwealth regulations, including the introduction of LAGS (Liquids, Aerosols and Gels Screening) for all international passengers and the implementation of 100 per cent CBS (Checked Bags Screening) at Alice Springs airport, operational since August 2007. This project and its ancillary works at Alice Springs airport cost about $7 million and bring the total associated capital investment by ADG in aviation security alone to about $20 million. Total international passengers to Darwin for the six months to December 2007 were 214 300, a 7 per cent increase over the same period in 2006. Scheduled international services are provided by Jetstar, Tiger Airways, Garuda and Air North and fly to Singapore, Bali, Dili and Kupang. Royal Brunei Airlines ceased international services to and from Darwin in January 2008. Total domestic passengers for 2007 were 724 700, a 6 per cent increase over 2006. Domestic services are operated to all Australian capital cities and some regional centres by Airnorth, Vincent Aviation, Skywest, Virgin Blue, Jetstar, Qantas and Tiger Airways. Tiger Airways Australia is a low cost airline which commenced services in the Australian domestic airline market in November 2007. Alice Springs received Tiger Australia flights from Melbourne from March 2008, a welcome boost for tourism in central Australia. Darwin airport has reported good growth in passenger numbers due mainly to increased flights by Jetstar and Tiger Airways as shown in Chart 16.1.
Chart 16.1: Airline Passenger passengers (000) Numbers, Darwin 1800 1600 Total 1400 1200 1000 Domestic 800 600 400 International 200 0 2002 2003 2004 2005 2006 2007 Year ended June
Source: Airport Development Group (ADG), Annual Report, 2006‑07
150 Transport and Communication Infrastructure Scheduled services to remote communities have been in decline in recent times as they are not commercially viable. Aboriginal Air Services, for example, ceased operations in September 2006 for financial reasons. Conversely, the charter segment of the industry has reported growth mainly from increased mining activity and, to a lesser extent, the 2007 Commonwealth Northern Territory Emergency Response. Most communities depend on charter aircraft for carriage of passengers and freight. The Territory Government ensures emergencies are catered for through aero-medical evacuations and through the Northern Territory Police Airwing. The Government maintains a strategic network of 72 regional airports and airstrips servicing all major communities in the Territory, and currently spends around $3 million a year maintaining and progressively upgrading these facilities. Pipelines Pipelines are the fastest and safest method of transporting large volumes of natural gas over long distances. In the Northern Territory, they provide a vital energy link for power generation and industry. The Bayu-Undan field, located in the Joint Petroleum Development Area (JPDA) in the Timor Sea, approximately 500 kilometres north of Darwin and 250 kilometres south of Timor-Leste, currently produces more than 100 000 barrels of liquids per day. The gas product is sent through a 502 kilometre sub-sea pipeline to the Darwin LNG plant where it is processed into LNG to be shipped by specially built transport tankers to Japan for the Tokyo Electric and Tokyo Gas companies. NT Gas Pty Limited, in its capacity as trustee of the Amadeus Gas Trust, operates and manages over 2000 kilometres of high pressure natural gas pipeline and facilities in the Northern Territory. Envestra Limited, Australia’s largest distributor of natural gas, owns 8800 kilometres of pipeline distribution networks in South Australia, Queensland and the Northern Territory. Envestra operates the natural gas transmission pipeline that connects the Palm Valley gas field to Alice Springs. The 200 millimetre diameter pipeline supplies gas to the Northern Territory’s Power and Water Corporation for power generation in Alice Springs. Communications The communication sector is one of the smallest sectors of the Northern Territory economy and accounts for about $273 million or 2 per cent of Territory GSP in 2006‑07, and about 1 per cent of total Territory employment. Despite significant investment and ongoing improvement, the gap between the Territory and other jurisdictions in access and delivery of information and communication technology (ICT) based services remains large, particularly in remote areas. Although television, radio broadcasting and media services are included for discussion in this chapter, their contribution to Territory GSP is not captured in the communication industry, as they are part of the ABS’ cultural and recreation industry category. Postal and Courier Despite the increasing use of technology such as email, web mail and the internet, Services postal mail remains a highly effective way for businesses to communicate with their customers. The Territory is serviced by reliable, cost-effective postal and courier services providing a complete range of competitive, customer-focused mail and speciality services for all Territorians. Postal and courier services link with freight forwarding companies including Australian Air Express and Star Track Express to provide time critical air and linehaul parcel and mail delivery services.
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Telecommunications In 2005, the Commonwealth announced the Connect Australia program, a $1.1 billion package aimed at improving remote and regional telecommunications within Australia. The four components of the program were focused on the delivery of equitable broadband services, rolling out broadband networks to carry applications aimed at improving delivery of health, education and other essential services, extending terrestrial mobile phone coverage, and delivering vital communication services to remote Indigenous communities. Remote areas of the Territory have benefited from technology developments and improved access has reduced the isolation faced by many Territorians. Increased access to information technology has enabled the delivery of a wider range of mainstream services to remote areas, however low volume network traffic and lack of competition mean that the unit costs for electronic services remain high. In 2006, Telstra began rolling out the NextG mobile network to replace the ageing Code Division Multiple Access (CDMA) network. The planned January 2008 closure of the regional CDMA mobile network was deferred until April 2008, to address network coverage concerns and offer rural phone users more time to make the transition to the new service. Mobile phones are the product of choice for telephony in remote Indigenous communities. NextG provides broadband mobile connectivity to 49 Territory locations, 41 of them in remote areas. In 2007, the scale and scope of the broadband delivery component of Connect Australia was extended when the Commonwealth announced the Australian Broadband Guarantee. This program aims to ensure all Australians are able to access broadband services regardless of where they live. Benefits to the large proportion of the Territory population living in remote areas will emerge over coming years. The Territory Government continues to liaise with the Commonwealth to ensure the specific needs of the Territory are addressed. These needs are broadband and mobile access in remote areas and a second fibre-optic cable from Adelaide to Darwin to improve wholesale telecommunications competition. Northern Territory In June 2005, Telstra was awarded the contract to provide the Territory Government Government with telecommunications services for five years. Under the contract, bandwidth was increased, resulting in improved response times for services such as data transfer, intranet and internet services. Included in the contract were industry and community development initiatives estimated at $65 million. In August 2005, Telstra opened its National Indigenous Directorate in Darwin, which coordinates the delivery of telecommunications services to remote Indigenous communities nationally. Later in 2006, Telstra expanded its 100-staff call centre in Darwin to 150 staff and upgraded the facility to a national call centre. Under the Telstra contract two significant Department of Employment, Education and Training (DEET) programs continue to provide improved ICT service delivery and access in schools. • Learning and Technology in Schools (LATIS) delivers high volume bandwidth ICT services to 155 Territory schools. • The two-way radio system used by the School of the Air has been replaced by Interactive Distance Learning (IDL), using satellite technology to deliver interactive specialist tuition to 200 remote homesteads, schools and training centres in the Territory. The technology is used for secondary school tuition, but may in the future be applied to other training needs, including vocational education and training.
