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Current Issues

Regional Australia: a survey of recent reports on economic policy issues

E-Brief: Online Only issued Date 30 August 2000.

Peter Hicks Analysis and Policy
Economics, Commerce and Industrial Relations Group

Introduction

Regional economic development and related issues have been the subject of a number of recent inquiries and reports by Parliamentary, Government and non-government organisations. Collectively these have resulted in a significant body of detailed information about the nature and state of economic development in Australia's regions becoming publicly available over the last twelve months. This information should enhance both knowledge of conditions in regional Australia and debate on associated public policy issues.

This purpose of this electronic brief is to provide a guide to the major recent publications on regional economic development, especially those originating from Government and Parliamentary sources. Whilst it identifies the salient features of each report, it does not seek to canvass or analyse the issues raised. Rather, this electronic brief is designed to be a stand alone resource which gives readers a general and contemporary understanding of the economic circumstances in regional Australia while allowing access to more detailed information using the links provided. It is organised under the following topics:

• Demographic and economic change
• Income
• Employment
• Infrastructure and
• National Competition Policy.

The delivery of services (health, education, community services, banking, telecommunications etc) in regions is not covered in this electronic brief. A Reading list of earlier reports on regional development is provided at the end of this electronic brief. Copies of these may be borrowed from the Parliamentary Library by Federal Members and Senators.

Demographic and economic change

In its report Impact of Competition Policy Reforms on Rural and Regional Australia released on 14 October 1999, the Productivity Commission presented an extensive two part analysis of developments in country Australia. The first part considered demographic changes and social indicators with a review of long-term trends in the geographic dispersion of Australia's population and a snapshot of economic and social indicators. Issues covered included:

• Demographic change
  • urbanisation in Australia
  • coastal drift
  • 'sponge cities'
  • age profile
  • population changes.

• Labour market and household income
  • labour market characteristics
  • income levels.

• Social indicators: country and city
  • socioeconomic disadvantage
  • housing
  • families
  • medical services
  • aged care services
  • mortality rates
  • suicide
  • lifestyle.

The second component of the Productivity Commission's analysis outlined the changes occurring in the structure of the Australian economy in an examination of economic change in country Australia. This addressed:

• The changing nature of Australia's economy
  • changes in the structure of the national economies
  • changes in the structure of the regional economies.

• Drivers of change
  • transport and regional development
  • rising incomes and changing lifestyle preferences
  • productivity growth, especially in agriculture mining and services and
  • other factors such as trade and industry assistance, labour market flexibility, regional infrastructure policies, access to natural resources, environment protection.

The Productivity Commission's overall finding was that broad long-term economic forces which are beyond the control or influence of governments have been key drivers of the economic and social changes of particular relevance to country Australia. These include: changing technology and increasing productivity; rising incomes and changing lifestyles; and declining world agricultural and mineral commodity prices.

An analysis of regional population growth and associated employment growth between 1986 and 1996 has been published by the Australian Bureau of Agricultural and Resource Economics (ABARE) in Country Australia: Influences on population and employment. In this report regions are classified as either coastal, inland and remote. A state/region breakdown of changes in population and employment is shown in Table 1.

Table 1: Population and employment change by State and region 1986-96 (%)

Key points made by ABARE with regard to population trends include:

• population changes across Australia broadly reflect the regions' dependence on the agriculture and mining industries
• except for SA and NT, the highest rates of population growth in each state were in coastal areas
• except for WA and NT, population growth rates in remote regions were less than in other areas of the state
• in farming regions where there has been little diversification into other industries, the population has declined in the local towns as well as on farms and
• population increases and employment growth were not tied to urban size.

In another paper, Regional Australia: Incomes, industry location and infrastructure, ABARE has pointed out that the share of the population in rural areas, ie centres of less than 1000 people has declined from 14.7% in 1986 to 10.9% in 1996.

A detailed 'report card' style assessment of the socio-economic circumstances of Australia's regions is a major feature of State of the Regions 1999. This is the second such report prepared by National Economics (the National Institute for Economic and Industry Research Pty Ltd) for the Australian Local Government Association (ALGA).⁽¹⁾

State of the Regions 1999 divides Australia into 57 regions and looks at how these regions are performing and their prospects for the future. The regions are classified into six broad types: core metropolitan, dispersed metropolitan, lifestyle, production, resource and rural. The report contains a summary outline of the characteristics of each region. In addition, section 3.5 identifies the top and bottom 15 individual regions in terms of the following 28 performance indicators.

