Two lengthy and important reports have recently been released by the Australian Government. The first is the
2010 edition of the Intergenerational Report produced by the Treasury and the second is the first edition of the
State of Australian Cities 2010 report produced by Major Cities Unit within Infrastructure Australia (1).
The 2010 edition of the Intergenerational Report is the third to be produced since 2002. Arguably, it is the most
comprehensive policy document produced by any level of government in Australia. It covers topics such as
Sustainable Society, Social Capital, Clean Energy, Health Care Costs, Productivity, Population Dynamics
and Infrastructure. It sets out the framework and evidence base for the nation and the policies which can drive
For the first time, the 2010 Intergenerational Report has started to think about the need to better manage our
cities. However, with the focus still squarely on macroeconomic indicators, cities only gain cursory treatment.
On the other hand the State of Australian Cities Report is attempting for the first time to draw together data and
information across a range of indicators (economic, social and environmental) to provide a snapshot of
Australian cities. While packed with statistics, this report highlights that there is a lack understanding of the
evidence base which is required to progress sustainable development of our cities.
But both reports show that cities have well and truly made it onto the policy radar for the Australian Government.
The Intergenerational Report provides a framework which national government agencies understand but does
not have enough focus on the major cities. Meanwhile, the State of Australian Cities report has the focus, but
lacks the framework and evidence required.
For example, much of the Intergenerational Report analysis is built around the three P's (Population, Participation
and Productivity). It presents considerable amounts of data on productivity in the recent past and around the
options to boost productivity into the future.
Rather than presenting data on city productivity, The State of Australian Cities report focuses on traffic
congestion as the key issue of concern in relation to national economic development. Undeniably, congestion
is important, but using the report's own numbers, the avoidable cost of congestion is worth less than 1% of GDP.
There are other, arguably more important factors which drive productivity in Australian cities. The authors of both
reports should look to draw inspiration from each other.
To provide some insight into what could be achieved by bringing the two reports closer together, Figure 1 overleaf
uses the 3 P's framework from the Intergenerational Report and applies it to Melbourne. Over the past 20 years
(1990 to 2009), the population aged 15 and over has grown relative to the whole population - so we have more
workers available. This has contributed 0.1 percentage points to Melbourne's GDP per capita growth. Increased
labour force participation (more people looking for work) has added another 0.2 percentage points to Melbourne's
GDP per capita growth. Labour force participation can be broken down into employment and hours worked.
Having more people in employment has added a further 0.4 percentage points to Melbourne's GDP per capita
growth. However, as part time workers have become more prevalent, the average number of hours worked per
worker has fallen. This has reduced Melbourne's GDP per capita growth by 0.7 percentage points.
Thus, two of the three P's (Population and Participation rate) have given us zero growth in GDP per capita growth.
Labour productivity (doing things more efficiently) has provided the main driver for GDP per capita. In the future,
with the population pyramid set to age we will need to continue to increase productivity in order to support a larger
So how do we boost labour productivity in a city like Melbourne? Improved transport linkages, increasing
employment densities within existing employment clusters and expanding the area of employment clusters
can all boost productivity. This productivity boost is brought about in a number of ways such as economies
of scope and scale, access to skilled labour, knowledge transfer and human capital development. This is what
the economic text books refer to as agglomeration.
We can observe that different industries gain differing increases in labour productivity from increases in
agglomeration. This relationship partially explains the vigorous competition for centrally located sites amongst
service-based firms. The premium paid for such sites is more than compensated by the increased productivity
from their operations in these strategic locations.
So what should these polices be? Four which jump to mind are:
• Providing high capacity employment space in existing employment hubs.
• Ensuring that the transport network can provide quick and effective access to different employment hubs
• Making sure that all residential development is integrated with or has access to a rich employment pool,
otherwise human capital development will be impeded.
• Road pricing can play a role in helping to ensuring that existing road networks are utilised more efficiently.
Policymakers need to lay out the evidence base and solid policies which can ensure that Australian cities remain
productive places to do business and provide a high level of livability for their residents. Perhaps the next editions
of the State of Australian Cities report and Intergenerational Report will provide this narrative for our cities.