152 Transport and Communication Infrastructure The contract with Telstra is expected to deliver a cost saving to Government of about $4 million over four years. Television Darwin is served by the ABC, SBS, Channel Nine and Southern Cross Television (SCTV – formerly Channel 7) networks. Additionally, iTV64 broadcasts tourist oriented information in Darwin via the free-to-air and pay television networks. Other major centres receive a combination of Imparja, Central Queensland Satellite Television (Channel 10), the ABC and SBS. Austar pay television is available via cable and satellite in Darwin, and via satellite in Alice Springs and other parts of the Territory. Standard definition digital free to air television broadcasts are available in Darwin, Batchelor, Katherine and Alice Springs. SBS and ABC television transmit high definition digital broadcasts as well as standard definition channels, namely ABC National, ABC2 and SBS news services from around the world. Channel 9 and SCTV also transmit high definition broadcasts. The Australian Communications and Media Authority (ACMA) allocated a new commercial television broadcasting licence in May 2007, to provide a digital only service for Darwin. The licence was allocated to Darwin Digital Television Pty Ltd, a joint-venture company owned by the two existing commercial television broadcasting licensees in the Darwin television licence area, Regional Television Pty Ltd (Southern Cross Darwin) and Territory Television Pty Ltd (NTD Nine). The new service will join the four digital television services already operating in Darwin, improving the quantity and diversity of programming available to viewers. Due to licensing provisions, the channel’s service must officially launch before May 2008. Radio Darwin, Alice Springs and other urban centres in the Territory are serviced by a number of radio stations, including the ABC, commercial and community-based stations. Operations such as the Top End Aboriginal Bush Broadcasting Association (TEABBA) and the Central Australian Aboriginal Media Association (CAAMA) link more than 30 Indigenous community radio stations using broadcasting equipment provided by the Commonwealth under the Remote Indigenous Broadcasting Services (RIBS) program. Outlook Transport The Territory transport industry continues to grow and shows no sign of slowing. With new road projects totalling almost $130 million and further investment in air, rail and sea infrastructure projects, the outlook is positive. Continued expansion of and upgrades to, the road network, including bridges, means that more of the Territory is open all year round. The ongoing goal of connecting regional communities with sealed roads means that the Territory is becoming more accessible to the transport industry. The outlook for domestic and international air services is positive, with Darwin emerging as a regional hub for low cost carriers. Tiger Airways Singapore flights connect with Tiger Australia domestic flights to Melbourne. Jetstar have announced similar hubbing through Darwin from April 2008 with a doubling of services to both Singapore and Melbourne from seven to fourteen per week. Jetstar is also considering basing a number of aircraft in Darwin for hubbing to a range of Asian destinations. Darwin is expected to gain from the competitive pressures between these two operators. In the short term Darwin may also benefit from the delays Boeing is having with the delivery of the new B787 aircraft. Jetstar plan to use these aircraft to mount direct flights to Asia and southern Europe from Australia’s east coast.
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Indonesia Air Asia announced in January 2008 that they intend to establish a hub in Bali with plans to connect to Perth and Darwin by October 2008. This would provide Darwin with a fourth connection to South East Asia. Communications The Territory Government is continuing to explore communication technology solutions for improved access to information and technology to the large percentage of Territorians living in remote areas.
154 Transport and Communication Infrastructure Chapter 17 Rural Industries and Fisheries
Key Points »»Rural industries and fisheries accounted for 2.2 per cent of Territory GSP in 2006‑07 and 2.4 per cent of resident employment. »»The value of rural industries and fisheries production is estimated to be $532 million in 2007‑08, an increase of 5 per cent from 2006‑07. »»The cattle industry is the largest contributor to rural industries and fisheries in the Territory making up approximately 38 per cent of total estimated production value in 2007‑08. »»The value of production is forecast to increase by 6.4 per cent to $566 million in 2008‑09.
Rural industries in the Territory comprise cattle and other livestock (including buffalo, crocodiles, poultry, pigs and camels), horticulture (fruit, vegetables, nursery and cut flowers) and mixed farming (field crops, hay and seeds, and forestry). The fisheries industry comprises the harvest of wild catch and aquaculture. Rural industries and fisheries accounted for 2.2 per cent of Territory gross state product (GSP) in 2006-07 and 2.4 per cent of resident employment. In regional and remote areas, rural industries are vital to the local economy, providing direct employment for about 1329 people and making up approximately 18 per cent of rural employment. In addition, rural industries represent an important source of economic development for other rural-based industries, such as retail and wholesale trade, manufacturing and construction. The export revenue from rural production accounts for an important share of total Territory export revenue, with the total value measured at $174 million for 2006-07, or 4.3 per cent of total exports.
Chart 17.1: Rural Industries and $M Fisheries, Value of Production Cattle 250 (nominal dollars)
200
150 Fisheries
100 Horticulture 50 Other
0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June e: estimate; f: forecast Source: Department of Business, Economic and Regional Development Cattle The cattle industry remains the largest contributor to the rural industries sector making up 39 per cent of rural industries and fisheries estimated production value in 2007‑08. The flow-on effects from the cattle industry, particularly transport and retail trade, are major contributors to regional economies in the Territory. The value of Northern Territory cattle production for 2007-08 is estimated at $205 million, up 6.4 per cent from 2006‑07.
