PC fails to address the population elephant crushing Australia’s cities


By Leith van Onselen

The Productivity Commission (PC) yesterday released a massive report entitled Shifting the Dial: 5 year productivity review, which examines “the landscape of factors and influences that may affect Australia’s economic performance over the medium term, in order to offer advice on where our priorities should lie if we are to enhance national welfare”.

This report covers five main areas, namely:

  • The health system;
  • The education system;
  • The functioning of towns and cities;
  • The efficiency of markets; as well as
  • The efficiency of government.

First, I want to address the the cities section which the PC summarises as follows:

Australian cities are under pressure — rising population and congestion, poor infrastructure decisions, ad hoc and anticompetitive planning and zoning, and an unsustainable funding basis for roads. Stamp duties are bad taxes, a bonanza in times of rising housing prices, but unfair and inefficient.


The PC notes that congestion costs are soaring across the major cities as rapid population growth overwhelms existing infrastructure [my emphasis]:

In 2015, Melbourne grew by more people every five days than Hobart added in the entire year. On current trends, it is projected that over 80 per cent of Australia’s population growth to 2050 will occur in the capital cities. In aggregate, 10.8 million additional people are projected to live in Australia’s capital cities by that year, compared with 2.4 million more people in non-capital city areas (ABS 2013b)…

Cities are, however, distinguished by their spatial and geographic dimensions and their high concentrations of people, which mean that policies affecting the availability and use of space, organisation of activity and the pace and distribution of population growth have a particular impact on outcomes.

Policies that particularly matter in this context include:

  • migration settings, with the bulk of temporary immigrants living in cities for educational and work purposes, and the significant majority of permanent migrants settling in capital cities (PC 2016f). Immigration drove 60 per cent of national population growth over the past decade
  • those that determine or significantly influence how land is used, where and how people can undertake activity, and ease of movement — whether this is people, inputs (resources) or final goods and services…

Other policy areas brought closely into focus include those relating to the provision and management of public infrastructure and tax settings, such as stamp duty on property transfers, both of which affect the cost of transactions and moving…

Congestion on roads and other facilities has grown significantly over time and given the above trends will continue to do so unless new solutions are found for reducing these costs (ACIL Allen 2014; Harper et al. 2015; IV 2016a). The growing avoidable social costs of congestion for Australia’s eight capital cities were estimated at about $18.7 billion in 2014-15, and are estimated to rise to at least $31.4 billion by 2030…

Access to suitable housing and increases in distances travelled to jobs is a problem in several capital cities. About 60 per cent of net employment growth between 2006 and 2011 was within 10 kilometres of the CBDs of the largest five capital cities, but net population growth located in the same area was approximately half this amount.

In Sydney, the majority of jobs that can be reached in 45 minutes by car are located in the inner city whereas on the city fringes this is the case for fewer than 20 per cent of jobs. Similarly for Melbourne, residents living in the inner city can reach more than half the jobs within a 60 minute public transport trip but residents living in outer urban areas, such as those in the western-suburbs and around Dandenong, can access fewer than one in ten of those jobs (Kelly and Donegan 2014).

Many of these problems have been known for a considerable time. Left unaddressed, the efficiency of cities and their liveability are likely to deteriorate…

With rapidly growing populations in some of our major cities, it is particularly important that infrastructure projects be selected carefully and built efficiently, mindful of their long-lived nature and how they can shape the development of cities (in particular, through shaping the options available for the use of land near transport services or corridors)…

Growing populations will place pressure on already strained transport systems. The overall freight task in Australia is projected to increase by 26 per cent within a decade from 2015, and 86 per cent by 2031, much of which will comprise deliveries utilising roads within capital cities.

Yet available choices for new investments are constrained by the increasingly limited availability of unutilised land. Costs of new transport structures have risen accordingly, with new developments (for example WestConnex) requiring land reclamation, costly compensation arrangements, or otherwise more expensive alternatives (such as tunnels).

