Australia’s economy is biased towards our capital cities. Sydney, Melbourne, Brisbane, Perth and Adelaide concentrate much of our economic activity — our corporate headquarters, our top universities and our public institutions.
But has the balance tipped too far?
It’s a question I explored in a recent episode of the Economics Explored podcast with Senator Matt Canavan (NB you can watch it on YouTube below). We discussed his vision for what he calls “Hyper Australia” — a push to drive more economic development into the regions. Let’s focus on the economics.
The economics matter because Australia is unusual by international standards. In most of our states, the capital city is both the political and the commercial centre. Contrast that with the United States, where the political capital and the main commercial hub are often different cities — Sacramento and Los Angeles in California, or Albany and New York City in New York. Our pattern has pulled people, businesses and investment into a relatively small number of places.
Economists have long understood why cities work. Bigger cities generate what we call agglomeration economies: businesses specialise, workers find more opportunities, firms learn from one another through knowledge spillovers, and consumers gain access to a wider range of goods and services. These forces are a big part of why cities tend to be more productive.
But agglomeration benefits aren’t unlimited.
As cities grow, congestion builds, commutes lengthen and infrastructure struggles to keep up. Housing becomes more expensive, and businesses face higher operating costs. Many Australians feel these pressures every day.
The key economic question is whether we’ve reached the point where the additional costs of adding more activity to our biggest cities outweigh the benefits.
Senator Canavan argues that governments should take a more active role in encouraging economic activity outside the major capitals. His proposals include greater investment in regional infrastructure, relocating some public sector jobs, encouraging new industries, and even considering the creation of new states. These could include a new state of North Queensland with Townsville as the capital.
There’s a real case for asking whether current policy settings quietly favour the capitals. When state governments, major agencies and corporate headquarters all sit in the one city, that city naturally draws in even more activity.
Some regional challenges are also poorly measured. As I noted in the discussion, we still lack comprehensive regional cost-of-living data — there’s no regional consumer price index, for instance. Better data would help policymakers see where the pressures are greatest and design more effective policies.
There’s a serious case for greater decentralisation. But governments still need discipline.
Every major public investment should face rigorous cost-benefit analysis — whether the project is in Sydney or in regional Queensland. Regional development can deliver wider social and economic benefits that commercial returns alone don’t capture. But those benefits should be identified explicitly and weighed carefully, not simply asserted.
Too often, projects are justified by vague appeals to “regional development” without any clear demonstration that the benefits exceed the costs. Good policy means being transparent about the trade-offs.
Australia’s population keeps growing, and the pressure on our biggest cities won’t ease anytime soon. That makes it timely to ask whether a greater share of future growth could happen in the regions instead.
There are no simple answers. Decentralisation is no silver bullet, and plenty of proposals deserve healthy scepticism. But equally, we shouldn’t assume that our current pattern of development is the only path available — or the best one.
The economics of place is becoming increasingly important and deserves far more attention than it usually gets.
Gene Tunny, Director of Adept Economics
Published on 26 June 2026. For further information, please contact us at contact@adepteconomics.com.au or call us on 1300 169 870.