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4.1 Enhance regional market access and economic growth

Regional and rural Victoria play a vital role in the Victorian economy. Collectively the regions contribute almost 20% of the state’s overall economy and produce a third of Victoria’s exports.1 Victoria is Australia’s largest food and fibre exporting state, accounting for over 28% of the nation’s food and fibre exports.2 The sector supports around 200,000 jobs, with 76% of agricultural employment concentrated in regional areas.3 But regional economies have been hit hard by a succession of extreme events, including drought, bushfires and the COVID-19 pandemic. More than ever, a focus on sustainable long-term economic growth and development is needed to benefit businesses and communities. Each region has unique attributes that can grow economies, create jobs and transform industries. Infrastructure investments that build on existing industry strengths or advantages are most likely to effectively deliver economic growth.4

Agriculture, related manufacturing industries and tourism are economic strengths, capable of driving wider regional growth and development.

New opportunities are emerging in sectors such as mining and renewable energy.5 Industry specialisations differ from region to region. For example, in agriculture, the Mallee specialises in broadacre cropping and irrigated agriculture,6 Gippsland7 and Great South Coast8 have strong dairy industries, and the Goulburn region is a major producer of processed and fresh fruit.9

But our investigations found the associated infrastructure opportunities and potential constraints are often shared across Victoria’s regions. Adaptable infrastructure interventions can help link regional and rural businesses to domestic and export markets and unlock wider economic growth.

Better freight networks can lift regional Victoria’s productivity

Regional economies can only operate and grow if they can efficiently move goods between primary producers, manufacturers, wholesalers, importers and customers.10 Transporting agricultural produce, mineral products and manufactured goods from the regions to markets requires safe, reliable and efficient freight connections. Transport accounts for a significant share of overall production costs. For example, road and rail costs average 10% of overall farm production values,11 affecting the profitability and competitiveness of Victorian agriculture.12 Victoria needs efficient and fit for purpose road and rail freight networks to help regional businesses minimise transport costs and remain competitive.13

Freight volumes in regional Victoria are forecast to grow an average 1.5% each year until 2051.14 As the freight task grows, demands on the road network are increasing. In the last two decades, people and freight travelling on Victoria’s major country roads have increased by 20% and this growth is expected to continue.15

An increasing proportion of the regional road network is in very poor condition, presenting a growing risk to public safety and increasing the costs of travel through increased fuel use, vehicle maintenance costs and travel times.16 Regional or rural roads already account for three out of every five fatalities on Victoria’s roads, despite accounting for less than a quarter of the state’s population.17

Accommodating growing road freight movements while ensuring safety for all road users requires well-maintained roads, designed and managed to keep road freight productive and efficient.

Rail freight moves many agricultural and mining exports from regional areas to ports.18 For these industries, rail freight can be more cost-effective than road freight when transporting bulk commodities over long distances.19 Carrying more freight by rail can reduce the number of vehicles on regional roads. Rail freight also helps reduce road damage caused by heavy vehicles and congestion, traffic accidents, greenhouse gas emissions and noise impacts.20 However, Victoria’s share of freight on rail has not changed significantly for more than two decades and has gone backwards in some markets.21 The regional rail freight network’s efficiency is hampered by many factors, including different rail gauges, axle load restrictions, permanent and temporary speed restrictions and maintenance backlogs.22 Its relatively poor condition and lack of investment23 further impedes rail freight uptake.

Reviews have criticised Victoria’s road maintenance strategy, prioritisation processes and failure to optimise the maintenance program.24 Similarly, there is currently no transparent, sustainable maintenance plan for the state’s rail freight network. Despite significant one-off funding allocations, particularly for regional roads, neither network has clear long-term funding for maintenance and upgrades, making strategic and efficient management difficult.25

Infrastructure limitations can constrain economic growth

Businesses need solid access to basic infrastructure to operate,26 such as power, water, waste, transport and, increasingly, information and communications technology. Economic growth can be constrained by unreliable or expensive infrastructure access.

For example, agriculture and manufacturing industries in the Ovens Murray, Loddon Campaspe, Central Highlands, Great South Coast and Barwon regions report outdated power supply infrastructure preventing business expansion, a constraint shared with Wimmera Southern Mallee’s growing mineral sands industry.