An ALGA press release of 18 November 1999 announced the release of State of the Regions 1999. A detailed indication of the subject matter covered therein can be determined from the preface, contents and executive summary. Federal Members and Senators may borrow a copy of the full report from the Parliamentary Library.

Income

In the May 2000 issue of its Income Distribution Report, entitled A divide between the cities and the bush?, the National Centre for Social and Economic Modelling (NATSEM) examined trends in household income by states and their regions between 1991 and 1996. A key difference between the regional classification used by NATSEM and by the Productivity Commission should be noted here. The Productivity Commission's analysis is based on Statistical Divisions which are discrete geographical units where as NATSEM has classified regions by type. Specifically these are:

• capital cities
• major urban areas (populations over 100,000)
• regional towns (populations 1000 - 99,999)
• rural towns (populations 200 - 999) and
• rural areas.

NATSEM's estimates of incomes levels and changes to these between 1991 and 1996 are shown in Table 2.

Table 2: Estimated average household income by state and region in 1996 and real change since 1991

The key conclusions drawn by NATSEM were:

• there is a large and growing gap between the incomes of those living in the capital cities and those living in the rest of Australia
• household incomes in metropolitan areas increased at about double the rate for major urban centres and regional and rural towns
• farmers living in rural areas enjoyed the strongest increase in household income
• regional Australia is not uniformly disadvantaged and not uniformly declining and
• the picture for regions aggregated across Australia hides the very different experiences of particular states and regions.

NATSEM also notes that average household income is not necessarily a good measure of quality of life with factors such as unemployment rates, education levels, health status and crime rates also needing to be considered when examining social disadvantage.

An analysis of household incomes at the Local Government Areas (LGA) level is provided in another NATSEM paper Regional Divide? A Study Of Incomes In Regional Australia. This analysis included metropolitan and non-metropolitan areas. The main findings include:

• most of the high income LGAs were located in NSW and Western Australia in both 1991 and 1996
• of the top 20 per cent of LGAs, well over half were located in capital cities, with one-quarter in Sydney
• a large proportion of the low income LGAs were located in South Australia
• both New South Wales and Queensland had a large and growing number of low income LGAs
• in 1996, only two of the bottom 20% of LGAs were located in a capital city and neither were in Sydney
• 49 out of 86 (57%) of LGAs that were in the bottom 5 per cent in 1991 that were still in that group in 1996 and
• among the high income LGAs, 21 out of 26 (81%) in the top 5 per cent in 1991 were still there in 1996.

A longer term analysis of incomes across regions is provided by ABARE in Regional Australia: Incomes, industry location and infrastructure. In this report Australia's three major mining regions of the South Eastern and Pilbara regions of Western Australia and the North West region of Queensland are separately identified. The results show that incomes in these regions are easily the highest of any part of Australia, even capital cities.

The Productivity Commission's report Impact of Competition Policy Reforms on Rural and Regional Australia also analysed income issues based a comparison of 1981 and 1996 income levels by statistical division. Whilst noting some areas where the results needed to be interpreted carefully, a significant finding was that household incomes in almost all country regions declined, relative to the national average, during the period.

Employment/Unemployment

Labour market issues were addressed in the Productivity Commission's report which found that on average, the unemployment rate is higher in country Australia although the picture is a diverse one. In its examination of economic change in country Australia, the Productivity Commission classified regions according to whether they had experienced high or low rates of structural change and high or low rates of employment growth. The Productivity Commission found that:

• since the early 1980s, both the level and the variability of structural change has been greater in country Australia than the cities
• high rates of structural change in country Australia do not necessarily involve employment losses and
• low rates of structural change are not always associated with high employment growth.

Two recent reports by ABARE have also examined regional employment/unemployment issues. This section highlights key parts of those reports.

Table 3: Average unemployment across regions (%)

The unemployment rate in 1996 tended to be higher in parts of South Australia, Tasmania and Victoria, and along the eastern seaboard, and lowest in remote areas of Western Australia and Queensland.

Between 1986 and 1996 employment growth has been greatest in coastal areas (19.2%), followed by remote areas (12.4%) and slowest in inland areas (9.3%). Some of the changes in employment in various industry divisions over that period have been consistent across all three regions with:

• increases in retail-wholesale trade; property and business services; accommodation, cafes and restaurants; education; health and community services; cultural and recreational services; and personal and other services
• decreases in agriculture, forestry, fishing and hunting; mining; electricity, gas and water; and transport and
• mixed results across the regions for the other industries ie manufacturing; construction, communication services; finance and insurance; and government administration and defence.

