It costs more to do business in the regions than it does in the city. This has always been the case. It's as true for businesses selling things as it's true for governments providing infrastructure and services.

Subscribe now for unlimited access.

Login or signup to continue reading

The reason for this can be summarised in a single economic concept: economies of scale. This is where the cost per unit of production falls the more a business produces.

Put simply, it's cheaper to build a car when you're building a million of them than when you're building 10 of them.

And this is the core problem with regional Australia: there's just not very many people there.

Less than a third of the population live outside the big cities. With so few people, businesses struggle to get the economies of scale they need to keep costs down. Cities are cheap. Regions are expensive.

This creates a predicament. Businesses essentially have two options: either charge more in the regions than they do in the cities, or charge the same price nationally and use some of the margins you earn in the cities to cross-subsidise the lower margins in the country.

Most of Australia's traditional industries have chosen the latter.

Interest rates from our banks tend to be about the same in the cities as they are in the country, and they still operate branches out in the regions even though they cost more and are used less. Our supermarkets typically adopt national pricing strategies, too, where prices are roughly the same no matter which store you go to.

AusPost will deliver your letter and your parcel wherever you live even though it would cost them a lot more to perform the service in the regions.

The same is true for telecommunications, utilities, transport and logistics, and most forms of insurance. National pricing with cross-subsidisation sounds great. What's the problem?

It's not so much a problem as it is a........

© Canberra Times