Manufacturing businesses in Barwon, Central Highlands, Loddon Campaspe, and Ovens Murray report needing better water and waste disposal infrastructure to expand. In every region, tourism businesses flag problems with transport infrastructure or amenities at tourist sites.27 Victoria’s regions can face extra barriers to secure basic infrastructure upgrades compared with Melbourne. For example, upgrade costs may be prohibitive in places with fewer businesses to share them.28 This can affect regional and rural areas’ ability to attract new business investments or facilitate business expansion.29

Regional tourism has potential for future growth

Before 2020, global tourism had seen continuous growth during the past six decades, and was one of the largest and fastest growing economic sectors.30 Tourism was worth $9.4 billion to regional Victoria’s economy and generated around 110,000 jobs in 2018–19.31 For every $1 spent by visitors to regional areas, an extra 92 cents was created through supporting sectors, such as local small businesses.32 Tourism helps create jobs and diversifies regional economies from their traditional agricultural base. It can also enhance environmental conservation, preserve cultural history and heritage, and stimulate investment in transport and other infrastructure.33

Regional Victoria offers a diversity of natural assets such as alpine forests, deserts, coastal areas and rainforests. It contains important Aboriginal cultural and heritage assets.34 Across Australia, nature-based tourism has been an area of particularly strong growth, emerging as an important motivator for travel.35 In 2019, nature-based experiences drew 22% of visitors to regional Victoria.36 These natural and cultural attractions combine with a wealth of food and wine experiences, cultural festivals, local museums and galleries, and make tourism a strong candidate for regional growth.37 However, visitor expenditure in the regions trailed Melbourne in 2019. International visitors accounted for 40% of tourism spending in Melbourne, compared with just 5% in the regions. International tourists spent the most per person, but made up only 1% of visitors to regional areas, compared with 8% in Melbourne.38 Similarly, regional Victoria received fewer interstate visitors compared with other states and territories.39 Day trippers comprised over two-thirds of visitors to regional Victoria, but this group did not spend very much, accounting for just one-third of visitor spending.40

More than 75% of international visitors to the Great Ocean Road only visit for a day.41

In 2020, tourism spending in regional Victoria outstripped Melbourne for the first time. However, this was in the context of extended lockdowns in Melbourne during the COVID-19 pandemic. Despite strong performance relative to Melbourne, visitor expenditure in regional Victoria was 44% lower in 2020 compared with 2019,42 and the impact of the pandemic has been devastating for many segments of the tourism industry.43

In the long term, regional tourism’s challenge is to attract more overnight visitors from outside Victoria. Converting even a small proportion into overnight stays could have a significant impact.44 To achieve this in a fiercely competitive industry, Victoria’s regions need to develop the tourist experiences visitors increasingly expect.45 Inadequate tourist infrastructure can limit growth. In the short term, Victorian regional tourism’s heavy reliance on local tourists may be a strength, being less affected by travel restrictions, and offering options to all Australians unable to travel overseas. Prior to the pandemic, Victorians accounted for around 80% of tourism spending in the regions. More than half of Victorians had not travelled for an overnight stay in regional areas in the previous year, but half of these people would consider doing so.46

Early signs in 2021 indicate that regional tourism is starting to recover, as tourism has been booked solid during holiday peaks.47

This suggests local tourism can help the wider economic recovery of regions and there is capacity for the sector to grow, acknowledged in the Victorian Government’s $465 million tourism recovery package.48

Recommendations to enhance market access and regional economic growth

Infrastructure Victoria is making the following recommendations to enhance market access and unlock economic growth opportunities in regional areas. These interact with other recommendations to improve freight efficiency (see section 3.2) and to better connect regional Victoria (see section 4.2). Other regional growth opportunities include renewable energy generation (see recommendation 4) and recycling and resource recovery (see section 1.5).

Recommendation 78: Deliver long-term funding certainty for regional road maintenance and upgrades

Within two years, specify clear levels of service for each type of regional road and bridge. Following this, dedicate a 10-year funding program to sustainably fund Victorian Government regional road and bridge maintenance and upgrades to meet these service levels. Funding should be prioritised based on improving safety, decreasing vehicle emissions, and lifting productivity.

Regional roads support workers and freight, transport regional goods and produce to market, link tourists with regional attractions, and help keep communities connected. Keeping roads and bridges in good condition reduces fuel consumption, tyre wear, and vehicle maintenance and repairs, which in turn reduces vehicle greenhouse gas emissions and their environmental impact.49

Of the 23,000 kilometres of arterial road and freeway lanes in Victoria,50 19,000 are in the regions.51 Victoria has more than 3180 bridges, 3500 other structures, and more than 3400 sets of traffic signals and other electrical systems.52 A large proportion of the road network is old and made from materials not intended for current truck loading and vehicle requirements.53 Roads and supporting infrastructure are also vulnerable to extreme weather, which is exacerbated by the impacts of climate change.54

The quality of regional roads is declining,55 but keeping communities connected and their economies functioning means regional roads must be properly maintained and upgraded.

