Transitioning Regional Economies

5 Strategies for successful transition and development

Key points

Governments can best facilitate regional transition and development by ensuring that their policies and regulations do not unnecessarily impede the forces of progress and change. Streamlining regulations in areas such as planning and development would make it easier for business owners (potential and existing) to find new sources of income and growth. Removing hindrances to workers and business owners taking up opportunities in other occupations, activities and locations by promoting mobility and flexibility is also important. Governments should avoid providing ad hoc financial assistance to regions, which is often ineffective in facilitating transition and development. There is substantial public expenditure on regional programs by all governments. The effectiveness of these programs is often unclear, and there is evidence of inadequate processes for project selection, implementation and evaluation. Primary responsibility for regional development policy is — and should remain — with State, Territory and local governments. The Australian Government should focus on national economic development. The Australian Government’s role in regional development policy should be limited and supportive of State and Territory governments, including in response to extreme events in particular regions. At the State and Territory government level, more rigorous and transparent assessment of regional initiatives, underpinned by stronger arrangements for regional planning, is critical to improve outcomes for regional communities from government expenditure. State and Territory governments (in consultation with local governments) should develop definitions of regions based on functional economic regions to inform transition and development in regions. State and Territory governments should also nominate an entity with sufficient capacity to develop and publish a strategic plan for each region. That plan should assess the region’s capabilities and identify priorities for transition and development. Discretionary funding for regional development should be directed to the priorities identified through these strategic plans, with priorities justified by rigorous cost–benefit analyses. Where a regional community has experienced severe, pervasive and persistent changes, such that there is a strong likelihood of it becoming permanently disadvantaged, specific assistance may help ease the transition for vulnerable individuals. Public service decentralisation is generally a costly and ineffective way of promoting regional development. Government efforts are better directed toward improving the planning and delivery of infrastructure and government services.

Despite significant and systemic changes across Australia’s regions, most have continued to grow and prosper. History shows, however, that the factors underpinning regional activity do change and that some regions will inevitably decline. Good policy needs to recognise this reality in supporting regions to adapt to changing circumstances.

The focus of this chapter is to provide guidance on how the principles set out in chapter 2 can be implemented to support regional development and transition. In doing so, it highlights three main priorities:

removing regulatory impediments to growth

improving the effectiveness of regional planning and expenditure

identifying those rare occasions where specialised transition assistance may be appropriate.

In his 10^th satire, the Roman poet Juvenal wrote that the populace no longer wanted important facilities such as aqueducts, roads and sewers, instead preferring bread and circuses (panem et circenses). This desire for large projects (such as stadiums for entertainment) continues to this day, as governments in all jurisdictions announce — frequently without consulting the local community — major projects that have not been subject to rigorous and transparent cost–benefit analysis. These are also inferior to many projects that could help grow a region’s economy, such as maintenance and modest improvements to existing infrastructure over time. This is sometimes referred to as a ‘ribbon cutting’ problem: governments naturally want to be seen to be doing something, and modest improvements or daytoday governance are not as exciting or visible as a large and ‘visionary’ project. Transparent analysis of the various options can help demonstrate net benefits from smaller projects to the community and build its understanding of opportunity cost and the risks of gambling on major projects to resolve the underlying problems faced by many of Australia’s regions.

68.5.1 Removing unnecessary impediments

All governments can facilitate regional transition and development by removing obstacles that reduce flexibility and discourage people and business owners from taking up opportunities. Governments can do this by:

removing unjustified or excessively burdensome regulations that get in the way of business owners developing or adopting new products or services, accessing new markets, or working more efficiently

removing unnecessary impediments to people gaining new skills and finding employment in more profitable and viable industries or occupations.

This creates an environment conducive to employment and growth in regional communities and facilitates movement of labour and other resources between regions.

69.Removing unnecessary impediments to doing business

Previous Commission studies have identified unnecessary impediments facing business owners, including regulations that are inflexible or that have not kept pace with technology and other changes in the way businesses operate (box 5.1).

