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Shifting the dial on productivity

  • November 01, 2017

Shifting the dial on productivity

Overhauling planning and land use, abolishing stamp duties and more prudent investment in infrastructure are three productivity boosters that can deliver better functioning cities, says the Productivity Commission’s Ralph Lattimore.

Last week, the Productivity Commission released its five-year review, finding that better functioning cities can provide a $29 billion boost to national GDP.

Despite advances in technology and scientific knowledge, investment spending and a mining boom over the last decade, productivity growth has languished in Australia.

But our nation will not be able to rely on high commodity prices or labour participation to drive growth in incomes in the future, says Lattimore, the Productivity Commission’s executive manager.

“Doing things better ” or productivity growth ” is the key to our future prosperity,” he says.

And doing things better in our cities has never been more important.

Australia’s cities generate 80 per cent of the nation’s GDP, and our capital cities provide two-thirds of all employment and 80 per cent of employment growth.

“Australia is one of the most urbanised countries in the world, so the economic and social functioning of Australia’s cities is critical to prosperity,” Lattimore says.

“Many aspects of cities that affect how they function overlap with those that also matter for people to be healthy, for labour markets to provide long-term opportunities, and so on.

“But cities are distinguished by high concentrations of people and physical limits, so their functioning is particularly affected by policies that determine how land is used and people’s ease of movement.”

The review emphasises the gaping chasm between the fast-paced growth in our cities and the complex, slow moving regulatory frameworks that impede growth, erode housing affordability and prevent people from being able to live close to jobs.

Lattimore points to “poorly targeted land use controls” as one productivity inhibitor that can “have knock-on effects on ease of living, such as proximity to services and the costs of commuting”.

Stamp duties are another drain on productivity, as they “add over $,000 to the cost of a median-priced house in Sydney, penalising people and businesses that move and discouraging others who want to move,” Lattimore says.

“The cost to the economy is around 70 cents for every dollar raised.

“We consider there is a strong case for switching to taxes on unimproved land value,” Lattimore says, adding that the Productivity Commission estimates the benefits from more productive use of land to be around $10 billion a year in the long term.

The Productivity Commission also highlights changes required in public infrastructure provision and use, particularly on roads.

“The avoidable cost of road congestion is now over $18 billion,” Lattimore says.

“Road funds that respond to where people most want road services, and replacing the plethora of indirect road fees and charges with a direct charge that reveals the cost of services and better informs decisions on road use, are crucial steps to change.”

The Property Council has welcomed the Productivity Commission’s findings and is pointing to examples across Australia where the Productivity Commission’s findings can be applied.

Victorian executive director Sally Capp says the Melbourne Airport Link is an essential productivity enabler. “It’s more than a train to catch a plane – it’s about connecting people to jobs, buildings and homes in one of the fastest growing regions of Australia”.

“Productivity is falling behind because we don’t have enough transport links for our freight,” Capp adds, and a Western Interstate Freight Terminal would enhance national productivity, create job opportunities in key growth areas and reduce congestion.

South East Queensland is set to grow by an additional 1.9 million people over the next 25 years, and accommodating this growth will require a “drastic review” of how we plan to not only provide new housing, but also “where and how we work and play,” says the Property Council’s Queensland executive director, Chris Mountford.

“Well planned neighbourhoods, with adequate infrastructure – whether transport, sewer, power or water – will be vital in delivering well-functioning, productive cities.”

In Perth, “huge savings” are available by “being smarter with planning for infill housing and making better use of existing infrastructure” says the Property Council’s WA executive director, Lino Iacomella. 

“The Property Council’s Transforming Perth report found that Perth’s entire infill housing target could be met through medium density development along seven major transport corridors.”

And Adina Cirson, the Property Council’s executive director in the ACT says certainty drives productivity growth, and points to the Canberra light rail as an example.

“Often city planning is done on a political basis, but business craves certainty. The first stage of the Capital Metro is nearing completion and stage two has been announced. This creates certainty for the development community, and the level of construction along the Northbourne corridor has been transformative, boosting amenity, enhancing density and creating jobs,” she says.

Decisions on infrastructure have “very long-term consequences” Lattimore adds, yet they are “susceptible to short-term incentives driven by politics and vested interests.”

“At minimum, we consider there must be sound cost-benefit studies and open consultation on alternative proposals for meeting objectives, which themselves have been developed in the context of longer-term plans for city development. People will say these things are happening now, but the reality is that they often are not.”

Download the Productivity Commissions Shifting the Dial: 5 year productivity review.