Referral
1.1
On 14 February 2018, the Senate referred an inquiry into the indicators of, and impact of, regional inequality in Australia to the Senate Economics References Committee for inquiry and report by the last day of sitting in June 2019 with the following Terms of Reference:
The indicators of, and impact of, regional inequality in Australia, with particular reference to government policies and programs in the following areas:
(a)
fiscal policies at federal, state and local government levels;
(b)
improved co-ordination of federal, state and local government policies;
(c)
regional development policies;
(f)
building human capital;
(g)
enhancing local workforce skills;
(h)
employment arrangements;
(i)
decentralisation policies;
(l)
any other related matters.
1.2
On 28 June 2019, the committee tabled an Interim Report and on 30 July 2019, the inquiry was re‑referred to the committee by the Senate. Following the re‑referral, the reporting date was 5 December 2019, but on 27 November 2019 this was extended to 25 June 2020. The reporting date was then extended again until 3 December 2020.
Conduct of the inquiry
1.3
Details of the inquiry were placed on the committee's website. The committee also contacted a number of relevant individuals and organisations to notify them of the inquiry and invite submissions. All submissions received are listed at Appendix 1.
1.4
As at the date of tabling, the committee has received a total of 148 submissions (129 during the 45th Parliament and a further 19 during the 46th) and has conducted five public hearings in the following regional areas:
Emerald — 29 August 2018;
Darwin — 5 November 2018;
Townsville — 7 November 2018;
Port Augusta — 19 November 2019; and
Traralgon — 21 November 2019.
1.5
Participants at those public hearings are listed at Appendix 2.
1.6
Given the inquiry's re‑referral, this Final Report is intended to summarise the evidence received in the 45th Parliament.
1.7
References to Hansard in footnotes and other places refer to the Proof versions and may be different to the final Official versions.
Regional inequality
1.8
Australia has a long history of aiming toward equal opportunity across the country. This aim is formally embodied in the principle of horizontal fiscal equalisation (HFE) administered through the establishment of the Commonwealth Grants Commission in 1933 during the Great Depression—primarily designed to compensate state and territories which have a lower capacity to raise revenue. Australia's style of HFE is unique among Organisation for Economic Co-operation and Development (OECD) economies with its aim of equalising states' fiscal capacities to deliver the necessary public services through the redistribution of federal taxes. Today, the majority of the distributed funds are the revenues raised from the broad-based consumption Goods and Services tax introduced in 1999.
1.9
The HFE funds are provided unencumbered to state and territories for their use. As such, HFE equalises fiscal capacity not fiscal policies that states and territories may adopt. While states constantly seek re-examination of the methodology of the HFE's distribution in the hope of a more generous outcome, the Productivity Commission, in its recent HFE report, noted the following shortfall of the HFE:
…the HFE system impedes economic growth by acting as a disincentive for State governments to reform their own tax system or to develop particular industries or projects, or by cross‑subsidising states that ban mineral or energy extraction.
1.10
Nevertheless, what is well recognised is that living standards across Australia are not equal. People in regions away from the capital cities generally have lower incomes, poorer health outcomes, less access to services, and fewer opportunities for their children. Many factors contribute to these discrepancies, and they can reinforce each other to create a spiral of disadvantage.
1.11
Still in the face of this some communities are managing to defy those multiple barriers and improve the outlook for their regions. This inquiry looks at how inequality in, and between the regions, can be reduced and, in particular, how we can learn from those successes in Australia and possibly overseas.
International work on inequality
1.12
Inequality within communities has become a matter for discussion worldwide. The OECD and the International Monetary Fund (IMF) has undertaken numerous studies on the subject for several years. In 2018, the IMF declared:
While some inequality is inevitable in a market-based economic system, excessive inequality can erode social cohesion, lead to political polarization, and ultimately lower economic growth.
1.13
Similarly, the Secretary-General of the OECD summarised a large body of work:
This compelling evidence proves that addressing high and growing inequality is critical to promote strong and sustained growth and needs to be at the centre of the policy debate...Countries that promote equal opportunity for all from an early age are those that will grow and prosper.