Rural Industries and Fisheries 155 2008-09 Budget
Chart 17.2: Total Northern Territory number (000) Cattle Movements 600 500
400
300
200
100
0 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June Live cattle exports Total Live cattle movements interstate Cattle slaughtered in NT abattoirs
e: estimate; f: forecast Source: Department of Business, Economic and Regional Development
In 2006-07, it is estimated that 380 506 cattle were turned off Territory pastoral properties, a decrease of 33 529 (8.1 per cent) for the year. This represents a decrease in value of cattle production of $10 million down to $193 million in 2006-07. Northern Territory cattle producers are highly influenced by economic conditions in interstate and international markets. In 2006-07, 57 per cent of Territory cattle turned off were exported, while the remaining 43 per cent were destined for interstate markets. The lack of a commercially operational abattoir in the Northern Territory meant that almost no cattle were slaughtered in the Territory in 2006-07, with all meat products slaughtered interstate or overseas. Interstate Trade The declining trend in interstate cattle movements through 2007 reflected drought conditions in southern states and has led to a 23 per cent decease in interstate cattle movements. Live cattle export numbers rebounded by 8.4 per cent in 2006-07 after a fall in the previous year. Despite this improvement in exports, total cattle movements fell by 8.1 per cent in 2006‑07. The majority of cattle destined for interstate markets are feeder cattle for further growing before slaughter and sale in the domestic and international markets. The drought in southern states continued to affect interstate cattle movements in 2006‑07 as demand for feeder stock fell. Of the cattle sent interstate from the Territory in 2006-07, Queensland was the main destination, comprising 75 per cent of the total interstate movement. Western Australia took about 15 per cent, while 11 per cent went to other jurisdictions. In 2006-07, the value of interstate trade for Territory cattle was $72 million. Cattle Exports Historically, about two-thirds of beef produced in Australia is exported, mainly to the United States (US) and Japan. In 2006-07, Australian beef exports benefited from the absence of US beef from North Asian markets, due to continued bans associated with the discovery of bovine spongiform encephalopathy (BSE) in the US in 2003. The ban on US beef increased beef and cattle prices in these markets, and boosted demand for Australian beef in Japan, Korea and Taiwan. Territory cattle represent an estimated 34 per cent of total Australian live cattle exports to all markets in 2007‑08. A total of 216 557 head of Territory cattle were exported to South East Asia in 2006‑07, an 8.4 per cent increase over 2005-06 but still well below the highs of 2001‑02. Several factors have inhibited the expansion of the Territory’s live cattle export market. These include the high value of the Australian dollar, higher Australian cattle prices, and strong competition from lower priced meat in South East Asia and
156 Rural Industries and Fisheries South America, and from other Australian exporters. In 2006-07, total Territory live cattle exports were valued at $121 million, up $13 million from 2005-06.
Chart 17.3: Northern Territory Live $M Cattle Exports by Destination 160 140
120
100
80
60
40
20
0 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June Brunei Indonesia Africa Philippines Malaysia
Source: Department of Business, Economic and Regional Development
Indonesia was the largest market for Territory live cattle exports, accounting for about 90 per cent of the total (Chart 17.3). Exports to Indonesia increased by 13.9 per cent to 193 982 head in 2006-07, while the value of exports increased by 18.0 per cent to almost $107 million. Malaysia imported 12 891 head of Territory cattle in 2006‑07, an increase of 20 per cent compared to a 16 per cent fall in 2005-06. Increasing prices and a strong Australian dollar in 2006‑07 have seen exports to the Philippines decreasing from levels achieved in 2003‑04 by 51 per cent in 2006‑07, with Queensland and international producers gaining a greater share of the market. Cheaper South American beef and Indian buffalo meat were the main sources of international competition for Territory exports. Farm Performance The financial performance of beef producers in the Territory improved in 2006‑07, largely due to better seasonal conditions and increased cattle numbers. Farm cash costs continued to increase as a result of spending on freight and fodder. The Australian Bureau of Agriculture and Resource Economics (ABARE) estimates that the average farm business profits of Territory producers increased by 47 per cent in 2006-07, at odds with other states where dry conditions continued to affect herd productivity. However, there were considerable variations in farm financial performance between the pastoral regions and between large and small cattle enterprises. Cattle Outlook Territory Cattle The Territory cattle industry is dependent largely on the economic conditions facing interstate and international markets. In the short to medium term, increased competition in international markets will push prices downward. The ratification of a free trade agreement between Korea and the US, and weaker demand from Japan, are the primary causes of the estimated fall in the future export price of Territory beef. Lower export levels to Japan and Korea will be partially offset by growth in the US and South East Asian region. Higher grain prices and a strong Australian dollar will also detract from export growth in 2008‑09. The outlook for 2008‑09 is expected to see the continuing recovery of herd numbers, rebuilding low numbers after slaughtering due to the drought conditions in previous years. In 2008-09, interstate cattle movements are expected to increase slightly, growing stronger over the period to 2010‑11. The interstate movement of Territory cattle generally reflects demand for meat both domestically and in Australia’s beef
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export markets, in particular Japan, the US and South Korea. With the alleviation of Japanese concerns over BSE from markets outside Australia, Japanese domestic consumption of beef should return to 2000 levels. A lower Australian dollar should see a rise in Australian exports to 2012-13. Interstate demand is also largely affected by environmental factors such as drought. Australian live cattle exports are also forecast to increase by 3 per cent to 700 000 head of cattle in 2008‑09. The price is forecast to rise over the same period, partially offset by the strength of the Australian dollar. Territory live cattle exports to South East Asia are expected to increase slightly but will depend critically on exchange rate movements and price competition from cheaper substitutes (buffalo meat and lower quality beef imports) from the Asian subcontinent and locally supplied meats such as pork and chicken. Future Market Indonesia remains a growth area for Territory live cattle exports. Its large population Developments and economic development have seen trend levels of beef consumption increase in the past decade. Territory exporters are heavily reliant on the Indonesian market, so trade links are crucial to the health of Territory beef producers. One possible future development of the Indonesian market could see a meat manufacturing plant open in Indonesia, where Territory beef is processed for on‑sale throughout Asia. In March 2008, the Northern Territory’s cattlemen’s and livestock exporters associations announced that they were meeting with the Vietnamese Government and potential buyers of cattle, possibly adding a new cattle export market in the next two years and decreasing the reliance of Territory producers on the Indonesian market. Other Livestock Industries In 2007-08, the production value of other livestock industries in the Territory is estimated to be $11 million, a 4 per cent increase from 2006‑07, contributing 2 per cent to the total value of Territory rural industries and fisheries. Other livestock includes the live export of buffaloes, horses, camels, deer, pigs and goats, while horses, camels and crocodiles are exported live interstate. Crocodile skins and flesh are produced for local and export markets. Buffalo Several issues were faced by Territory buffalo producers in 2007‑08. These included the closure of the local Darwin abattoir, cheaper low quality competition from India, and the loss of Brunei as an export market. To overcome these difficulties, producers have been looking toward developing stocks of the Riverina (premium) buffalo which offer higher growth rates and a better product for consumption. Other opportunities also lie in dairy buffalos for cheese production. The market for dairy buffalo is in southern states and in New Zealand where buffaloes have already been exported for this purpose. The outlook for Territory production of other livestock in 2008-09 and over the medium term is for a slight increase. This will depend on the ability of the industry to meet the challenges of price and demand both internationally and domestically. The lack of a local abattoir has halted the supply of local meats to market and will see a reduction in competition and availability of locally produced meats.