Road and bridge maintenance is most cost-efficient when undertaken on roads in a ‘fair’ condition. Roads worn beyond this point require more costly and disruptive rehabilitation work.56 Unpredictable road upgrade and maintenance funding hinders road managers’ ability to prioritise investment across the network from year to year, impedes good road network planning, and focuses on roads and structures in the worst condition. Current annual maintenance funding is inconsistent,57 meaning maintenance is left until it is most expensive, and ultimately inflates costs.58

The Victorian Government should provide a transparent framework that defines the level of service, or desired condition, of each type of regional road and bridge in a hierarchy based on defined criteria. Not every road needs to be maintained at the same standard but should be maintained to meet its intended purpose. For example, a regional freeway needs to be maintained at a much higher standard than a narrow backroad serving a few rural properties. The level of service could define the desired speed, volume, safety and types of vehicles the road is intended to carry.

Assigning roads to these levels of service needs to match local and regional requirements, catering for a region’s growth, local travel, freight, through traffic, industry, and emergency access needs. As they change, the quality and condition of roads may need to change too. Establishing the desired condition of regional roads, and maintaining roads and bridges to that standard, is also necessary to introduce more efficient freight vehicles, like high productivity and automated vehicles, because predictable conditions and clear markings will help make best use of their safety features.59

The Victorian Government should dedicate a 10-year funding program to regional road maintenance and upgrades. Building on existing commitments,60 this should provide road managers the long-term certainty they need to prioritise investments more efficiently, invest in upgrades to support economic and social outcomes and undertake proactive maintenance. After specifying road service levels, funding should be allocated to priority maintenance and upgrades, determined by desired safety, vehicle emissions, productivity outcomes, and existing road condition.

Recommendation 79: Fund and plan for ongoing regional rail freight network development and maintenance

In the next year, fund a 30-year periodic regional freight rail maintenance program, informed by a publicly available network development and asset management plan. Using the plan, thoroughly determine the feasibility of the next major regional freight upgrade within five years.

Rail freight has a basic cost advantage over road freight,61 especially in transporting bulk commodities over long distances. A freight train can carry as much as 110 trucks.62 But rail’s share of Victorian freight is stagnant or in decline,63 meaning the freight rail network is underused, especially on freight-only regional lines. Compared with the regional passenger network, rail freight has significantly more assets in average, poor, or end-of-life condition.64 A badly maintained regional rail freight network has lower performance and reliability, reduces asset longevity, and increases catastrophic failure risk.

Several Victorian freight trains have derailed in the last five years.65 Despite occasional funding boosts, routine and major periodic maintenance has historically not kept pace with the required investment.66 An asset management plan announced in 2018 is still underway, with no indication of its completion or publication date.67 The Victorian Government should fund a 30-year periodic maintenance program to improve rail freight’s competitiveness, akin to the four-year program begun in 2017.68 Rail freight benefits arise in the long-term and need sustained maintenance investment to materialise. An ongoing fund, at approximately $70 million each year, provides the funding stability to maximise efficient maintenance. The program should include assessing the rail freight network’s current state and fund immediate, high priority works. It will boost industry confidence in the Victorian Government’s long-term commitment to maintaining quality freight infrastructure.

This supports the complementary industry investments required to grow the rail freight industry and means maintenance spending can be optimised in the long term. A long-term network development and asset management plan should inform the program. For the maximum benefit, the plan should consider incorporating the excluded parts of the revised Murray Basin Project, and consider a new rail freight line on the outer metropolitan road and rail corridor (see recommendation 66).69 The plan should:70

  • Determine the long-term rail gauge in different network sections, the sequence of projects, and ways to prepare for cost-effective gauge conversion71
  • Identify opportunities to realise efficiencies, particularly at ports72
  • Set maintenance standards and overcome constraints, such as critical track sections with lower loading limits73
  • Inform rolling stock and locomotive investment decisions74 
  • Consider options for new intermodal terminals, and support connections between rail terminals and the main rail line75
  • Consider the interactions and access arrangements with passenger services and network plans.76

Many stakeholders expressed major concerns about the reduced scope of the Murray Basin Rail Project, particularly for businesses.77 Publishing a plan can help address these concerns and should include a program of projects. The Victorian Government should then commence thorough feasibility and business case work on the next major rail freight project within five years. In doing so, it should improve governance, project and contract management, practices in project planning, scoping and cost estimation, and stakeholder engagement.78 The Victorian Government should develop and publish the plan to provide certainty and confidence to investors and producers.79

Recommendation 80: Upgrade power supply for agriculture and regional industry

In the next five years, contribute toward strategic power supply infrastructure upgrades for agriculture and regional industry, where an independent assessment demonstrates significant potential for increased productivity, competitiveness and growth.

