I am delighted to publish another guest post from Joe Branigan on the upcoming Queensland election. Views expressed are Joe’s, and are not necessarily shared by me. GT

In the 56th Parliament the main fiscal battle line will be between SEQ and Regional Qld

Guest post by Joe Branigan

The People’s Forum. Who would be a politician? The ability to say five different things to three different groups of people in the same sentence using exactly the same words, facial expressions and body language without for a nanosecond questioning your own sanity. How are those skills even developed?

Which brings me to regional Queensland.

There are seemingly sharp differences between the wants and needs of SEQ residents vis-à-vis Regional Queenslanders. But perhaps those differences simply reflect different means to achieve the same ends – a comfortable life with secure employment in the community where your family lives. Nothing wrong with that aspiration. The question is: what role should the Queensland Government play in supporting that aspiration, against technological, cultural and economic tides?

In my recent submission to the House of Representatives Regional Development and Decentralisation Inquiry – The Contribution of Our Cities to our Enduring Prosperity ( Sub 154 SMART Infrastructure Facility), I presented the arguments in defence of Australia’s great capital cities. Compared to the regions, cities have lower unemployment rates, higher productivity, higher wages, deeper employment markets, and vastly more private and public goods and services. Public infrastructure services are cheaper to deliver per person. City dwellers have greater life expectancy in part because they are closer to emergency health services. Harvard economist Ed Glaeser has written that cities foster innovation, spur competition and entrepreneurship, and allow for social and economic mobility. In short, cities are a triumph of human civilization.

There’s a trade-off between investing public money in SEQ and Regional Queensland. Simply, within a budget constraint, a dollar invested in SEQ is a dollar not invested in Regional Queensland and vice versa. My friend and colleague Gene Tunny has written previously busting the myths around Regional Queenslanders not getting their fair share of taxpayer funds in relation to infrastructure investment (e.g. see GT’s 16 July post). Regional Queensland also benefits from other policies, like the annual payment made to Energy Queensland to meet the Uniform Tariff Policy commitment (whereby the actual per capita Ergon distribution cost is artificially set at the lower Energex per capita distribution cost in order to equalise electricity costs between SEQ and Regional Queensland). The Uniform Tariff Policy cost the Queensland taxpayer $564 million in 2016-17.

A famous (if you’re into that kind of thing) Productivity Commission study: Can Australia Match US Productivity Performance? led by the brilliant and unassuming Dean Parham, found that part of the reason why Australia did not match the United States in productivity performance was linked to “fundamental factors of history and geography, including Australia’s remoteness from large markets and its pattern of settlement”. By “pattern of settlement”, the authors (Parham and Ben Dolman) were referring to the decentralised nature of a significant minority of Australia’s population as well as the relatively great distances between our capital cities.

The authors suggest that Australia’s productivity levels in some industry sectors, like wholesale and retail trade and transport, would be higher under a more concentrated pattern of settlement. The authors conclude that:

“Three factors could limit overall productivity performance in sparsely settled countries:

• Greater infrastructure requirements per head of population;
• Fewer gains from economies of scale and competitive pressure on producers; and
• Less ability to access other agglomeration economies.”

Of course, our current pattern of settlement is an unavoidable fact and the immediate policy question is: what do we do about stubbornly high unemployment (especially youth unemployment) in Regional Queensland post mining boom?

Between September 1999 and September 2017, the average unemployment rate for Greater Brisbane was 6.5%. The corresponding figure for the ‘Rest of Qld’ was 7.3%. Since 2010, the figures are 5.6% in Greater Brisbane and 6.3% in ‘Rest of Qld’. Regional Queensland consistently exhibits higher minimum unemployment rates and higher maximum unemployment rates reflecting the smaller labour markets where matching workers to jobs is more difficult: i.e. higher levels of frictional unemployment (being between jobs), and structural unemployment (mis-matched skill sets in the presence of technological change).

Townsville’s very high unemployment rate, which is currently 9.6% but below the peak of 14.8% reached in mid-2016, is a case in point of it taking much longer for the unemployment rate in small labour markets to return to long-run average levels following economic downturns.

In response to high unemployment in Regional Queensland, Pauline Hanson’s One Nation Party and Katter’s Australian Party are demanding even more taxpayer money for Regional Queensland, not to mention a regional development bank to subsidise private businesses with taxpayers bearing the risk on commercial projects. The massive Adani coal project is strongly supported in regional Queensland as an antidote to high unemployment. A new coal-fired power station is supported by the LNP and One Nation to add reliable baseload power into the NEM.

Obviously Regional Queensland deserves its fair share of government expenditure and infrastructure investment. And there is room for debate about exactly what a ‘fair share’ means. But the truth is that nobody can stop structural change in Regional Queensland and trying to would undermine the strengths of SEQ. ‘Throwing the kitchen sink’ at Townsville (in terms of government support) may have actually deterred some unemployed people and their families moving to other regions with greater long-term opportunities. And this ‘migration-inertia’ may not be beneficial for anybody.

The next Queensland Government will need to think carefully about how to deal with the increasing demands from Regional Queensland, understandably driven by the fallout from unstoppable technological change, more transparent public financial management, drought, severe tropical cyclones and its impact on tourism, the collapse in spending and investment following the resources boom and its aftermath of stubbornly high regional unemployment rates, and a collapsed nickel refinery.

The best policies should be Queensland-wide – remove taxes on labour mobility*, lower taxes on business, control spending, seek independent transparent advice on the highest priority infrastructure needs, target the fiscal balance and slowly but surely lower the debt.

But no government should try to actively discourage the free flow of people into larger towns and cities in search of more opportunity, greater choice and job security.

Joe Branigan is Senior Research Fellow at the SMART Infrastructure Facility at the University of Wollongong and is an independent consultant based in Brisbane.

*i.e. Stamp duty. GT