As Melbourne booms, the regions are left in the dust
Melbourne and the broader metropolitan area are performing strongly compared with all other cities and regions, with a contribution of around 40 per cent to national GDP growth. Forecasts for gross state product in last week’s State Budget Update show that activity will taper off slightly over the next four years. To be fair, Victoria’s growth rate does compare well with other states, but it also masks underlying risks that could seriously threaten economic output in the future.
The Budget Update also highlights that, at the moment, activity is being driven largely by public demand – that is, major infrastructure spending. Of course, such investments are essential, but it’s important to make three observations here. First, most of the capital portfolio is focused on Melbourne. This is vital, and it’s true that Melbourne-based projects indirectly help our regions too, but it can’t become an excuse for delaying or sacrificing urgent projects across the state. Second, the waste of precious capital expenditure is not the only reason why cost blowouts on major projects are harmful. The waste also means that those funds cannot be allocated to projects across the state. Third, it’s vital that the government fix up the debacle around the Murray Basin Rail Project and the problems besieging VLine. The list of challenges is longer than this and regional Victoria is entitled to demand much more.
The magnitude of the disparity is just not acceptable in a state like Victoria. Sure, certain factors have aggravated the decline in economic activity across the regions. Right now the drought is hitting the agricultural and broader farming sectors with punishing force compounded by subdued private demand. That’s why in 2020, this issue needs to be given high priority.
The solutions to these problems don’t have to elude us. We just have to accept that no one solution will remedy everything to further diversify the Victorian economy by both sector and geography.
A first order issue is to get on with regional fast rail, but not through a project-by-project approach. We need a comprehensive and coordinated plan to deliver regional fast rail that will leave the state connected in a way it has not been at any time in its history. It will benefit the regions and, amongst so many other things, relieve Melbourne of significant pressure.
If we are serious about planning for the state’s rapid long term growth, we must decide on additional port capacity and eventually a third international airport, most probably in the South East of Melbourne. Tullamarine will continue its rapid growth and desperately needs airport rail not built on the cheap. (Note to Government, please adopt the tunnel-to-Sunshine option.)
These are just a few examples among many. Addressing the plight of regional Victoria, however, will take more than infrastructure spending.
A comprehensive view of the economy across regional Victoria shows there are sectors where we could and should be performing much better.
With Melbourne performing so strongly in professional services, it’s interesting to note that activity from professional services went backwards in regional Victoria in 2018-19. The regions also saw heavy declines in sectors such as agriculture (sadly, drought-related for the most part), transport, media and telecommunications.
We need to be more ambitious for these and other sectors in regional Victoria.
Government, too, can use procurement more broadly to support regional Victoria. Why can’t more legal services, for instance, be obtained from regional firms that find it hard to compete in tender processes with city-based firms? Easing the conditions for local firms to secure government work would help them attract and retain staff, as well as generate local demand. It’s one example in a $455 billion economy, but you get my drift.
Another way to help regional Victoria is to look at what role global firms can play. While a chief aim is to attract large firms to locate their global headquarters in Melbourne, we should also look at how we can encourage global firms to locate branch offices in regional Victoria.
Imagine the beneficial impact of, say, one of the big four global accounting firms locating a divisional office in a regional city like Bendigo or Shepparton. Connectivity means there are fewer practical obstacles to this. It would boost confidence enormously in local communities and give staff unique experiences to complement their firms’ broad objects. Having grown up in Traralgon, I feel strongly that more of the public debate in 2020 needs to focus on making sure Victorians living in regional areas have, as far as possible, the same opportunities as everyone else.
John Pesutto was Victoria’s Shadow Attorney General from 2014 to 2018 and is a Senior Fellow at the School of Government at Melbourne University.