The strength of Australia’s economy depends on how well our cities function - yet right now, it’s as if we’re driving with the handbrake on.
Cities are crucial to productivity. When they work well, they offer businesses the chance to bring together the biggest and best pool of available skilled employees.
As the Business Council of Australia recently stated in its Action Plan for Enduring Prosperity: “cities play a significant role in supporting economic growth… [they] are very much engines of commerce, science, innovation and progress.”
But the reported dismantling of the Major Cities Unit - which provided advice on developing Australia’s 18 biggest cities to the federal government - suggests that the new government may not understand how urgently reform is needed.
More time in traffic, less time with family
In our biggest cities, our transport infrastructure is too often holding us back. In many areas, particularly outer suburbs, residents can reach fewer that 10% of all metropolitan jobs within a reasonable commuting time.
Indeed, the OECD’s Head of Regional Economics Dr Rudiger Ahrend recently described Sydney as being so badly connected that its economy functions more like a city of 1 million people, rather than the 4.5 million people who call it home. Opportunities are similarly limited in some outer suburbs of Melbourne, Brisbane and Perth.
Increasing congestion makes it harder and more time-consuming for businesses to connect with customers, potential employees and each other. It is perhaps even more important that time spent in traffic is also a drain on people’s family and leisure time.
A 2005 study found that more than 10% of parents in paid work spent more time commuting than they did with their children, travelling for between ten and 15 hours weekly to and from work. Eight years on from that study, as our cities continue to grow, the situation for families is getting no better.
Meanwhile public transport is stretched to the limit at peak times and many people living further from the city have little access to it at all.
Unleashing frustrated commuters
Poor transport links, which cut many employers off from potential employees, are a big drag on our economy, especially when employers frequently cite a lack of skilled workers as a barrier to growing their business. People poorly served by transport are likewise cut off from better job opportunities.
Many parents - particularly women - caring for younger children are especially disadvantaged. Childcare and school hours limit the time parents can spend commuting, putting them on a “spatial leash”, limiting how far they can live from their work, and in the process often drastically reducing what work they can do.
Tony Abbott was right to recognise the need when he said that he wanted to be known as an “infrastructure Prime Minister”. This would be a valuable legacy.
But the Prime Minister’s view that federal government should not fund urban rail projects is troubling. Roads alone will not overcome the costs of congestion and poor access to transport.
There is limited space to expand road access to the inner suburbs and CBDs of cities like Sydney, Melbourne, Brisbane and Perth – areas with the highest concentrations of the knowledge-intensive jobs that are central to strong productivity growth. Demand for public transport is growing in all these cities, but existing infrastructure can only do so much.
Federal funding and tax fixes
National funding of major public transport projects will be central to enabling our cities to work well and therefore to productivity growth. State governments have an important role to play in building and funding transport infrastructure. But the funding need and importance to the national economy are too great for them to do this alone.
The federal government collects most of our taxes. It must do its share of the work to help businesses to connect with more of the employees they need, and help people to spend more of their time working or with their family, rather than stuck in traffic or on overcrowded public transport.
Enabling more people to live closer to where they work can also help slow growth in congestion. Our homes are our castles, but housing is also economic infrastructure – where people live is critically important to the strength of a city’s economy.
The federal government has an indirect but substantial influence on the housing market. Buyers, builders and developers’ decisions are shaped by the taxes levied by local, state and national governments.
Taxes affecting the housing market include municipal rates, stamp duty and capital gains tax, as well as settings such as negative gearing rules. Examining how these taxes shape our $1.6 trillion housing market – and how they could be improved – could make a big difference to ensuring that the housing Australians say they want is built closer to job opportunities.
There is room for improvement. Taxes and charges on buyers and sellers of housing in Australia are some of the highest in the world. The Coalition’s commitment to a tax white paper is a great first step.
Let’s hope the critical economic impact of where we live and how we get around is at the centre of reforming our tax system. If not, we can expect economic decline as our cities buckle under the weight of neglect.
The Grattan Institute’s Productive Cities report is available here, along with detailed reports on Sydney, Melbourne, Brisbane and Perth.