New deal for cities will mean a great deal for the nation

Cities have fast become an area of furious policy focus for both major political parties.

The federal opposition has proposed a $10 billion infrastructure bank while the government is examining innovative infrastructure funding models out of the US and Britain. But either option must first clear the big federalism challenge of how a federal cities policy might work in what has traditionally been the states’ turf.

There is no doubt it’s vital our fast-growing cities (with the second-fastest population growth in the OECD) don’t become overwhelmed with this growth.

The commonwealth shouldn’t stand back and risk a productivity crisis in the economic heartland of our nation. After all, more than 80 per cent of Australia’s economic activity is generated in its cities.

So how best to use federalism to boost productivity in our cities without our governments tripping over each other?

It’s not too hard to find misty-eyed advocates of central planning nirvanas that even Tom Uren would have baulked at. And there is no doubt that there are plenty of inefficiencies and overlaps in our federation. But collaborative federalism has had its successes too.

Think the highly successful 1990s national competition policy or the current government’s asset recycling infrastructure incentive. At the heart of these was an agreement around a common set of goals and shared responsibility — a deal between governments.

What is needed isn’t the exclusion of the commonwealth, rather a clearly defined role so our governments come together to ensure our cities are productive, prosperous and liveable, even as they undergo significant growth.

Malcolm Turnbull should look to his conservative counterpart in Britain for a great working example. Prime Minister David Cameron has unambiguously said that good cities policy is good economic policy. And he has found a way to institutionalise good long-term planning.

It’s called a city deal and it tackles two of the biggest challenges associated with good long-term planning: the total disregard for place in many of the actions of government (spatially blind policy), and the herculean challenge of getting alignment between ­different levels of government.

The Cameron government has signed more than 20 city deals, with others to follow. Last year the Property Council of Australia commissioned KPMG to analyse the approach and its potential benefits here.

At the heart of the British program is a deal, a formal agreement between different levels of government on what investments and programs are needed to maximise economic growth in a city region.

The purpose of the city deal is economic growth. This is absolutely vital. It gives priority to the needs of the knowledge economy to improve productivity and boost prosperity and jobs. Responsibility for the program lies with Britain’s treasury, not a planning department. Projects that best meet these criteria are put forward. Government seed funding acts as the enabler and the government’s expert Regeneration Investment Organisation steps in to help match projects with sources of capital.

Money is one of the key obstacles to the Turnbull government’s cities agenda. But the British approach provides a way to overcome this hurdle with a built-in ‘earn-back incentive’. With extra economic activity comes stronger revenue flows to government and these increased revenue streams are used to invest back into the city regions.

This provides a powerful motivator to bring disparate decision makers together to get the elements of the program right. And it’s working — the first offer for projects was oversubscribed some 10 times.

Public and private partnerships, with all levels of government working together on projects that create jobs and better cities, tick all the boxes Malcolm Turnbull has put on the table. But it also addresses one of the central economic challenges: lifting our sluggish productivity levels.

As our cities continue to grow one of our biggest challenges will be to ensure they are better for this growth. Perhaps Australia’s biggest economic threat is that our cities may become less productive over time, dragged down by grinding congestion, declining livability and reduced connectivity. A new deal for cities might just be a good deal for Australia.

First published in The Australian Business Review as Opinion: