Last month Gina Rinehart authored an article savaging welfare claimants and scorning "the political left" for supporting welfare spending. Just a fortnight later the same woman accepted a $764 million loan from American taxpayers to finance her Roy Hill iron ore project. While the audacious hypocrisy drew a range of comment, slipping by with less scrutiny was the continuation of the Rinehart-backed campaign to get a sweeter deal from taxpayers closer to home.
Australians for Northern Development and Economic Vision (ANDEV) was formed in 2010 by Rinehart and a small cadre of backers to lobby for the creation of a "special economic zone" (SEZ) in northern Australia to deliver taxation cuts, regulatory exemptions and large infrastructure projects. In 2011, NM reported on ANDEV's first big push in the debate over mining's place in Australia.
The group has been very successful since. Having successfully agitated for the adoption of the policy by the Coalition (which was also floated by Kevin Rudd before the 2013 election), figuring out how to make a northern SEZ a reality has fallen to the recently formed Joint Select Committee on Northern Australia. While a white paper will come after the committee turns in its final report, the public submissions shed some light on how the policy might come together.
ANDEV’s submission shows its arguments have grown in sophistication over time. The original talk of "multitudes of snakes" and “excessive heat” justifying generous tax cuts is out, replaced with examples of the success of SEZs worldwide. Particular attention is paid to their use in China, where this "capitalist" idea helped kick off the economic boom that lifted 500 million people out of poverty.
However, Australia is not exactly communist China: we do not have interior restrictions on movement, sky-high tariffs on imports, or prohibitions on private business ownership — indeed we are ranked as the 3rd most economically free nation in the world according to the conservative US Heritage Foundation. There may well be more that can be done to grow the economy, but does it make sense to pursue such measures solely in the north?
University of Queensland economist John Quiggin certainly doesn’t think so. “The whole idea of picking out one particular part of the economy and giving them special handouts and their industry special treatment goes against the whole thrust of economic policy over the last thirty years,” Quiggin said on ABC radio. This view isn’t limited to left-leaning economists like Quiggin. Last year economist Saul Eslake of Bank of America and Simon Cowan of the classic liberal Centre for Independent Studies made the same point.
Looking to ANDEV’s submission gives clues as to why many economists are sceptical. Proposing the formation of an administrative agency dominated by private sector appointees to control tax and regulatory policy across the north with the "power to apply policy mixes to specific areas/locations," presents not so much an opportunity for regulatory capture as instant regulatory annexation by favoured businesses chosen by government.
What’s even more worrying is the extra government spending requested as part of the policy. ANDEV’s submission describes the north as neglected and in need of further investment. Considering the Northern Territory singled out for the first phase of a SEZ rollout in the ANDEV plan receives more than five times what it collects in GST, it's not entirely clear why more government spending is the answer.
Furthermore, why the top three fastest growing jurisdictions in Australia — the Northern Territory, Western Australia and Queensland — have been singled out for a SEZ over languishing Tasmania is a mystery. A cynic might conclude that the business interests of ANDEV’s supporters have determined the location of the SEZ being pushed for.
Though other inquiry submissions also argued for more infrastructure spending, the Business Council of Australia was cautious, pointing out that "policies to promote long-term growth in northern Australia should not unduly distort national markets and should aim to complement, not substitute for, growth in other parts of Australia." The Institute of Chartered Accountants in Australia (ICAA) argued, “tax concessions are not the preferred means of providing incentives for a particular part of the economy” due to added tax code complexity and the economy distorting incentives created.
More to the point, the ICAA’s reminder that location-targeted tax concessions must be financed from either higher tax collections or lower government spending elsewhere cuts to the heart of the SEZ policy debate. If the Australian government is going to simultaneously cut taxes in northern Australia and raise government spending where will the money come from?
Growth in the SEZ will almost definitely occur, but the rest of the nation will pay. It will be impossible to tell if it is due to the trans-Australian fiscal subsidy that is ANDEV’s SEZ or the organic result of a more business friendly environment.
The yanks may have fallen for giving our richest businesswoman a generous sum of taxpayer cash. Let’s hope our “Age of Entitlement” ending government is a little wiser.
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