National urban policy - careful what you wish for

Posted April 21, 2022

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SGS Economics and Planning Marcus Spiller

Come federal election time many in the urban policy community search for signs that an incoming Commonwealth Government will show stronger leadership on cities.

Some will hark back to the glory days of national urban policy, prosecuted by the all-reform, all-action Whitlam Labor Government of the 1970s. The Whitlam government had a clear vision for Australian cities and led from the front – and it coaxed, cajoled, bribed, and monstered the states and territories to get on board.

Is this the kind of leadership and national urban policy we need now? After all, our cities today are beset by a spookily similar array of structural challenges as they were back in the 1970s, but with climate change thrown into the mix.

Well, be careful what you wish for. In many respects, it would be better if the Commonwealth scaled back its involvement in urban policy and let state and local governments get on with the job.

What should the role of the commonwealth be when it comes to towns and cities?

It is important to ask two basic questions. Firstly, why do we have a Commonwealth Government? Secondly, what value can it add to the sustainability, prosperity, and inclusiveness of our towns and cities over and above that which can be achieved by the states, territories and local governments empowered to fulfil their mandates?

One of the founding purposes of the Commonwealth is the achievement of reasonably even living standards across the nation through ‘horizontal fiscal equalisation’. This means topping up the self-generated revenues of states and territories which have smaller tax bases or inherently higher costs due to, say, geographic scale. Equalisation is also pursued via a largely centralised tax and transfer system.

These systems can always be improved. But overall, Australia performs pretty well by world standards on horizontal equalisation.

If we assume that the states and territories are more or less on a level playing field when it comes to managing settlement patterns in their respective jurisdictions, what more do we want the Commonwealth to do on cities, if anything?

Applying the subsidiarity test, there is no point in the Commonwealth duplicating the urban planning, infrastructure, and community-building programs that the state and territory and local governments would see as core business for their own jurisdictions.

This notwithstanding, Prime Minister Morrison has waved away concerns about duplication, arguing that local communities are the winners from all this attention and, to paraphrase, ‘what could be wrong with that?’ For a start, there is the sheer waste involved in function duplication.

Reckless meddling undermines faith in institutions

Then there is the undermining of faith in institutions and the political process.

It is very tempting for the Commonwealth Government to use its fiscal power – it collects way more taxes than needed to deliver its constitutionally mandated functions in national security, trade, national economic integration, and fiscal equalisation – to curry favour with local communities if there is an electoral advantage in the offing.

We have seen this with federal grant programs for all manner of (very) local infrastructures, from changing sheds for sporting clubs to high street commuter car parks where, apparently, Ministers (no less) have unfettered discretion on which voters get the lollies. Communities seeing Ministers bypassing institutional protocols, like independent civil service advice on project merits and the logical allocation of functions across the spheres of governance, can be forgiven for a creeping cynicism that politicians are only in it for the power.

Moreover, reckless meddling in the service functions of subsidiary layers of government fosters an insidious obfuscation of accountability in our democracy. If the Commonwealth is doing the same things as the states, territories, and local governments, who does the citizen hold responsible when services are not up to scratch?

The Commonwealth is not best placed to manage local resource allocation

It might be obvious to many, if not all, that the Commonwealth is not best placed to treat local communities on the tax/spend/regulatory trade-offs involved in resolving which sports groups require changing sheds or whether commuter car parks should be part of a transport plan for a city or corridor. It would be much better if the Commonwealth returned these funds, untied, to the states and territory governments who are demonstrably more competent in the subsidiarity sense to make these resource allocation decisions.

This is not to say that, as urban policy involves place-based infrastructure and planning regulation, the Commonwealth has no role in cities, but it does mean that the Commonwealth should be careful about where and when to intervene, lest it undermines the nation’s capacity to evolve a more sustainable pattern of settlement.

The Commonwealth has a legitimate interest in the achievement of city outcomes in the national interest

The Commonwealth’s role should be circumscribed by the achievement of city outcomes that the Government deems to be essential in the national interests, which are those that are outside the subsidiarity remit of the states and territories. They relate to national economic integration or trade between the states, stewardship of the national economy, national security, and international relations (including treaties).

Viewed through this lens, the Commonwealth can have legitimate expectations for Australia’s settlement pattern and cities that may not be spontaneously fulfilled by the states and territories implementing planning and infrastructure policies acting in their own interests.

What might a contemporary national urban policy look like?

A contemporary national urban policy that respects the role and value offered by state, territory, and local governments would have four distinguishing features:

Premise that subsidiary governments are competent

Firstly, it would be explicitly premised on the assumption that subsidiary governments are competent within their own jurisdictions and can be relied upon to act responsibly in the best interests of their constituencies. This might sound gratuitous. Historically, however, there are many examples of the Commonwealth treating the States and Territories with disdain, including Whitlam’s cavalier critique of the need for the States, Keating’s derisive quip to ‘never get between a State Premier and a bucket of money’ – notwithstanding that much of the money in question was (and is) rightfully due to these jurisdictions – and the current Commonwealth Government’s entirely unapologetic meanderings into hyper-local infrastructure decisions. The leadership and superior competence in local matters demonstrated by State, Territory and local governments in the context of the COVID-19 pandemic may have caused a reset on these prejudices.

Articulate the national interest in cities

Secondly, the Commonwealth needs to do the hard thinking required to clearly articulate what the ‘national interest’ is in settlement patterns and cities. The test is not whether the matter in question has national consequences; most urban matters, including local development controls, would meet this criterion, as we have seen argued in the recent Falinski Committee report into housing affordability. Rather, the test is a more nuanced and challenging one. As discussed, it requires precise definition of what the nation requires in its urban and regional development patterns that cannot be expected to arise ‘naturally’ as a result of the States, Territories, and local governments going about their business within their competency mandates.

Mostly, the work of subsidiary governments will be delivering outcomes that align with national interests simply because of the broad alignment between State and national constituency interests. There will be, however, a handful of areas where a Commonwealth nudge will be warranted. These need to be crisply defined and, ideally, expressed in measurable goals. These could be interpreted as a ‘national settlement strategy’, but would have a far narrower scope than, say, Whitlam’s grand vision. It would be confined, perhaps, to inter-metropolitan links, accelerated climate adaption/mitigation in line with international treaties, and investments required to support national security.

Align Commonwealth investment with national goals

Thirdly, the Commonwealth should direct its own jurisdictional investment and program spending in line with these national goals. The corollary of this is that the federal government would get out of investments and programs that do not have a clear link to these national interests. This means abolishing local community infrastructure grant programs and desisting from meddling in the infrastructure priorities established by the States and Territories under their own competencies. A further consequence of this approach should be a gradual transfer of baseload funding for infrastructure from the Commonwealth budget to State and Territory coffers.

Infrastructure Australia could be repurposed to produce the national settlement strategy and to advise Government on what projects within its own jurisdiction are genuinely aligned to the national interest.

Establish a national urban adjustment fund

Fourthly, for areas outside its jurisdiction, the Commonwealth would establish a national urban adjustment fund. Channelling the micro-economic reform model, this would provide additional untied grants to States and Territories which sign up to deliver mutually agreed outcomes derived from the national settlement strategy. Infrastructure Australia’s revised mandate could include oversight of these agreements and performance monitoring.

This is what we should be hearing about during the election campaign, not which car parks or change sheds the Commonwealth will deliver.

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SGS Economics Planning Marcus Spiller
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