158 Rural Industries and Fisheries Map 5: Northern Territory Rural Industries and Fisheries
FORESTRY AQUACULTURE
AQUACULTURE Melville POTENTIAL Island BUFFALO AQUACULTURE COMMERCIAL AND Bathurst RECREATIONAL Island FISHING Nhulunbuy AQUACULTURE DARWIN Horticulture Potential Jabiru HORTICULTURE, CROCODILES PRAWN TRAWLING KATHERINE Pine Creek DALY BASIN HORTICULTURE, MIXED FARMING KATHERINE MIXED FARMING AND FORESTRY Mataranka COMMERCIAL AND RECREATIONAL Ngukurr FISHING ORD IRRIGATION Timber Creek AREA RANGELAND CATTLE Borroloola
Top Dunmarra Springs
Elliott Kalkarindji
Renner Springs
RANGELAND CATTLE Railway
Barkly
TENNANT CREEK Highway Avon Downs Horticulture Potential
Barrow Creek
Ti Tree
Yuendumu
Highway
HORTICULTURE Harts Range
ALICE SPRINGS RANGELAND CATTLE
Stuart
Yulara
Railway 0 100 200 km
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Horticulture The Territory horticulture industry includes fruit, vegetables, nursery products and cut flowers. Horticulture statistics are collected on a calendar year basis, corresponding to the harvesting season. In 2007, the Territory horticulture industry is estimated to have contributed 29 per cent to the total value of Territory rural industries and fisheries production. The value of horticultural production for 2006-07 is estimated to be around $145 million, an increase of 52 per cent from 2005-06. The main reason for the increase is a rise in mango production due to the biennial production cycle of mango trees, and substantial growth in the value of vegetables and melon production as shown in Chart 17.4. Chart 17.4: Value of Northern $M Territory Horticultural Production 180 160 140 120 100 80 60 40 20 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07e 08f 09f Year ended June Mangoes Bananas Other fruits Nursery and cut flowers Table grapes Melons Vegetables e: estimate; f: forecast Source: Department of Business, Economic and Regional Development
The majority of Northern Territory horticultural production is destined for interstate markets. Historically, the main fruits produced in the Territory include mangoes, table grapes, bananas and rockmelons. In 2006-07, the value of fruit production is expected to rise by 95 per cent to $101 million, due largely to increased mango and melon production. Mangoes Mango production is the largest contributor to horticultural industry in the Territory. In 2006-07, the estimated value of mango production in the Territory rose 74 per cent to $53.4 million. The mango industry continued to develop, with large companies consolidating their market position. A small number of large companies are now producing the majority of mangoes in the Territory. Grapes The production of table grapes has been declining in recent years, as a result of a high incidence of nematode infestation which depressed yields and forced some producers to re-plant crops and other producers to leave the market. Increased competition from Queensland growers also forced prices to fall in 2007, pricing Territory producers out of the market. Nevertheless, the estimated value of table grapes in 2006-07 was $9 million, up from $6 million in 2005-06. Established grape growers are implementing a five‑year vine replacement program, with stock tolerant of nematode infestation. Bananas In 2007, banana production fell as production in the eastern states recovered in the aftermath of Cyclone Larry that decimated banana plantations in March 2006. Prices fell markedly as production throughout Australia recovered. Panama disease continues to plague the banana industry in the Territory, causing the closure of a number of plantations and reduced production of infected banana plants.
160 Rural Industries and Fisheries Melons Production of rockmelons and other melons in the Territory has risen in recent years, with large areas planted in the Darwin and Katherine regions, including production from a number of traditionally mixed cropping farms. Territory producers continued to consolidate their melon farming practices in 2007, increasing the estimated value of production by 8 per cent in 2007 and continuing to exploit their advantage of supplying off-season melons to southern states during the winter months. Territory melons have been successfully exported to Singapore, Malaysia and Hong Kong in the past and, if production continues to increase, they will probably again be exported to overseas markets. Melon production value jumped in 2006-07 by 191 per cent to $25 million due to strong prices and increased production. The further use of contract melon growers in 2008‑09 is expected to further consolidate the melon industry in the Territory. Exotic Fruits The production of exotic fruits such as rambutan, jackfruit, dragon fruit, guavas, carambolas, Fiji apples/hog plums and star apples remained steady in 2007. Vegetables Territory vegetable production in 2007 benefited from supply shortages in southern states caused by drought conditions. After remaining largely unchanged in 2006, large gains were made in 2007 and the estimated value of the vegetable industry in the Territory increased to $29 million in 2007-08. Forestry Forestry plantations continue to be a growth area for Territory rural industries. Plantations on the Tiwi Islands continue to grow towards maturity with an expected initial harvest estimated in 2012. Infrastructure and labour shortages exist on location in the Tiwi Islands and are the major constraints on the expansion of the industry. African mahogany planting in the Douglas Daly region is another area being developed by agricultural investment companies in the Territory. Plantations will potentially exceed 40 000 hectares, with harvesting estimated to begin in 2028. These hardwoods are expected to be exported to Asia. High levels of forestry investment in the Douglas Daly region by hardwood plantation companies in 2007‑08 are leading to a land use change in the region. This has historically been a cattle producing region, however the moratorium on land clearing in the region has restricted the supply of land with water licences. This finite supply and increased demand from the private sector is changing land values. Companies such as Great Southern are accumulating Douglas Daly land to plant tropical hardwoods for future harvest, an industry that has been booming in recent times. This boom comes on the back of dwindling supplies of global high value timbers, which have suffered from years of native deforestation and poor harvesting practices in the developing world. Global demand has been increasing steadily for decades and it is this market opportunity that agribusiness investors are looking to exploit in the Douglas Daly region. Horticultural Outlook In the short term, Territory horticultural production is expected to improve, driven mainly by an increase in mango and melon production. The consolidation of the industry will continue, with economic conditions pushing smaller producers out of the market in favour of larger, more professional producers. In the longer term, favourable climatic conditions, a relatively disease-free status, improved product quality, expanded marketing efforts and the relatively unrestricted access to domestic and international markets, will underpin future industry growth.
Rural Industries and Fisheries 161 2008-09 Budget
Mangoes As the large number of juvenile mango trees matures in coming years, further increases in supply are expected, ensuring that mangoes remain the major horticultural output in the Territory for the foreseeable future. However, as mango production increases, a number of issues already emerging will intensify. These include labour supply, price pressures and the need to develop new markets, as well as logistics and supply chain issues and quality assurance and control factors. The freight train service to the Territory has eased transport bottlenecks, especially for Katherine producers, where large volumes of mangoes have been transported by rail. Bananas Banana plantations in the Territory continue to suffer from Panama disease and will do so until a disease resistant strain of banana can be found. Production levels continue to fall and if a resistant strain is not found, the continuing commercial viability of the industry is in question. Banana growers will continue to diversify into other crops such as rockmelons or watermelons, as a temporary and possibly permanent measure. After prices returned to long-term average levels in 2006‑07, they are expected to remain stable as production levels in the Queensland banana industry continue to recover. A decision from the Commonwealth is expected in the third quarter of 2008 on whether to allow banana imports from the Philippines, which will have supply and price implications for the Australian banana industry. Previously, frozen bananas have been imported to Australia from Vietnam. Grapes The outlook for table grape growers is also uncertain as lower prices from interstate producers and production problems due to the nematode infestation threaten the industry. Although re planting is taking place, several producers have left the industry and volumes are set to fall in the short to medium term. Other Horticultural Commercial growers of the newer exotic fruits, especially dragon fruit, are continuing Developments to search for viable markets in the short term, as they attempt to consolidate a market position for their products. The nursery and cut flower sectors also have good prospects for expansion, especially in the Top End, where climatic conditions provide distinct production advantages for a wide range of tropical varieties. In addition to current heliconia and orchid production for southern markets, inroads have been made into the Dubai market. Continuing research and development of additional nursery varieties should result in production levels increasing. The long-term future of hardwood plantations looks promising in the Territory. If Territory plantations can overcome the substantial issues of environmental impacts, labour shortages and infrastructure problems, output from the Tiwi Islands in 2012 and Douglas Daly in 2028 looks promising. The Peanut Company of Australia’s peanut farm in Katherine is another promising horticulture industry in the Territory. A moratorium on water licences in the region is, however, constraining growth of the farm. If the water plan currently under development is finalised, production benefits could be seen in the long term. Mixed Farming Mixed farming includes hay and pasture seed production, cereal crops such as sorghum and maize, other crops such as peanuts, sesame and soybeans, and farm forestry. The value of field crop production in 2007-08 is estimated at $23 million, an increase of 22 per cent from 2006-07. Field crop production is dominated by hay and fodder grown in the Katherine, Douglas Daly and Darwin areas for the live cattle export industry.
162 Rural Industries and Fisheries Fishing The Territory fishing industry comprises commercial, recreational and traditional Indigenous sectors. The commercial sector includes harvesting wild catch fisheries and aquaculture as well as the processing, trade and retailing of seafood. Statistics on the value of some components of past fisheries production have been revised during 2007. In 2007‑08, the value of Territory fisheries production, including the Commonwealth Northern Prawn Fishery (CNPF), is estimated to increase by 2.5 per cent to $143 million. The CNPF is Australia’s most valuable Commonwealth-managed fishery and lies off the coast of Northern Australia.Territory fisheries production represents 27 per cent of the total value of rural industries and fisheries. This is the second consecutive year of growth in the value of fisheries production in the Territory. In the last five years, since the low levels recorded in 2002‑03, the industry has grown by 37 per cent. Historically, the value of production of fisheries in the Territory has fluctuated widely due to environmental and demand conditions (Chart 17.5). Chart 17.5: Value of Northern $M Territory Fishing Production 100 90 Crustaceans 80 70 60 50 Aquaculture 40 30
20 Fin fish 10 Molluscs and echinoderms 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08e 09f Year ended June e: estimate; f: forecast Source: Department of Business, Economic and Regional Development Commercial Fishing and Prawn and aquaculture production (primarily pearls and barramundi) are the major Aquaculture components of fishing output. Combined, these two sectors historically account for around three-quarters of the value of Territory fisheries production. A sharp fall in the value of aquaculture production in 2000-01 was associated with a dramatic decline in international pearl prices and major producers delaying harvest. The value of aquaculture production has improved in recent years, although only to half the value of the 1990s. Effective management of fisheries and resource sharing between commercial and recreational fishers continues to be an integral component of the Territory’s long‑term resource strategy. Over the past decade, important changes have occurred in fisheries adjacent to the Territory. The Northern Prawn Fishery has seen the greatest adjustment, with voluntary and compulsory reductions in licences and gear resulting in boat numbers falling from about 350 in the early 1980s to 95 boats in 2004. Boat numbers continue to fall as many fishermen are being priced out of the market by cheaper imports and higher fuel costs. Other adjustment measures have included a voluntary buyback of 9 of the 14 costal netting licences, gear restrictions, seasonal closures, river closures and minimum size limits. The closure of the McArthur River in 2002 and the Adelaide River in 2004 to commercial barramundi fishing were major initiatives, leaving these areas to the recreational sector. The closure of Darwin Harbour and Shoal Bay from coastal net
Rural Industries and Fisheries 163 2008-09 Budget
fishing from February 2008 is the most recent measure to conserve Territory fisheries. The threat of illegal fishing within Territory waters has diminished in recent times with stringent monitoring of Australian waters by Australian customs and defence resources. A recent Commonwealth assessment of the Territory commercial fishing industry has resulted in several participants being given the highest level of accreditation, meaning the fisheries are healthy, well managed and ecologically sustainable. These industry participants include shark and mackerel, aquarium, demersal, finfish trawl, mud crab, Timor Reef and trepang fisheries. The shark and mackerel industry harvests 1292 tonnes of fish annually and injects an estimated $4.34 million into the Territory economy. Barriers to entry remain a major problem in the development of offshore commercial fisheries. Lack of infrastructure and transport costs are the main barriers, currently inhibiting the growth of commercial fisheries, as infrastructure and freight problems restrict the viability of some remote sustainable fisheries. Recreational Fishing Recreational fishing is one of the most popular leisure activities in the Territory. In 2000-01, the Department of Primary Industry, Fisheries and Mines attributed approximately $35 million to spending on recreational fishing in the Territory. Recreational fishing is an important tourism activity, especially in the Top End, with up to 25 per cent of Territory tourism expenditure attributed to recreational fishing visitors. The closure of Darwin Harbour and Shoal Bay to inshore commercial coastal net fishing in February 2008 will see an improvement in fishing stock and recreational fishing. This will ensure the long-term protection and sustainability of the fishing industry, acting as a drawcard for Territory tourism in the future. Fishing Outlook The March 2007 Federal Court decision in the Blue Mud Bay case has created uncertainty for commercial and recreational fishers in the Northern Territory. The decision extends traditional Indigenous owners’ freehold title to the low-water mark on Aboriginal land, granting the right to exclude people from waters overlying that land. An appeal to the High Court was heard on 4 December 2007. Pending this decision, a temporary licensing scheme for recreational and commercial fishers has been established to maintain the status quo. Moderate growth in the gross value of production is forecast for 2007-08 and 2008‑09, driven mainly by growth in the aquaculture sector. Development in the industry is set to be constrained by the cost-price squeeze affecting fisheries producers, as a strong Australian dollar, rising interest rates, high labour costs, increasing fuel prices and cheaper imported fish all combine to lower profits by increasing input costs and lowering the base market price. Aquaculture is forecast to expand by 7 per cent in 2008-09 to an estimated $31 million. The positive outlook is influenced by a number of potential developments, including a major expansion in the farmed barramundi industry and an extension of the trepang hatchery currently in its pilot phase on Channel Island. In the medium term, several areas of growth could add to Territory fisheries production. The Tiwi Islands barramundi farm is currently attracting investors and could be one of the potential developments. Expansion in the remote fisheries is another possible commercial fishery opportunity that may open up in the medium term if limited infrastructure in remote areas is improved.