Impediments to more efficient use of land

Planning, zoning and development processes were cited by participants as a major impediment to regional adaptation and growth. Participants reported that complex and excessively prescriptive arrangements impose costs and delays on businesses seeking to expand, become more innovative, or take up new opportunities. For example, Regional Development Australia Pilbara submitted that:

The high cost of approvals, permits and licences for development in the mining sector continues to impose a constraint to development. Recently, the proprietors of the Roy Hill iron ore development in the West Pilbara stated that thousands of approvals, permits and licences were required to develop the mine. (sub. 6, p. 25)

Overly onerous environmental regulation or ‘green tape’ can also impose excessive costs and inhibit development (Minerals Council of Australia, sub. DR80, p. 31).²⁹ For example, Cairns Regional Council and Advance Cairns argued that:

Realisation of opportunities in the Cairns region are variously being held back by extreme environmental policies … Major additional costs … are currently being imposed on the urgently needed deepening of Cairns seaport to take increasing size of ships needing to use the port, by requiring onshore placement of dredged material. The cost of upgrading the Kuranda Range Road, Cairns’ main westward link in the region has been ‘blown out’ by excessive costs of meeting extreme environmental parameters. (sub. 13, pp. 45–46)

Restrictions on alternative land uses can also undermine the capacity of regional businesses to expand or improve productivity through investment and innovation. The Western Australian Local Government Association submitted that:

… the planning regime can act as a constraint on development, particularly in the case where new activities are not permitted land use under the existing Local Planning Scheme. … in situations where the development activity does not fall within the permitted uses, this will require the Scheme to be amended. Typically, the process to review and adopt a new Local Planning Scheme to accommodate land uses not covered previously has been unwieldy and time consuming. This can act as a barrier to new development and the diversification of the economy. (sub. 22, pp. 19–20)

Box 5.1 Regulatory impediments affecting regional businesses

Planning, zoning and development processes Planning, zoning and development regulatory processes can be a costly barrier to business entry and investment (PC 2011, 2015b) and can be complex, excessively prescriptive, and often anticompetitive (PC 2014e, p. 2, 2017b, p. 122). In agriculture, planning and zoning regulations often stifle innovation and impede farm businesses from becoming more efficient (PC 2016c, p. 57). In tourism, State and Territory governments’ development assessment frameworks can ‘impose unnecessarily high costs and delays’, partly due to duplication across governments (PC 2015a, p. 22). Recommendations to address these issues include: a greater emphasis on strategic land use plans (integrated across levels of government) to promote consistent decision making and simplify development assessments broad, simplified zoning definitions and development control instruments explicitly linking development assessment criteria to stated policy objectives a riskbased or ‘track’ system for development assessments, where development applications are subject to different levels of scrutiny in proportion to the degree of likely impact or risk (PC 2017b, p. 148) statutory timeframes for ensuring timely assessments (PC 2011, p. xlix) removing restrictions on land use from pastoral leases (PC 2016c, p. 35) applying competition policy principles to land use regulations and policies (PC 2017b, p. 146). Environmental regulation The complexity and cost of environmental regulation is evident in native vegetation and biodiversity conservation regulations, which can have unnecessary costs on farm businesses and limit farmers’ capacity to adapt and improve productivity. Complex, inflexible and duplicative regulations are responsible for this excess regulatory burden (PC 2016c, p. 105). Other agriculturerelated regulation Agriculture is a key sector for many regions (chapter 3). There would be benefits in streamlining or removing regulations that impede farm businesses from using more efficient production techniques, attracting investment, and taking advantage of new technologies, such as through: more consistent and streamlined arrangements for regulating heavy vehicle road access (PC 2016c, p. 345) increasing the screening thresholds for examination of foreign investments in agricultural land and agribusinesses by the Foreign Investment Review Board (PC 2016c, p. 527) removing moratoria on genetically modified crops (PC 2016c, p. 24). There is also scope for improving the way in which landowners are compensated for mining and exploration activities undertaken on agricultural land. For example, this can involve efforts to reduce transactions costs and improve transparency for landholders and gas companies in negotiating agreements relating to coal seam gas mining (PC 2015c, pp. 85–86).