Reliable and cost-effective energy supply helps farms and businesses in regional Victoria improve productivity.80 In some areas, older electricity infrastructure is no longer fit for purpose,81 limiting potential business investment and expansion opportunities.82

Changes in industry practice have caused different and escalating energy demands. For example, farm consolidation has created economies of scale in production, driving investment in more energy intensive farming equipment. However, voltage problems and electricity supply outages can limit production and damage equipment. For example, modern milking equipment that allows more cows to be milked has higher energy demands than older electricity networks can manage.83 Challenges finding suitable sites for regional businesses that meet modern energy requirements also limit potential growth.84

In places with fewer customers sharing costs, electricity distribution networks are more expensive and less reliable.85 Upgrading power networks can provide solutions. Upgrades can be to individual business power supply, or shared infrastructure, such as replacing single wire earth return lines with three-phase power lines or installing grid utility-scale electricity storage. Upgrading power supply to regional manufacturing precincts can attract new businesses to share infrastructure costs, but the risks mean private providers may be unwilling to invest. On-site power generation and storage, such as solar panels and batteries, can be an alternative solution. The benefits of better power supply can be significant. For instance, an $8.7 million proposal to upgrade a single wire earth return backbone to three phase power in Great South Coast could deliver benefits of over $2 million each year in gross regional product.86 Similarly, a $2.1 million power upgrade grant for Burra Foods allowed the company to increase production, creating 40 full time jobs.87

Regional businesses may be willing to share upgrade costs because of the productivity benefits provided. Benefits can include encouraging business expansion, attracting new investment, and supporting regional communities.88 A financial incentive can overcome initial capital costs to allow existing businesses to work together to share part of the remaining cost, and new businesses could help repay it. Previous Victorian Government programs, like the Regional Electrical Access Program89 and On Farm Energy Grants Program,90 subsidised upgrade costs that electricity distributors could not include as regulated returns.

The Victorian Government should help fund power supply infrastructure upgrades for agriculture and industry in regional Victoria where an independent assessment demonstrates significant benefit to existing users and potential to unlock investment. Strategic power supply upgrades can deliver wider benefits beyond a single sector or area. Investment can proceed with appropriate cost sharing arrangements between the Victorian Government, power distribution companies (representing all electricity users) and regional businesses. The Victorian Government should also explore options to recoup costs, such as through user charges, where it is making an investment on the expectation of growth. Upgrading power supply will complement the existing Agriculture Energy Investment Plan, which helps agricultural businesses to improve energy efficiency and explore alternative energy options.91 The new fund should be allocated $30 million over four years.

Recommendation 81: Plan for and facilitate regional nature-based tourism investments

In the next two years, develop a Victorian nature-based tourism strategy to guide industry development and prioritise further investments. During the next 15 years, support regional tourism investment by allowing more site-specific leases for up to 49 years for infrastructure proposals that meet strict criteria and complement environmental and cultural values.

Tourism is one of regional Victoria’s largest industries. It has been acutely affected by the 2020 bushfires and the COVID-19 pandemic.92 Victoria’s regions captured only 37% of the state’s tourism spend in 2019 – the lowest proportion in Australia – indicating many opportunities for a larger share.93 Compared with Melbourne, tourism supports a larger share of regional Victoria’s jobs and gross regional product.94 Rebuilding regional Victoria’s tourism industry can help the regions recover, with room for growth in the long term.95

With its diverse landscape and unique cultural sites, regional Victoria has a comparative advantage in nature-based tourism.96 Victoria’s regions offer a multitude of natural experiences, including more than 40 national parks,97 alpine mountains, rainforests, deserts, gardens, parks, beaches, lakes, and waterways. Previous tourism strategies sought to leverage these natural assets by diversifying nature-based visitor experiences.98 Providing new tourism experiences helps guarantee longer-term industry success, including by investing in better tourist facilities.99 To help secure regional economic recovery and build on this potential, the Victorian Government introduced a Victorian Tourism Recovery Package in 2020.100

Investors seeking to establish a forest-based tourist experience on national park land are currently limited to a maximum lease period of 21 years (with some exceptions).101 This is shorter than offered in other states,102 and investors say this period is not long enough to realise a financial return.103 A previous inquiry found allowing private tourist facilities in national parks can generate a net public benefit if they complement environmental and heritage values.104

To guide longer-term industry development and growth, and prioritise investments, the Victorian Government should develop a statewide nature-based tourism strategy within the next two years. The strategy should take account of nature-based tourism investments, investigate public land near national parks and provide a framework for infrastructure funding by the Victorian and Australian governments, re-examine existing policies, balance increased tourism with its environmental impacts,105 and consider localised risks (like bushfires and flood), accessibility and planning regulations.