164 Rural Industries and Fisheries Abbreviations
AAA Australian Automobile Association AACAP Army Aboriginal Community Assistance Program ABARE Australian Bureau of Agriculture and Resource Economics ABC Australian Broadcasting Corporation ABS Australian Bureau of Statistics ACMA Australian Communications and Media Authority ACT Australian Capital Territory ADF Australian Defence Force ADG Airport Development Group AED Australian Energy Developments AFPC Australian Fair Pay Commission APIN Army Presence in the North APS Australian Public Service ARIA Australian Remote Indigenous Accommodation program ASEAN Association of South East Asian Nations ATO Australian Taxation Office AWE average weekly earnings A$ Australian dollar B billion BIITE Batchelor Institute of Indigenous Tertiary Education BSE bovine spongiform encephalopathy (mad cow disease) CAAMA Central Australian Aboriginal Media Association Cat. No. catalogue number CBD central business district CBS checked bags screening CDEP Community Development Employment Projects CDMA Code Division Multiple Access CDU Charles Darwin University CGC Commonwealth Grants Commission CNPF Commonwealth Northern Prawn Fishery CPI Consumer Price Index cpl cents per litre DBERD Department of Business, Economic and Regional Development DCC Darwin Convention Centre DEET Department of Employment, Education and Training DEEWR Department of Education, Employment and Workplace Relations DFD Domestic Final Demand DHA Defence Housing Australia DIAC Department of Immigration and Citizenship DSD Defence Support Division e estimate EBA enterprise bargaining agreement ERA Energy Resources Australia ERP estimated resident population f forecast FaHCSIA Department of Families, Housing, Community Services and Indigenous Affairs FIFO fly-in fly-out FPSO floating production, storage and offloading vessel FSGS Fuel Sales Grant Scheme FTE full-time equivalent GDP gross domestic product GEMCO Groote Eylandt Mining Company GSP gross state product GST goods and services tax HES household expenditure survey HMAS Her Majesty’s Australian Ship HQNORCOM Headquarters Northern Command
Abbreviations 165 2008-09 Budget
ICHO Indigenous Community Housing Organisation ICT information and communications technology IDL interactive distance learning ILUA Indigenous Land Use Agreement JORN Jindalee Operational Radar Network JPDA Joint Petroleum Development Area LAGS liquids, aerosols and gels screening LATIS Learning and Technology in Schools LEAP Living and Environment Accommodation Precinct LFS Labour Force Survey LHS left hand side LNG liquefied natural gas LPI Labour Price Index LPG liquid petroleum gas M million NORFORCE North West Mobile Force NT Northern Territory NTER Northern Territory Emergency Response NT TSA Northern Territory Tourism Satellite Account OCPE Office of the Commissioner for Public Employment OECD Organisation for Economic Cooperation and Development OPEC Organisation of Petroleum Exporting Countries PAMs pre-assembled modules PES Post Enumeration Survey RAAF Royal Australian Air Force RAN Royal Australian Navy RBA Reserve Bank of Australia REIA Real Estate Institute of Australia REINT Real Estate Institute of the Northern Territory RHS right hand side RIBS Remote Indigenous Broadcasting Services SBS Special Broadcasting Service SCTV Southern Cross Television SFD state final demand SME small and medium enterprise STCRC Sustainable Tourism Cooperative Research Centre TEABBA Top End Aboriginal Bush Broadcasting Association TFR total fertility rate TGVA Tourism Gross Value Added TMS Territory mobility survey TSA Tourism Satellite Account TWI trade-weighted index UK United Kingdom US, USA United States of America USD, US$ United States dollar WPI Wage Price Index WSE wage and salary earners, public sector series
166 Abbreviations Glossary
Broadband An ‘always on’ internet connection with an access speed equal to, or greater than 256 kilobits per second (kbps). Broadband has the capacity to accommodate audio, video and data channels simultaneously. Chain Volume Measure Chain volume measures provide estimates of real change by factoring in changing price relativities from year to year. Closing the Gap The Northern Territory Government’s Indigenous Generational Plan, Closing the Gap – Overcoming Indigenous Disadvantage, was launched in June 2007. Confidence Interval Confidence intervals represent the likelihood that a value lies within an identified range of estimates. Confidence intervals are constructed using an estimate and its associated standard error. Consumer Price Index A general indicator of the prices paid by household consumers for a specific basket of goods and services in one period relative to the cost of the same basket in a base period. Constant Dollars Used to remove the impact of price changes (inflation) in time series data. In the base year, current prices equal constant prices. To convert current dollar values to constant dollar values, it is necessary to deflate or inflate by the appropriate inflation index number. Current Dollars A measure that is not adjusted for inflation or changes in the purchasing power of money. Current dollars specify the value at a certain time and are not used to compare values over a series of time periods. Dwelling Unit A self-contained suite of rooms, including cooking and bathing facilities, intended for long-term residential use. Employed Persons 15 years and older who worked for one hour or more in the week that the resident employment survey was conducted. Final Consumption Expenditure The value of purchases of goods and services for consumption by households and government. Excludes purchases of fixed assets, intermediate goods or additions to inventories. Intermediate goods are those used as inputs for making other goods. Goods and Services Tax On July 2000, the Commonwealth introduced a 10 per cent tax on goods and services (GST), replacing the previous wholesale sales tax regime. Some items like basic food, health, education and exports are GST free. Gross Domestic Product The total value of goods and services produced in Australia over the period for final consumption. Intermediate goods, or those used in the production of other goods, are excluded. Gross domestic product can be calculated by either summing total output, total income or total expenditure. Gross Fixed Capital Formation Additions to the stock of real capital by private and public sectors. Real capital represents assets, except land and natural resources, which are capable of producing income (for example, new and second-hand buildings, plant and equipment, and roads). Gross State Product Similar to gross domestic product, except that it measures the total value of goods and services produced in a jurisdiction. It is the sum of all income, namely wages, salaries and profits, plus indirect taxes less subsidies. It can also be calculated by measuring expenditure, where it is the sum of state final demand and international and interstate trade, changes in the level of stocks, and a balancing item. Labour Force All persons 15 years and over who are available for work, that is, employed plus unemployed persons actively seeking work. Excludes defence force personnel and non-residents. Miscellaneous Goods and Services Includes items such as personal care, jewellery, watches and clocks, and health insurance (sourced from ABS internal documents).
