Despite their size, Australia’s great small cities’ long-term growth rates have matched those in metropolitan cities. There are good prospects for this medium-term economic performance to continue. However, recent economic outcomes have been less impressive, mirroring the general decline in Australia’s economic growth and regional cities’ significant exposure to the mining investment boom transition.

Unfortunately, Australia’s Great Small Cities are widely misunderstood. Portrayed in our national economic discussion as perpetual laggards, struggling to transition to services based new industries, too small to matter, and with little future potential. Recent challenges have been confused with long-term trends.

The Regional Australia Institute’s analysis reveals that Australia’s 31 regional cities collectively expanded their economies at 3 per cent per year from 2001-2013. They share comparable economic performance with our major cities across the key measures of growth; Output, participation, and productivity. While some regional cities are larger than others, it is not size that matters in understanding city economic performance. Australia’s economy, like other developed economies, is becoming service focused with the growth of jobs concentrating in new economy industries. Regional cities have also been making this transition and are already producing more output in new economy industries (finance, education, health and professional services) than old industries (agriculture, mining and manufacturing).

The RAI’s projections of future regional city growth are positive. Regional cities have the potential to produce $375 billion in output in 2031, representing a 65 per cent increase from 2013 levels and a contribution of 15 per cent to the national economy. Putting the output in today’s terms, regional cities in 2031 will produce twice as much as all the new economy industries alone produce in today’s metropolitan cities. But important changes are taking place in growth trajectories as the contribution of mining and population driven high growth cities has moderated. There is clear upside potential available in low and average growth regional cities, but it will not come as easily as the growth fuelled by enormous resources projects during the mining investment boom. Achieving sustained growth in regional cities will require a locally tailored policy approach. In contrast to our major cities where congestion and settlement patterns constrain performance, the goal in small cities should be to tune up the economic engine that drives growth. Across our diverse regional cities we need to nurture new industry specialisations, better enable local business growth, stimulate workforce attractiveness and build on existing lifestyle and affordability advantages as attractors for new private investment and city growth.

The RAI estimates that if good policy and increased investment can facilitate an increase of only 0.6 per cent annual compounding growth for the slow and steady regional cities, then an additional $3 billion can be added the national economy by 2031. Delivering a total output (GVA) of $378 billion from regional cities. In today’s economic terms, this is equivalent to half of what the government is expected to spend in 2016/17 on the fuel tax credits scheme. This comparison highlights that even low performing regional city economies are still growing strongly and require little stimulation to achieve average national growth.

The companion report to this one, Blueprint for Investing in Regional City Deals, looks at how to lift economic performance in regional cities. The Blueprint addresses one issue – is a city ready for a City Deal? In addressing this, two questions emerge (i) Are city economic engines ready? and (ii) Are cities ready? Both components draw heavily from UK City Deal experiences and the underlying data provided in this report. The Blueprint provides guidance to local, state and federal government, as well as private businesses and community groups on which cities are ready to deal.