In this context, a key policy challenge is to improve transport efficiency within existing constraints. More efficient utilisation of existing transport infrastructure and better integration of transport services, where possible, is needed…

So in summary, mass immigration-fueled population growth is straining Australia’s infrastructure, but the cost of expanding infrastructure has become prohibitive due to ‘dis-economies of scale’, such as land buybacks and tunneling, which means that other measures like congestion pricing are required to meet the ever-growing demand.


The PC’s recommendations with regards to cities include the following:

Recommendation 4.1

Improve governance arrangements for public infrastructure


  • It is essential that governments ensure that proposed projects are subject to benefit-cost evaluations, and that these as well as evaluations of alternative proposals for meeting objectives are available for public scrutiny before decisions are made.
  • The institutional and governance recommendations of the Productivity Commission’s 2014 Public Infrastructure Inquiry remain valid and should be implemented by all governments as a priority. The 2014 Report has a dedicated chapter on how to do it.

Recommendation 4.2

Short-term reforms to improve road provision

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


Actionable reforms include:

  • restructuring governance arrangements to: i) ensure that representatives of those who pay for roads — that is, users — contribute to project selection and funding decisions, and ii) provide for independent appraisal of all major road expenditure proposals
  • measuring the road asset base and identifying roads that should, in fact, be priced, as well as clarifying the standards that should apply to roads
  • hypothecating road-related fees and charges to roads expenditure so that charges paid by drivers for using roads are linked to spending on roads.

Recommendation 4.3

Establish road funds

State and Territory Governments should establish Road Funds to hypothecate road-related revenues to expenditures. Initially designing Road Funds on the basis of heavy vehicle revenues and expenditures will help to sequence heavy vehicle and broader road transport market reform objectives and facilitate compositional shifts to new road funding sources over time.

Recommendation 4.4

Road user charging pilots

To communicate the need for road funding reform to the community, State and Territory Governments should consider the use of road user charging pilot programs, as has been successful in overseas jurisdictions.


Conducting trials in major capitals that utilise the opening of new (unpriced) additions to the system and testing behaviour under different pricing regimes (for example, refunding users’ excise while measuring their use of new infrastructure with a charge and netting off the outcome over a sustained period) would be a significant advance in knowledge and awareness.

Recommendation 4.5

Apply competition principles to land use policies

There should be national agreement to apply competition policy principles to land use regulation and policies. There should be a particular ban on regulation that explicitly or implicitly favours particular operators and sets proximity restrictions.

Recommendation 4.6

Better provision for growth


Take steps to improve consultation and planning processes, as outlined in Conclusion 10.2 of Supporting Paper 10. This includes:

  • State, Territory and Local Governments genuinely engaging with the community on alternatives for meeting development goals
  • State and Territory Governments providing formal guidance on how Local Government planning strategies should be developed and on the application of overarching planning policies
  • State, Territory and Local Governments ensuring adequate provision in growth strategies for infrastructure and public amenities (such as ‘green’ space) given the difficulty of retro-fitting these features.

Recommendation 4.7

Implement best practice in development assessment

State and Territory Governments should implement known best practice in development assessment processes, as embodied in the model developed by the Development Assessment Forum.

Recommendation 4.8

Remove stamp duties and implement transition to land tax

State and Territory Governments should move from stamp duties on residential and commercial properties to a broad-based land tax on the unimproved value of land.


Phase out stamp duties on residential and commercial property transfers and replace them with a broad-based tax based on unimproved land value.

Transition over several years to aid adjustment.

A shift to land-based taxes should include provision for low income households to defer property taxes and fund them from their estate at death or on the sale of the asset (whichever comes first), with low interest rates applying to debts.

MB broadly supports these measures, especially the ones around improving governance arrangements for public infrastructure, applying competition principles to land use policies, and replacing stamp duties with land taxes.


That said, given many of the problems relating to Australia’s cities are being caused by rampant immigration-fueled population growth, as well as the inherent difficulty (and expense) in supplying new infrastructure to cope with the population influx, why hasn’t the PC added as a recommendation reviewing Australia’s ‘Big Australia’ immigration settings and the development of a national population policy that takes into account the negative effects on housing, infrastructure, and Australia’s natural environment, nor the dilution of Australia’s resources base?

How can a cities strategy be complete without addressing the main demand-driver causing the pressures in the first place?

[email protected]

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.