The strategy should complement a Victorian Aboriginal tourism strategy (see recommendation 82) and be informed by the Victorian Visitor Economy Strategy106 and the Marine and Coastal Policy,107 support and work with Traditional Owners,108 and incorporate requirements for accessible tourism.109

The Victorian Government should extend exemptions to allow more site-specific lease periods for up to 49 years in national parks, for suitable infrastructure proposals that are consistent with environmental and cultural values. This process should begin within two years of proposals being identified and brought forward for legislative change.

So only suitable developments are granted long leases, the Victorian Government should evaluate each proposal against strict criteria so that national parks continue to be managed in a culturally sensitive and ecologically appropriate way.110 Consistent with the Crown Land (Reserves) Act 1978, these should include whether proposed facilities are significant enough to justify the longer lease, and whether land development is in the public interest, including assessing benefits to the community, economy and environment.111 Criteria should also include: the proposal is supported by the community112 and Traditional Owners; it meets the government’s Protecting Victoria’s Environment — Biodiversity 2037 guidelines;113 it addresses localised risks, such as bushfires; and it is accessible and adheres to universal design principles.114

Recommendation 82: Develop a Victorian Aboriginal tourism strategy with Aboriginal communities

Support and partner with Aboriginal communities in the next two years to guide future investments in Aboriginal tourism and cultural heritage, including through Joint Management Plans.

Aboriginal people have lived here for more than a thousand generations, maintaining complex societies with many languages, kinship systems, laws, polities and spiritualities. Their millennia of history, knowledge and traditions are unique cultural assets.

Aboriginal tourism experiences are increasingly attracting interest and align with efforts to preserve and promote Aboriginal cultural histories and heritage sites.115 International visitors taking part in Aboriginal tourism activities, such as visiting an Aboriginal site or community, have increased by over 40% since 2013.116 Victoria has many significant Aboriginal sites, such as the World Heritage listed Budj Bim Cultural Landscape. Investing in these sites will help strengthen and maintain Aboriginal cultural heritage and create more diverse tourism offerings. These investments can also create jobs for Aboriginal Victorians and support Aboriginal communities to build assets – an important element to help Close the Gap in outcomes for Aboriginal Victorians.117

Joint Management Plans between Traditional Owners and the Victorian Government recognise and use traditional knowledge and culture to manage some national parks and other protected areas. Existing Joint Management Plans include those for Dja Dja Wurrung Parks,118 Gunaikurnai,119 and Yorta Yorta (Barmah National Park).120 Traditional Owners are also authoring a Victorian Cultural Landscapes Strategy which will provide direction to the Victorian Government on enabling Traditional Owner self-determination in land management.121

The Victorian Government should continue to develop Joint Management Plans with Traditional Owners, and provide funding support for tourism infrastructure identified within the plans. The Victorian Government should further support and partner with Aboriginal communities to develop an Aboriginal tourism strategy. This can preserve and promote Aboriginal cultural histories and heritage, and help drive sustainable economic activity and employment. The strategy should align with approved Joint Management Plans, consider localised risks (such as bushfires or flooding) and planning regulations, and enable safe access for tourists with disabilities. The strategy should guide Victorian Government investment in Aboriginal tourism infrastructure to meet Aboriginal cultural and economic development needs and improve growth in tourism. It can also support further investment in cultural infrastructure facilities, to strengthen and maintain community and culture.122

The strategy should be developed with Aboriginal communities, including Traditional Owner Corporations and the Victorian Aboriginal Employment and Economic Council, so investments in economic development are consistent with the Victorian Government’s commitment to Aboriginal self-determination.123 It would build on existing reforms towards improving social, cultural and economic outcomes for Aboriginal Victorians, such as the Self Determination Reform Framework,124 the Victorian Aboriginal Affairs Framework,125 and the Victorian Government Aboriginal Affairs Report.126 Further, it would build on Tharamba Bugheen: Victorian Aboriginal Business Strategy 2017–2021127 and the Victorian Visitor Economy Strategy.128

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