At the time of the 1996 census, there was variation in the top three industry divisions across the regions as shown in Table 4.

Table 4: Major sources of employment by region

NATSEM's paper Regional Divide? A Study Of Incomes In Regional Australia also includes details of unemployment rates on the same state and regional basis as for income (see Table 2). These are reported in Table 5.

Table 5: Unemployment rates by state and region, 1996

The same report also profiles employment across the regions by industry type as reported in Table 6.

Table 6: Proportion of workers, by industry and region, 1996

In September 1999 the Senate Employment, Workplace Relations, Small Business and Education References Committee tabled a report entitled Jobs for the Regions: A report on the inquiry into regional employment and unemployment. This inquiry was conducted over nearly two years.

Briefly, the Terms of Reference required the Committee to:

• assess the factors contributing to the disparity in employment levels between different regions and also between regions and capital cities, as well as the continuing high levels of regional unemployment and
• examine remedial strategies that had or could contribute to reducing regional unemployment.

The Committee made fourteen recommendations although Government senators did not agree with five of these. The major recommendations, which were unanimous, concerned:

• Encouraging greater involvement in Area Consultative Committees by local government and state based region development bodies
• Commonwealth coordination of the dissemination to local businesses on the range of assistance measures available to them
• The Commonwealth investigating strategies for attracting increased investment to regional Australia
• Increased priority by all levels of government in the provision of adequate infrastructure in regional Australia and
• Re-examination of the road funding formula with a view to giving higher priority to regional development.

Infrastructure

A Press Release dated 18 February 1999 from the House of Representatives Standing Committee on Primary Industries and Regional Services announced an inquiry into infrastructure and the development of Australia's regional areas. In response to the wide ranging Terms of Reference the Committee set out to:

• examine the role of infrastructure in assisting the economically sustainable development of Australia's regional areas
• identify deficiencies in existing infrastructure and
• recommend how the regions' potential for development could be improved.

The Committee received over 300 submissions and held six public hearings. In addition, it held inspections and discussions with locally based individuals, businesses and organisations at regional centres in all States.

The Committee's report Time running out: Shaping Regional Australia's Future was tabled in March 2000. It contains ninety-two recommendations and dealt with the following issues:

• Leadership and local skills
• Policy, planning and coordination
• Finance and investment
• Access to telecommunications - access to opportunity
• Information Technology - developing regional competitive advantage
• Transport
• Energy
• Education
• Water resources and
• Health.

To date there has been no Government response to the Committee's report.

National Competition Policy

On 28 August 1998 the Commonwealth Treasurer issued a Press Release announcing that the Productivity Commission would be given a reference for the conduct of an inquiry into the Impact of Competition Policy Reforms on Rural and Regional Australia. The Treasurer noted that the inquiry would examine both the economic and social impact of competition policy and related infrastructure reforms introduced at the Commonwealth, State and local government levels and would also identify measures to increase the flow of benefits or mitigate any transitional costs arising from competition reforms to rural and regional Australia.

In response to the Terms of Reference, the Productivity Commission sought to pay particular attention to:

• economic and social effects of the national competition policy reform package on rural and regional Australia and on the wider Australian economy
• differences between rural and metropolitan Australia in the effects of those reforms

and make recommendations on measures needed to facilitate the flow of benefits (or ease transitional costs or negative impacts) arising from the reforms to residents and businesses in rural and regional Australia.

The Productivity Commission's resultant report Impact of Competition Policy Reforms on Rural and Regional Australia was released on 14 October 1999 together with a supplement Modelling the Regional Impacts of National Competition Policy Reforms. The supplement reports the quantitative analysis undertaken by the Productivity Commission on the effects of major NCP reforms and selected national economic forces. It firstly details their effects on the national economy and then disaggregates these effects through to rural and regional Australia. This allows some indication of the likely contribution of each to ongoing changes at the regional level.

The overall key results of the modelling were that:

• only one of the fifty-seven regions modelled is estimated not to benefit from NCP in terms of output and
• all regions are estimated to benefit in terms of average income per person employed.

With regard to the effects of NCP overall, the Productivity Commission found that;

• there would appear to be significant gains for the Australian community, and for country Australia as a whole, from implementing NCP reforms. The reforms are likely to have a more varied effect in country regions the in metropolitan areas, with implementation costs of some reforms being more evident in the former
• the effects on most, but not all, regions of the NCP reforms are likely to be less significant than those resulting from the broad economic forces which are continually reshaping economic and social conditions in Australia.