As an example, under the Local Planning Scheme for the Shire of Chittering (Western Australia), ‘agricultural resource’ zoned land cannot be used for developing aged care accommodation, amusement facilities, car parks, convenience stores, fast food outlets, garden centres, hotels or motels, medical centres, resorts or service stations (WA DP 2017, pp. 54–56).

The quarantining of land for coal mining in the Latrobe Valley is one instance in which planning policy may be impeding development and adaptation in Victoria (box 5.2).

Box 5.2 Coal reserves and land use planning in the Latrobe Valley

The Victorian Government has identified the Latrobe Valley’s brown coal reserves as a resource of state significance, protected under state planning policy. Its State Planning Policy Framework (clause 14) stipulates that land use planning in the Latrobe region should: Protect the brown coal resource in Central Gippsland by ensuring that: Changes in use and development of land overlying coal resources … do not compromise the winning or processing of coal. (Vic DELWP 2017a, p. 104) Accordingly, the Gippsland Coalfields are subject to State Resource Overlay 1 under the Latrobe Planning Scheme. Applications to develop land affected by this overlay are assessed with regard to ‘the need to ensure development of the land does not inhibit the eventual development and use of the coal’ (Vic DELWP 2017a, p. 498). These arrangements have restricted alternative land uses in the Latrobe region, as observed by the Latrobe City Council (2016, pp. 3–6). The Council cited several examples in which plans to develop land have been thwarted by the overlay (Latrobe City Council, sub. 35). For example, it cited the Gippsland Heavy Industry Park site as ideally suited to various heavy industries due to its size, topography and separation from neighbouring residential areas. However, the State Resource Overlay has prevented ‘noncoal or energy related investments’ on this site (Latrobe City Council, sub. 35, attachment, p. 7).

A further issue raised relates to Indigenous land, and the scope for development of such land by or with Indigenous communities. James Cook University (sub. 24) considered that regulatory arrangements relating to land tenure impede Indigenous Australians from gaining the full economic benefits of their land. These concerns were echoed in a 2015 report prepared for the Council of Australian Governments, which recommended that Australian governments streamline native title processes to enable Indigenous owners to use their land for economic development and to raise capital for investment (Senior Officers Working Group 2015, p. 3). In its White Paper on Developing Northern Australia, the Australian Government (2015, p. 11) committed to improving the efficiency of native title processes to better enable Indigenous land to be used for economic purposes.

Labour shortages and impediments to the use of temporary workers

Regulatory arrangements in relation to temporary migrant workers can also create impediments for mining and agricultural businesses (chapter 3). Although temporary skilled migrants account for a small fraction of the mining workforce, over 90 per cent of them are highly skilled workers (Minerals Council of Australia, sub. DR80, p. 38). As a result, the Minerals Council of Australia expressed concern that recent changes to Australia’s temporary skilled migration arrangements:

… present considerable barriers to accessing and developing global leadership and technical talent in mining organisations operating in Australia and overseas. The additional introduction of new ‘more targeted’ occupation lists … was done without consultation and consideration of the business environment and have resulted in immediate impediments to the mining industry accessing crucial professional, management and technical skills. (sub. DR80, p. 38)

Many farm businesses hire temporary migrants to fill labour shortages, mostly through the Working Holiday Maker, Seasonal Worker and Temporary Work (Skilled) (subclass 457) visa programs (chapter 3). Excessive compliance costs and administrative complexity within temporary migration programs can impede farm businesses’ ability to employ temporary migrant workers (PC 2016a, pp. 381–382, 2016c, p. 30). The adoption of the recommendations of an independent review of the subclass 457 program (Azarias et al. 2014) would address some of these concerns (PC 2016a, p. 369, 2016c, p. 443).

In addition, some previous inquiry participants expressed concern about the impact of changes to the tax status of Working Holiday Makers on farmers’ ability to fill seasonal labour shortages. The Australian Government’s Seasonal Worker Incentive Trial, introduced from July 2017, may help to address this issue. The trial aims to encourage job seekers to take up shortterm placements to earn additional income, without affecting income support payments (Department of Employment, sub. DR75, p. 11).

