Saturday, September 15, 2012

Not waving, drowning.

The Queensland Government’s first budget attracted plenty of attention. Now, as the budget reaction settles, it could be time to turn attention to some of the non-budgetary measures which won’t cost the state anything but which have the potential to stimulate the economy quickly and start generating much needed cash flows and taxes in the economy.

The fiscal measures contained in the new LNP Government Budget have drawn an extraordinary amount of media and public attention. The reality of cutting costs though really shouldn’t have come as any surprise. Mr Micawber (from Dicken’s David Copperfield) knew the formula well:

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

The reality which seems to have been lost is simply that you can’t pay for public services (or public servants) unless there are sufficient taxes generated by the private sector to pay for it. You can’t have the public without the private. And the private sector in Queensland has been weakened – construction is down, confidence is down, tourism is down and agriculture has had a rough trot at the hands of some variable seasons (the latest being an exception).  The government either raises taxes or cuts costs. It did a bit of both.

Some industry groups had pressed for tax cuts, including in the property sector. As justified as lower taxes might be, I never really saw how this new government could deliver cuts given the economy and budget it inherited. They will hopefully come in future budgets but there are in the meantime plenty of things the government can now turn attention to, which won’t cost the budget but which will have just as big an impact on restoring confidence and stimulating the appetite for risk.

As I pointed out back in April (read it here) tax cuts alone are only a part of the solution. The bigger challenge in many ways will be to cut the excessive burdens of regulatory compliance which have so effectively stifled development in the property and tourism sectors – for nil apparent gain.

Red tape (or green tape as much of it is now called) has grown exponentially in the last decade and as it grew, the willingness to continue by those subject to it, diminished. Development activity (the supply of new houses and apartments, the creation of new retail infrastructure or the creation of new tourism assets) has reached a generational low.

(I always thought the colour coding approach adopted by bureaucracies is an insight into where it all leads: a ‘green paper’ gets drafted for comment which later turns into a ‘white paper’ and this then turns itself into ‘red tape’ which leads us all into a ‘black hole.’ You see, it’s easy once you understand the process!)

Here’s one example. The current ‘Sustainable Planning Act’ in Queensland runs to nearly 750 pages. That doesn’t include any number of consequential regulations or referral legislation. Quite a page count! (I’m told the brag by some members of the previous government was that a KPI of the Sustainable Planning Act was that the word ‘sustainable’ appeared on nearly every page. Sustain-a-babble more like it).  By contrast, the Local Government (Planning and Environment) Act of the 1990s ran to 170 pages.  So we now allegedly need 750 pages of legislation to do what 170 pages used to accomplish at less cost, faster and with more certainty 15 years ago. Are the outcomes today any better? No. So what was the point?

The same story could be repeated across any number of local governments whose planning administrations have grown exponentially in that time, delivering in the process only the same outcomes but costing vastly more and taking a great deal longer and with a good deal less certainty. (I wonder on that score how the nearly 300 staff of the Sunshine Coast Council ‘planning directorate’ are faring? They would be immune from State Budget cuts but surely something will have to happen… having more planners per head of population than doctors is a sign that things aren’t so sunny on the Sunny Coast).

Some simple observations point to the extent of over exuberant regulatory controls. For example, why is building a residential house in a residential area now subject to a costly and lengthy development assessment process with the local council? Why does this simple act of building a house invite people to ‘Have Your Say’? Surely the relevant building or design codes are enough. If neighbours don’t like the architectural style of the house you want to build on your property, it’s none of their damn business, provided it meets code guidelines. Private certification, not assessment teams at the Council, should be all the process required.

It used to be that the simple question of ‘what can I do on that particular block of land’ was answered in a pretty straightforward way. Now, it all depends – it depends on what ideas you have, it depends on how the regulatory planners and local politicians feel about those ideas, it depends on how tenacious you are in pressing for the most permissive approvals possible, it depends on what your neighbours think, it depends on what any number of other government departments think, it depends on what the green movement thinks, and it can also depend on what the local media think. Get all those unknowns lined up, and you can get moving. 

All that the additional regulation has done is create more ambiguity. More words equal less clarity. My suggestion to the government and to local councils is to dust off the planning laws of 20 years ago, give them a modern title and use that as a starting point.

If clarity is one objective we should aim for with less red tape, so too is flexibility. That may sound counter-intuitive but it doesn’t need to be. Planning laws can be more specific about the types of outcomes they will support in certain locations. For example, converting standard detached residential to small lot housing for seniors in areas surrounding shopping centres seems a no-brainer.

So too does encouraging an expansion of competition in the retail sector. The dominance of Woolworths and Coles and of shopping centre owners under ‘centres policy’ has created a significant barrier for entry for new retail businesses. Aldi, for example, is on the record for targeting Victoria for expansion because its planning laws are superior to Queensland. Having some of the highest retail rents in the world is not a good thing, and more competition in retail by allowing more retail space to be created outside the existing rigid footprints is one way to fix it.

And when it comes to flexibility, let’s tackle the iron clad provisions of the unworkable South East Queensland Regional Plan. The flawed maths behind the targets of the SEQ Regional Plan have been covered before, but there’s also the nonsense of a rigid urban boundary, one side of which allows development, while the other preserves historic uses. This ultimately comes down to one side of the street or another. Inside that boundary, competition (demand) for land rises (as do costs) due to the artificial scarcity imposed; outside the boundary land is arguably undervalued and under-utilised.

There have already been some alarmists warning of environmental doomsday if this were to change (read a few of them here) but change it has to. There can still be some general intention of an urban boundary but maybe rather than using a thin black regulatory line, try some very pale watercolours instead, so that the transition zones are bit less defined? This could even appeal to the advanced finger painting set which have colour coded pretty much every parcel of land in Queensland according to rigid land use thinking. Now they can do it all again but with water colours?

Improvements though are starting to happen. Recently, COAG released a good report on Housing Supply and Affordability Reform (well worth a read, click here if you’re interested) and last week, Deputy Premier and Planning Minister Jeff Seeney announced some initial moves to reform planning legislation. (View it here in case you missed it amongst all the budget noise).

But most encouraging for me was getting a phone call from someone in an office of regulatory reform (can’t recall the exact title) who was doing some homework for the Queensland Government on regulatory overkill. He had read the recent Pulse on tourism and was looking for some case studies. We had a good chat and I pointed him in the direction of a few people with some pretty sorrowful stories to tell, and even shared my own frustration at the banning of septic tanks and how even going to the toilet has now become a costly victim of regulatory overkill and a disincentive for micro tourism development.

Maybe it’s a sign?