First some brief background. The Productivity Commission was created as an independent authority by an Act of Federal Parliament in 1998 however, its roots go back to 1974. The Commission is a highly regarded body and operates within three principles which, are designed to underpin the effectiveness of its contribution to public debate and policy formulation.

The Commission is independent and operates under the powers, protection and guidance of its own legislation. Its reports can often be ground-breaking and polarising.

Its processes are fully transparent and the information and analysis on which it is based, are all open to public scrutiny.

It adopts a community wide perspective and is obliged under its statutory guidelines to take a broad view, encompassing the interests of the economy and community as a whole.

Shifting the Dial: 5 Year Productivity Review

This is the first report of its kind for the Productivity Commission taking a look at the many factors and influences that may affect Australia’s economic performance over the medium term.

 The review is a process to be repeated every 5 years, like the Federal Government’s Intergenerational Report. My focus in reviewing Shifting the Dial is Chapter 4; Better Functioning Towns and Cities.

For some, the document may already be familiar, nonetheless its contents are very relevant as we become a much more urbanised and knowledge-based society. The Commission’s findings directly impact the future of urban development and many aspects of property development and is highly relevant.

In this post, I’m looking at some key topics and the headline recommendations and will follow up with more detail, manly focused on the how, in a second post.

The Shifting the Dialreport includes amongst a raft of topics, a focus on better functioning towns and cities and the topics covered were extensive, including; the importance of large towns and cities, planning policy, public infrastructure, transport and realising the productive potential of urban land.

 In summary over the long-term, the report estimates that the benefit assessment of the policy changes (across all of these topics) would be $29 billion. The report is comprehensive and following are some of the key points and recommendations from the main topics.

The Importance of Large Towns and Cities

Australia’s cities and large towns (those with populations greater than 100,000) now account for an overwhelming majority of where people live and work. This is leading to increased population density and infrastructure is lagging.

Unsurprisingly, cities account for most of the country’s output. About 80% of Australia’s GDP is produced in cities, and 40% in Australia’s two largest, Sydney and Melbourne. Capital cities represent over two-thirds of total employment and accounted for 80% of employment growth in 2015-16.

The PC recommends improved governance arrangements for public infrastructure, as it carries a huge weight of planning, capital and policy to bring into reality. It is essential that governments ensure that proposed projects are subject to benefit cost evaluations. This has not universally been so, despite the earlier institutional and governance recommendations of the Commission’s 2014 Public Infrastructure Inquiry.

Policy Focus

The report focuses on improvements in public infrastructure provision and use, and particularly on roads, the most widely used form of transport.

Other topics cover planning and land use policies the much talked about conveyance duties on property, which the Commission notes discourage people from moving to their desired locations and the freeing up of properties for more valued uses which, leads to the less productive use of land.

Further, the report comments on policy responsibility for cities, an area where all levels of government are at work, suggesting that greater clarity on the roles of each (Local, State and Federal) would be beneficial.

It recommends short-term reforms to improve road provisions. Several immediate steps can and should be undertaken by State and Territory Governments to improve the quality and value for money from road services, and as preconditions for a subsequent move to road pricing.

Many hands are at work in cities policy

The report notes that planning and zoning systems are currently highly prescriptive and complex and further there is a misalignment in State and Local level planning.

Beyond these comments there is an increasing view that poor planning and possible over regulation is directly adding cost to the supply of new housing and is also having a negative impact on affordability.

 State and Local Governments generally lead the policy and program delivery activity in cities. As such, any cities agenda needs to be jointly accepted and understood with these levels of government, or its impact will be lessened. Melbourne’s recently elected mayor for example is seeking more direct involvement in planning policy and delivery.

The report suggests thatall State and Territory Governments should establish lawfully pledged road funding,  that is directly tied to road related revenues and expenditures.

Public infrastructure

Two key problems were noted by the Commission as inadequate attention to planning and the continued likelihood of poor investment decisions.

The governance arrangements for determining infrastructure investment priorities in Australia are crucial in determining whether taxpayer funds are well spent, and ensuring investments lead to actual improvements in the quality of people’s lives.

Further the report highlights that a saving of 10% would reduce expenditures by $2.9 billion. Currently we are more conditioned to cost overruns.

The 2014 Commission Inquiry on Public Infrastructure observed several serious shortcomings in decision making, particularly on electricity, water and telecommunications infrastructure.

Recently history would have us thinking this policy area is for some projects a complete mess. It has also been suggested that direct delivery should be managed by the private sector.

To help improve roads infrastructure it has been suggested that road user charging pilots be considered, to help communicate the need for road funding reform to the community. This is a complex area, some cities like Sydney already have extensive tolling of roads, it has been suggested the city is already at saturation.

Transport

We face urban centres where transport congestion is increasing against a shrinking and unsustainable funding pool. This is a hot topic, that struggles to make any real headway.

Roads, railways (passenger and freight) and public transport are all crucial to how cities function. An efficient transport system is also essential for urban and regional access to social services and amenities. This is a major focus of infrastructure that demands attention.

The commission notes that without policy change, the avoidable social costs of congestion are expected to rise to at least $31.4 billion by 2030.

Realising the Productive Potential of Urban Land

Currently planning and zoning systems are highly prescriptive and very complex. There is also a misalignment at State and Local Government levels of planning.

However, the report notes that many State and Territory Governments have made good progress in planning reform and continue to do so. The report does note the need for better planning provisions for growth.

Key aspects of the report focus on poor zoning, continued poor cost management of infrastructure investment decisions, the need to reform road funding and the reform and removal of property related stamp duties.

To be continued.