In a Press Release the Treasurer said the Government was releasing the report at that time because it believed the report would provide a valuable contribution to the [then] forthcoming Regional Australia Summit. The summit, held in October 1999, was a major regional policy initiative undertaken by the Federal Government.

The Productivity Commission's key messages were that:

• NCP was one of a range of influences on country Australia
• most such influences are of a long-term nature and largely beyond government control
• NCP has become a scapegoat for some of the effects of these broader influences
• Governments should take steps to improve community understanding of NCP
• while there are costs associated with implementing NCP, it will bring net benefits to rural and regional Australia over the medium term
• the incidence of benefits and costs of NCP is likely to be more variable among country regions than in metropolitan areas and
• specific adjustment assistance is warranted for some people in adversely affected regions.

The Government's response to the Productivity Commission's report was released on 10 August 2000. The accompanying Press Release from the Treasurer stated that the Government endorsed the thrust of the Commission's recommendations, which it saw as being directed at improving the way in which competition policy is implemented, and believed that measures adopted will increase community understanding of competition policy, and improve its implementation and operation, ensuring that the full benefits of reform are realised across the whole country.

The Government also accepted the Commission's recommendation that generally available assistance measures should be the principal means of assisting people who are adversely affected by competition policy reforms. However, the Government noted that special circumstances can exist which require governments to consider specific adjustment assistance of a time-limited and targeted nature to facilitate the necessary change.

On 1 July 1998, just prior to the announcement of the Productivity Commission inquiry discussed above, the Senate established the Select Committee on the Socio-Economic Consequences of the National Competition Policy. Although this inquiry was cut short when the 1998 federal election was called, on 9 March 1999, the Senate agreed to re-establish the Committee, with similar Terms of Reference which specifically required the committee to address the impact of NCP on urban and rural and regional communities.

In August 1999, the Senate Select Committee agreed to issue an Interim Report entitled Competition Policy: Friend or Foe (Economic Surplus, Social Deficit?) as a basis for discussion and further deliberation in the community.

The Committee's final report Riding the Waves of Change was presented in February 2000. The Committee's recommendations did not include any specific mention of the impact of NCP on urban and rural and regional communities, but did recommend the creation of a 'one-stop-shop' advisory service to provide local government, industry bodies, individuals, companies, and community groups with advice which will enable them to tackle competition policy issues. It also recommended that this service also be a mechanism by which concerns or complaints can be channelled to the appropriate authority for resolution.

The Government issued its response to the Select Committee report and the same time as its response to the Productivity Commission Inquiry. The Treasurer's Press Release of 10 August stated that the Government agrees with the Committee that governments have at times contributed to the misunderstanding and confusion surrounding competition policy by citing it as a reason for the reduction of funding for an activity, for the rejection of infrastructure projects, and for policies such as compulsory competitive tendering. The Treasurer noted that much of the implementation of competition policy is the responsibility of State and Territory governments and announced that the Prime Minister will write to Premiers and Chief Ministers, asking them to consider the issues raised in the reports.

The Government's full response to the Select Committee's report is set out under the following headings:

• COAG oversight
• the public interest test
• public education
• review processes
• environment
• infrastructure
• community based welfare and
• additional recommendations by Senator Bob Brown.

Reading list of earlier reports on regional development

Developing Australia: a Regional Perspective, A Report to the Federal Government by the Taskforce on Regional Development 1993

Business Investment and Regional Prosperity: the Challenge of Regional Rejuvenation, Discussion Paper prepared for the Department of Housing and Regional Development by McKinsey and Company 30 March 1994

Lead Local Complete Global: Unlocking the Growth Potential of Australia's Regions, Final Report of the study by McKinsey and Company for the Office of Regional Development, Department of Housing and Regional Development, July 1994

Supporting Regional Leadership: Unfinished Business, Report by McKinsey and Company for the Department of Housing and Regional Development, August 1996.

Industry Commission 1993, Impediments to Regional Industry Adjustment, Report No. 35, AGPS, Canberra

Bureau of Industry Economics, 1994, Regional Development: patterns and policy implications, Research Report 56, AGPS, Canberra

Australian cities and regions: a national approach, Australian Urban and Regional Development Review Information Paper no 1

Economic Planning and Advisory Council, 1991, Background Papers on Urban and Regional Issues, Studies prepared for the Office of EPAC Background Paper No. 10, AGPS, Canberra

⁽¹⁾ National Economics is a private economic research and consulting group serving the public and private sectors

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