Regional Australia: going downhill, fast.

Regional areas are an important part of Australia’s social and cultural identity. Regional Australia is also responsible for 40 per cent of the country’s total economic output, with a diverse range of labour markets and high productivity contributing positively to the wider economy.

Despite this, in some areas there is an asymmetry between the contribution of regional areas as a source of growth and opportunity and the investments that are made in developing and improving the well-being of rural and regional communities.

To address this disparity most governments across Australia have agencies or departments that focus on regional development and investment. Significant funding is directed to regional and rural areas every year to help ensure they have the infrastructure and resources required for economic growth and development. However, investment is not just undertaken to meet narrow economic goals. Equity is also a key driver of investment, assisting regional and rural communities to access the same living standards as people from metropolitan areas.

Aither has undertaken evaluations, incorporating cost-benefit analysis, of a range of regional development investments, including recreation assets such as mountain bike trails. From our experience, investments that are; targeted towards addressing a specific market failure; result in a high number of users, and cannot be readily substituted by other existing goods and services are most likely to lead to a positive net present value (NPV).

Individual recreational assets such as mountain bike trails often meet these characteristics. Combined with the fact that these investments are generally small in comparison to the number of users they attract it is not surprising that benefits to regional areas often far exceed the costs of investment.

However, the benefits of these investments might not always seem as attractive when viewed from a state perspective. States are often interested in tourism benefits, however, unless investments are generating significant amounts of new users, or users from out of the state, the tourism benefits are often calculated as ‘transfers’. Transfers are where new benefits are not created, just moved from one area or entity to another. For example, increased tourism in one local area may result in less visitation and for another area.

Transfers can sometimes be challenging for states when justifying investments from a pure value for money perspective. However, if the primary objective of the investment is equity, transfers might not always a bad thing.

This insight was written in response to the article ‘Mountain bike boom a boon for country towns in the race for tourism dollars’ by Catherine McAloon which first appeared on abc.net.au on 8 December 2017.