70.Removing unnecessary impediments to pursuing new opportunities

There are many reasons why people may not take up job opportunities that require them to change occupations or locations. These include personal and social reasons, such as family commitments, lifestyle preferences, a region’s social infrastructure and amenities (RAI, sub. 12, pp. 15–16) and the costs of relocating. Changing occupations may also require workers to undertake education or training.

There are also regulatory arrangements that can make it more difficult for people in regional communities to pursue employment or training opportunities (box 5.3) and barriers that act to reduce mobility of workers and their families. These include:

occupational licensing requirements, particularly where there are different licensing schemes across states and territories — as noted by the Regional Australia Institute (sub. 12, p. 17). The Commission found that occupations such as tradespeople, real estate agents and other buildingrelated occupations are governed by jurisdictional occupational licensing, which can ‘impose a barrier on individuals who are considering working interstate’ (PC 2014b, p. 275)

land use planning restrictions (contributing to a lack of affordable housing) and stamp duty (increasing the cost of buying property and/or reducing the price received when selling property) — which can discourage people from moving to take up job opportunities (PC 2017b, p. 149).

Box 5.3 Regulatory impediments to moving between regions

Occupational licensing In its reviews of the operation of the Mutual Recognition Agreement (which enables licensed workers to work in different jurisdictions), the Commission recommended expanding the use of automatic mutual recognition to increase geographic labour mobility (PC 2015e, pp. 13–15). Australian Heads of Government and the New Zealand Prime Minister expect that the Cross Jurisdictional Review Forum will present a response to the report’s findings (DET 2017). However, two years after the report’s release, this meeting has not yet taken place, nor is there any public indication of when it will occur. Housing Participants in the Commission’s Geographic Labour Mobility study cited insufficient housing supply and a lack of affordable housing as barriers to geographic labour mobility (PC 2014b, pp. 22–23). Two regulatory areas were frequently cited as contributing to distorted housing costs: inefficient land use planning processes and the delayed release of land for residential development, which can limit housing availability stamp duty, which imposes additional costs on property transactions and discourages the buying and selling of property. The study also noted that tax arrangements that create a ‘bias towards home ownership’ (such as the capital gains tax exemption for the family home) could potentially impede labour mobility, as ‘home owners are less likely than renters to move’ (PC 2014b, p. 271).

Removing such barriers would enable people in regions to make better use of their existing resources. For instance, removing impediments to reemployment in other industries or occupations allows people to put their skills and knowledge to new uses. Removing unnecessary planning and development barriers also enables business owners to direct their financial resources to more profitable ends.

In some cases, barriers may exist in the form of inadequate information about alternative employment and business opportunities. Industry bodies and governments can help to remove this impediment by ‘providing adequate information on changes in labour market and business environments to stakeholders across regions’ (RAI, sub. 12, p. 16). Some Australian Governments already provide such information online, such as in the South Australian Government’s WorkReady website (SA DSD 2017) and the Australian Government’s Job Outlook website (DoE 2015).

The Commission has previously made recommendations on leading regulatory practices. These include having simple, streamlined and transparent regulatory processes, strong community engagement in overall regional planning (so that less consultation is required for development proposals), and coordination between regulators to avoid duplication (PC 2011, 2012a, 2013). Many of these practices have not been fully implemented (PC 2015b, 2017b). Implementing these recommendations would help to remove impediments to entrepreneurial activity in regional communities and foster an environment where people and business owners can more easily adapt to changing economic circumstances.

Finding 5.1

Governments can primarily facilitate successful development by removing unjustified or excessively burdensome regulations that impede people and businesses from taking advantage of opportunities. Significant benefits would arise from expediting regulatory reforms in land use planning and development, environmental, agriculturerelated regulation and occupational licensing. These ‘winwin’ reforms benefit all regions but are particularly important to regions that do not have the advantages and range of opportunities found in capital cities and major regional centres.