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A vision of world-class regional centres open for business

By Craig Emerson - posted Monday, 18 July 2005

Australia is the best country in the world. But we can always make it better. The rise of China and India in this, the Asian century, will place much greater competitive pressure on Australia. And it will open up new opportunities.

In this competitive world, to stand still is to go backwards. Yet the lack of a modern national reform agenda threatens our competitive future. After a record-breaking decade, productivity growth has slipped into reverse gear since the beginning of 2004.

Australia needs to invest in the modern sources of productivity growth - education, innovation and infrastructure. But who should do the investing? Like skills and ideas, infrastructure is capable of producing benefits that cannot be fully captured by a private provider. From society’s viewpoint the private sector, left to its own profit-maximising devices, will under-provide infrastructure that yields these positive additional benefits. This creates a role for public sector investment in those forms of infrastructure that offer extra benefits for business and the wider community.


International empirical evidence attests to the large economy-wide returns from public investment in infrastructure. National rates of return on infrastructure investment in the order of 60 per cent are common and Australian evidence is consistent with the international evidence.

These studies confirm significant positive spill-overs in core infrastructure areas of general government spending on roads where excludability is more difficult to achieve, making them approximate the features of public goods. The spill-over effects from electricity supply are much weaker, since excludability is more feasible, making it approximate the features of private goods.

The trouble in Australia is that it is precisely in the areas of roads, where these effects are greatest, that public investment has been allowed to decline.

Australia could be a greater country with a bigger population settled in our strong regional centres, taking the pressure off our sprawling cities. The creation of Australia as an open, competitive economy, achieved through the economic reform program initiated by the Hawke and Keating governments, has improved the prospects of regional centres like Orange, Dubbo, Parkes, Cowra, Griffith, Wagga, Canberra, Bendigo, Ballarat, Shepparton, Albury-Wodonga, Toowoomba, the Gold Coast hinterland, Gladstone and Townsville - to name just a few.

Employment and incomes are growing strongly as these regional centres produce for the national and global markets. Land prices in major cities are forcing commercial activities that require a lot of land to move out to less expensive locations in regional Australia. Population is now drifting from rural areas and small country towns not to the capital cities, as previously, but to these regional centres.

Some other country towns have been losing population without losing their viability. A smaller population is being sustained through diversification into modern, service-based activities different from those associated with agricultural production techniques of a bygone era. Like spokes in a wheel, these country towns could service regional hubs equipped with world-class infrastructure.


But to capitalise on their advantages these regional hubs need to be served by world-class transport and communications infrastructure, as well as top quality schools, university campuses and health services.

Their capacity to produce competitively for the national and export markets will depend on being able to transport goods quickly and cheaply. The inland rail proposal to link many of these centres to Brisbane and Melbourne warrants serious consideration. In assessing such a link's national worth, account needs to be taken of the avoided costs of road transportation and the easing of congestion in the Sydney basin.

Like other infrastructure assets offering positive spill-over benefits, the inland rail proposal does not necessarily have to be privately profitable for it to be in the national interest.

Australia needs a nation-building infrastructure plan. A share of budget surpluses and of the proceeds of asset sales should be directed to an infrastructure fund. Infrastructure proposals that advanced the national infrastructure plan would then receive favourable financing consideration. Proposals that did not comply with the plan could still proceed, with state and local government approval, but they would not be supported out of the infrastructure fund.

Australia’s ongoing prosperity depends on the implementation of a modern economic reform program of investing in education, ideas and infrastructure. Carefully chosen investment in transport infrastructure would boost our regional growth centres, accommodate a growing population dispersed into the regions and engender in Australians a renewed sense of national purpose not seen since the building of the Snowy Mountains scheme in the early post-war years.

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About the Author

Craig Emerson is the Minister for Small Business in the Rudd Government and Member for Rankin.

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