1.14
Thus, inequality in itself appears to be a drag on economic growth.
1.15
Regional inequality has been one focus of the OECD's work. Their publication, Regions at a Glance 2016, finds that most countries are closing the gap between regions in education and internet access, but disparities in GDP per head and disposable income are widening in many countries. The disposable income per capita gap between the richest and poorest parts of OECD countries grew 1.5 per cent a year on average over 2000–13.
1.16
Despite this concern, regional inequality has been increasing in many countries. In the United Kingdom, it has been described as 'an urgent policy priority'; so much so, that it has been blamed in part for such dramatic consequences as the vote to leave the European Union.
1.17
The greater prosperity of large population centres seems to be self-fulfilling. Discussing the markedly higher growth in economic output and employment in big cities than in small centres since 2010, writers from the Brookings Institution in the US remarked:
…the fact remains that the dynamics underway are at least in part an ineluctable expression of a fundamental change in the nation’s economic order, likely tied to the increased power of tech-related agglomeration economies, which select for large and dense places and that are likely biased against small ones.
1.18
While there has been debate, the evidence seems to suggest that inequality has increased in Australia over the last 20 years. While inequality within cities and within regions is probably at least as great as the inequalities between cities and regions, there is no doubt that there is a pattern of increasing regional disadvantage.
1.19
Professor Paul Barton, however, suggests a degree of caution arguing that inequality is not necessarily inequity:
Economic geographers have long spoken of uneven development as an empirical reality, especially but not exclusively under capitalist systems. In this case, for a variety of reasons including underlying geographical features and attributes as well as historic patterns of development and policy impact, we should expect to see uneven or unequal patterns of social and economic development. Indeed a national pattern of development that revealed a very high degree of similarity would not be highly unusual, but would suggest a degree of top-down or central control of development that was incompatible with the operation of a liberal democracy and a federal system of government. In other fields, the notion of inequality is contrasted with that of inequity, once a set of value judgements is applied to a description of inequality. In this case it is important to understand the causes of unequal or uneven regional development patterns and then to determine whether or not (or the extent to which) they represent an inequitable or unfair outcome.
Defining 'regional Australia'
1.20
There are different definitions and criteria that can be used to identify Australia’s regions. These definitions are largely shaped by the purpose for which the distinction is required. For example, the purpose could be to capture data, to make policy and investment decisions, to secure funding, or to meet particular administrative needs.
1.21
A broad and inclusive definition of rural and regional Australia, similar to that used by the Regional Australia Institute (RAI), may perhaps be the most suitable for this inquiry. The RAI defines regional Australia as all the towns, cities, and areas outside Australia’s largest capital cities; Sydney, Melbourne, Brisbane, Adelaide, Perth and Canberra.
1.22
The rationale for using this definition is that it focusses attention on those towns and cities where the majority of Australians are not concentrated – i.e. those areas that are usually excluded from general discussions of Australia, its population, its economy and the policy options for securing continued growth and prosperity.
Definitional limitations
1.23
Regional Australia is not a homogeneous category defined simply by what it is not; a major capital city. Regions are diverse, each holding unique potentials and challenges, and regional development policy must be tailored to address this diversity.
1.24
Professor Robyn Eversole observed that:
…regional Australia is a cultural imaginary: in practice, every region is different.
1.25
There are complexities in identifying appropriate regional units to which policy responses can be developed, co-ordinated and managed. While some types of units—functional economic regions (FERs), local government areas or Regional Development Australia (RDA) Committees—may be appropriate for some purposes, they might not work for others.
1.26
Similarly, the Newcastle City Council observed that definitions are not always consistently applied—particularly with regard to funding:
There remains an ongoing discrepancy between the Federal and State Government's approach to the classification of the City of Newcastle as either 'regional' or 'metropolitan'. Australian state capital cities are no longer the only metropolitan areas. Whilst our cities are being recognised at home and around the world as world class, and global cities, the approach from State and Federal government funding bodies is unclear. Consistency is required.
