Garnaut Fitzgerald Review of Commonwealth-State Funding

CHAPTER 11: Simplicity, Transparency and Accountability –
Anomalies and Unintended Consequences
Big cities and urban transit demands
The CGC’s current assessments do not adequately, in our view, account for the higher
costs faced by larger cities due to increased urban density and greater congestion.
These costs are particularly apparent in three areas: transport, social welfare and law
and order. (This issue is separate from the one raised in Chapter 10, of whether it
makes sense to compensate States for externalities associated with large city sizes.)
Transport
Congested cities rely heavily on efficient private (road) and public transport networks.
Road networks in congested cities typically operate very close to their absolute capacity.
A minor breakdown or burst water main can cause traffic jams and delays for hours. To
overcome this problem the Governments of larger cities attempt to build additional
capacity. Typically there is no room at surface level, so overpasses and tunnels must be
built at high costs. Expensive monitoring systems are also needed to supervise and
divert traffic flows when necessary. While the CGC makes some allowance for these
costs, it is far less than these cities are required to spend.
While all cities provide a public transport network, it becomes an essential part of the
economic and environmental infrastructure in the largest and most heavily congested
cities. While public transport systems generally only account for a small number of total
trips, most of these trips occur in peak periods. Governments are therefore led to
subsidise public transport, since the cost of these subsidies is less than the prohibitively
high cost of expanding the road network to accommodate additional cars. The
environmental costs of additional cars in already polluted cities are further reason that
these cities subsidise public transport.
Social welfare
Larger and congested cities typically have higher property values, which creates
particular pressure on people on social welfare or earning low incomes. State housing
authorities accommodate some of these people, although most have long waiting lists. It
is more expensive for State housing authorities in congested cities to buy or rent
housing for their tenants. Commonwealth rent assistance to tenants also has far less
purchasing power. For people who are able to find accommodation, the rent or
mortgage payments consume a disproportionate amount of their income, increasing
their vulnerability to other social problems.
The CGC’s current assessments do not consider higher costs faced by government
housing authorities in congested cities. They also do not consider additional costs to
community service departments created by people who are forced to over-extend
themselves in order to gain a foothold in an expensive housing market.
It might be argued that higher property values are associated with greater taxation
capacity that, if utilised effectively, could fund the higher costs of housing services.
Under the current HFE system, however, the greater revenue capacity is equalised
away.
FINAL REPORT [163]