Glossary 167 2008-09 Budget
Moving Annual Total A method used to smooth data. These smoothing methods iron out the short-term fluctuations in the data by averaging observations collected over a 12-month period. Nominal Terms Where data is not adjusted for inflation or changes in the purchasing power of money. Original Terms Data in original terms is basic, raw data as collected in a survey or a census. It is not adjusted for seasonality, or smoothed to remove irregularities to form a trend series. Participation Rate The proportion of the population over 15 years of age who are working or looking for work. Private Business Investment Private fixed capital formation for non-residential buildings and structures, machinery and equipment, livestock, intangible fixed assets and ownership transfer costs before depreciation. Relative Standard Error The relative standard error is the standard error expressed as a proportion of the estimate. This measure provides an immediate indication of the percentage error likely to have occurred due to sampling. Sample Error Sample error is the difference between estimate obtained from a particular sample and the value that would be obtained if the whole population was enumerated under the same procedures. Seasonally Adjusted Terms The seasonally adjusted series is a time series of estimates with the effects of normal seasonal variation removed, that is, those fluctuations that exhibit a regular pattern at a particular time of year. Seasonally adjusted terms allow the effects of other non-seasonal influences on the series to be more clearly recognised. Standard Error The standard error of an estimate is a measure of the variation in the estimate from all possible samples, and therefore is a measure of the precision with which an estimate from a particular sample approximates the average over all possible samples. State Accounts An Australian Bureau of Statistics framework and methodology for measuring economic growth (see gross domestic product, gross state product and state final demand). State Final Demand Final consumption expenditure plus gross fixed capital formation in each jurisdiction. It represents the total expenditure on consumption and investment in a jurisdiction. Terms of Trade The ratio of export prices to import prices. An improvement in the terms of trade occurs when export prices rise relative to import prices. It has a significant influence on the value of a country’s currency. Trade-Weighted Index Index of weighted average exchange value of one currency against currencies of other countries. Australia’s TWI is an indicator of how the Australian dollar is performing compared to its major trading partners. The composition of the index is determined by Australia’s two-way trade with its major trading partners, and accounts for at least 90 per cent of aggregate trade. Trend Terms The trend series is used to analyse the underlying behaviour of a series over time. Trend terms are derived by smoothing the seasonally adjusted series so as to reduce the impact of any irregular components of that series. Unemployed Persons 15 years and older who were not employed during the week of the labour force survey and were actively looking for work in the last four weeks. Unemployment Rate The number of unemployed persons expressed as a percentage of the labour force. Visitor Tourism Research Australia defines a visitor as someone who has stayed in a place at least 40 kilometres from their usual place of residence for at least one night, but who is away from home for less than 12 months. An international visitor is defined as an overseas arrival who stayed in Australia for less than 12 months.
168 Glossary Charts
Chart 1.1 Industry Proportion of GSP and GDP, 2002-03 to 2006-07 (five year average) 5 Chart 1.2 Territory Employment and GSP Proportions, 2005-06 7 Chart 1.3 Composition of Territory Merchandise Exports 8 Chart 1.4 Proportion of SFD, 2002-03 to 2006‑07 (five year average) 9 Chart 1.5 Household Final Consumption Expenditure, 2006-07 10 Chart 1.6 Business Investment Components, 2006-07 10 Chart 2.1 Territory Consumption (real, moving annual total) 17 Chart 2.2 Territory Dwelling and Business Investment (real, moving annual total) 18 Chart 2.3 Territory State Final Demand and Gross State Product (real year-on-year percentage change) 19 Chart 3.1 Annual Population Growth 22 Chart 3.2 State and Territory Population Growth Rates, to June 2007 23 Chart 3.3 Age Distribution of Population, June 2007 26 Chart 3.4 Age Distribution of Territory Population, June 2007 26 Chart 3.5 Number of Males per 100 Females, as at 30 June 2007 27 Chart 3.6 Territory Population Growth by Component 29 Chart 3.7 Ratio of Age-Specific Death Rates, 2001-2004 31 Chart 3.8 Territory Interstate Migration Flows 33 Chart 3.9 Age Profile of Territory Arrivals and Departures (five year average 2001-02 to 2005-06) 34 Chart 3.10 Territory Interstate Migration Flows by Jurisdiction, 2002-03 to 2006-07 (annual average) 34 Chart A3.1 Undercount Rates, Four Censuses 36 Chart 4.1 ABS-Reported Trend Resident Employment 41 Chart 4.2 ABS-Reported Resident Unemployment Rate 41 Chart 4.3 Territory Economic and Employment Growth (year-on-year) 42 Chart 4.4 Apprenticeship and Traineeship Commencements and in Training 47 Chart 5.1 Consumer Price Index 54 Chart 5.2 Annual Percentage Point Contribution to Change in Darwin and National CPI, 2007 55 Chart 5.3 RBA, Underlying Measures of Inflation (annual change) 56 Chart 5.4 Unleaded Retail Petrol and Crude Oil Prices 57 Chart 5.5 Exchange Rates (3 month moving average) 58 Chart 5.6 Average Weekly Full‑Time Adult Total Earnings (year‑on‑year change) 62 Chart 7.1 Territory International Merchandise Trade (moving annual total) 70 Chart 7.2 Territory Merchandise Exports by Major Group (moving annual total 71 Chart 7.3 Territory Merchandise Exports, 2002-03 to 2006‑07(five year average) 73 Chart 7.4 Territory Merchandise Imports (moving annual total) 73 Chart 7.5 Territory Merchandise Imports, 2002-03 to 2006-07 (five year average) 75 Chart 7.6 Territory Services Exports 76 Chart 7.7 Territory Services Imports 76 Chart 8.1 Value of Mining and Energy Production and Processing (nominal dollars) 80 Chart 8.2 Value of Mineral Production and Processing (nominal dollars) 82 Chart 8.3 Northern Territory Mineral Exploration (moving annual total) 83 Chart 8.4 Value of Territory Energy Production (nominal dollars) 84
Charts 169 2008-09 Budget
Chart 9.1 Territory Manufacturing Sector Selected Indicators, 2005-06 89 Chart 10.1 Territory Construction Work Done 94 Chart 10.2 Territory Residential Building Work Done 95 Chart 10.3 Territory Non-Residential Building Work Done (moving annual total) 97 Chart 10.4 Territory Engineering Work Done 98 Chart 11.1 Territory Residential Land Sales (number, moving annual total) 104 Chart 11.2 Capital City Median House and Unit Prices, December quarter 2007 105 Chart 11.3 Territory House and Other Dwelling Sales (number) 107 Chart 11.4 Home Loan Affordability 110 Chart 11.5 Proportion of Income Needed to Meet Rent Payments 110 Chart 12.1 Tourism Gross Value Added 116 Chart 12.2 Tourism Expenditure Per Head of Resident Population, 2006-07 117 Chart 12.3 Territory Visitors 118 Chart 13.1 Household Assets and Debt – Percentage of Annual Household Income 123 Chart 13.2 Household Debt Ratios – Debt as a Percentage of Assets 124 Chart 13.3 Consumer Sentiment, March Quarter 2008 125 Chart 13.4 Territory Real Retail Turnover (moving annual total) 127 Chart 14.1 Public Sector Expenditure as a Proportion of SFD, 2006-07 129 Chart 14.2 Public Sector Expenditure (excluding defence) as a Proportion of SFD 130 Chart 14.3 Components of Public Sector Consumption Expenditure (excluding defence) 131 Chart 14.4 Components of Public Sector Investment Expenditure (moving annual total) 131 Chart 15.1 Defence Personnel Stationed in the Northern Territory 138 Chart 15.2 Defence Recurrent Consumption Expenditure in the Northern Territory 138 Chart 15.3 Defence Housing Australia (DHA) Dwelling Stock 140 Chart 16.1 Airline Passenger Numbers, Darwin 150 Chart 17.1 Rural Industries and Fisheries, Value of Production (nominal dollars) 155 Chart 17.2 Total Northern Territory Cattle Movements 156 Chart 17.3 Northern Territory Live Cattle Exports by Destination 157 Chart 17.4 Value of Northern Territory Horticultural Production 160 Chart 17.5 Value of Northern Territory Fishing Production 163
Maps
Map 1 Onshore Mineral and Energy Resources 81 Map 2 Timor Sea Oil and Gas 85 Map 3 Northern Territory Rural Industries and Fisheries 159
170 Charts and Maps Tables
Summary of Territory Economic Indicators 3 Table 1.1 Industry Proportions of GSP and GDP, 2006-07 7 Table 2.1 Territory Economic Growth Profile 11 Table 2.2 Territory State Final Demand (SFD) and Gross State Product (GSP) 12 Table 2.3 Northern Territory Economic Indicators 16 Table 3.1 Annual Population 23 Table 3.2 Territory Population Estimates by Main Centre as at 30 June 24 Table 3.3 Comparative Age Distribution 25 Table 3.4 Median Age, Northern Territory and Australia, 1996 to 2016 28 Table 3.5 Proportion of the Population Aged 65 and Over 28 Table 3.6 Population Components as at 30 June 29 Table A3.1 Indigenous Net Undercount by State/Territory 2006 37 Table 4.1 Territory ABS-Reported Labour Force Statistics (annual average) 40 Table 4.2 Employment by Industry 49 Table 4.3 ABS LFS Redesign Sampling Fractions 51 Table 5.1 Consumer Price Index 54 Table 5.2 Unleaded Retail Petrol and Crude Oil Prices 58 Table 5.3 Grocery Price Survey, December 2006 to December 2007 59 Table 5.4 Average Weekly Expenditure by Category and Household Income 60 Table 5.5 Wage Price Index (year on year to December 2007, percentage change) 61 Table 5.6 Wage and Salary Earners Aged 15 and Over, 2004‑05 62 Table 6.1 Growth (annual percentage change) 68 Table 7.1 International Merchandise Trade, 2006-07 71 Table 8.1 Mining as a Percentage of GSP, 2006-07 79 Table 11.1 Median House Prices 106 Table 11.2 Median Unit Prices 107 Table 11.3 Overall Vacancy Rates 108 Table 11.4 Median 3-bedroom House Weekly Rental Prices 108 Table 11.5 Median 2-Bedroom Unit Weekly Rental Prices 109 Table 11.6 Proportion of Dwellings with Four or More Bedrooms (%) 111 Table 12.1 Tourism Measures for the Northern Territory 2003-04 to 2006-07 115 Table 12.2 Visitor Expenditure, 2005-06 to 2006-07 117 Table 12.3 Tourism Indicators 120 Table 13.1 Retail and Wholesale Trade 122 Table 14.1 Wages and Salary Earners 132 Table 15.1 Population, Permanent Defence Force Members and Defence Expenditure Proportions, 2006‑07 137 Table 15.2 Approved Major Capital Facilities Projects 141 Table 15.3 Major Projects under Consideration by the Commonwealth Government in 2007-08 141 Table 16.1 Transport and Communications Production as a Proportion of GSP/GDP, 2006-07 146 Table 16.2 Potential for Rail to Support Mining Operation 148
Tables 171