Metrics: measuring regional inequality
1.27
Measuring inequality is a problematic task as there are a number of approaches and definitions that can be used.
1.28
Matthew Adler noted that there are currently a wide range of metrics used in academic scholarship and by governments and non-government organisations:
…equity is measurable; the real difficulty is choosing between these metrics.
1.29
Frank Cowell, noted in his publication, Measuring Inequality, that: 'inequality obviously suggests a departure from some idea of equality', but that the term 'equality' evidently has social overtones that presume that a society can achieve that goal amongst its population. Cowell also noted the work of Professors Rein and Miller, who identified nine separate ways of measuring or defining inequality:
(a)
One-hundred-percentism: in other words, complete horizontal equity equal treatment of equals.
(b)
The social minimum: here one aims to ensure that no one falls below some minimum standard of well-being.
(c)
Equalisation of lifetime income profiles: this focuses on inequality of future income prospects, rather than on the people's current position.
(d)
Mobility: that is, a desire to narrow the differentials and to reduce the barriers between occupational groups.
(e)
Economic inclusion: the objective is to reduce or eliminate the feeling of exclusion from society caused by differences in incomes or some other endowment.
(f)
Income shares: society aims to increase the share of national income (or some other cake) enjoyed by a relatively disadvantaged group such as the lowest tenth of income recipients.
(g)
Lowering the ceiling: attention is directed towards limiting the share of the cake enjoyed by a relatively advantaged section of the population.
(h)
Avoidance of income and wealth crystallisation: this just means eliminating the disproportionate advantages (or disadvantages) in education, political power, social acceptability and so on that may be entailed by an advantage (or disadvantage) in the income or wealth scale.
(i)
International yardsticks: a nation takes as its goal that it should be no more unequal than another comparable nation.
1.30
Cowell noted that the list was not exhaustive, but provided a good illustration of the diversity of views about inequality that didn't even begin to consider the political, moral or economic dimensions which may be present in any reasoned discussion of equality and inequality.
1.31
Bryden Morton and Chris Blair explain that macroeconomic studies have used a number of different methodologies for measuring income inequality at country or regional level. These methods include, but are not limited to:
Coefficients of Variation; and
1.32
Each methodology measures income inequality from a different perspective and provides the user with different information and interpretations. Bryden Morton and Chris Blair believe that a methodology which makes use of a number of different income inequality measures would give a more thorough understanding of the sources of income inequality.
Socio Economic Indexes For Areas (SEIFA)
1.33
In Australia, the Australian Bureau of Statistics (ABS) uses a tool called SEIFA (Socio Economic Indexes For Areas) which is designed to measure social and economic conditions using information collected from the Australian Census.
1.34
SEIFA contains a set of four indexes which summarise different aspects of social and economic advantage and disadvantage. For each index, every geographic area in Australia is given a SEIFA score and, through this index score, comparison can be made to find the most disadvantaged areas across Australia.
1.35
The ABS broadly defines relative socio-economic advantage and disadvantage in terms of people’s access to material and social resources, and their ability to participate in society. This concept is used to develop the following four indexes which summarise different aspects of advantage and disadvantage:
the index of disadvantage;
the index of advantage and disadvantage;
the index of economic resources; and
the index of education and occupation.
1.36
The index score is a data-driven summary of social and economic indicators of advantage and disadvantage. The indicators used are based on education, occupation, employment, income, families, and housing. Indicators of both advantage and disadvantage are included in this index. Once a final set of indicators have been chosen, they are combined to produce an index score which summarises the socio-economic conditions of the geographic area.
1.37
The ABS believes that there are many ways that SEIFA can be used effectively. For example, SEIFA can be used to allocate government funding and services that depend on how relatively disadvantaged an area is. Additionally, the ABS believes that SEIFA allows policy evaluation to take account of varying levels of socio-economic conditions between different areas. Finally, the ABS believes social and economic research can benefit from the use of SEIFA, such as investigating the relationship between health outcomes and socio-economic conditions of an area.
1.38
The SEIFA index has been referred to in a number of submissions, including that of the Department of Infrastructure, Regional Development and Cities.