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Issue #1609      September 4, 2013

Special economic zones

Abbott and Rudd in race to the bottom

What do most people think of when they hear the words “special economic zone”? It conjures up thoughts of developing countries trying to entice transnationals to their shores with a race to the bottom for taxes, lax regulation including for the environment, no unions, poor makeshift facilities for residents. Images of desperate internal or overseas migrants looking for work come to mind, life in substandard accommodation, company stores and abusive supervisors on the job. Given that reputation, it would appear strange that both Kevin Rudd and Tony Abbott have recently floated the idea of special economic zones in Australia – one in the Northern Territory for the Prime Minister and one in Tasmania for the wannabe PM.

Mr Abbott had proposed a white paper on tax incentives to lure business and people to the north in June. Labor ridiculed it then but has embraced it wholeheartedly while on the campaign trail. Detail is sparse but the plan could include a one third reduction in company tax from 30 percent to 20 percent from 2018. That puts it outside the four-year budget forecasts and the need to show the impact it might have on government revenue. The Constitution’s ban on preferential tax arrangements for states is sidestepped because the NT is a territory.

Labor appears to have done some homework on this but who will it appeal to? The business pages like the idea but would like to spread it beyond the NT and Tasmania. “Lower corporate taxes, more liberal foreign investment rules, better infrastructure and less red and green tape would make all Australia a special economic zone,” The Australian Financial Review opined recently. If it’s good for the transnationals it’s good for everybody, according to the Fairfax flagship.

Commentators with a bit more credibility insist that special economic zones would have no benefit for Australia. “You have to be very careful about the effect it has within Australia – that is it detracts investment that would have gone to other states and territories – that’s at best a zero-sum-game for Australia,” said Bill Scales, former head of what is now the Productivity Commission.

Bob Katter believes the battle of the economic zones is being fought for his party’s preferences in the federal poll of September 7. Rudd wants to expand the Ord River irrigation scheme to boost NT agriculture but the third “pillar” of the vision are 20-year growth plans for Darwin, Cairns, Townsville and Mackay. Abbott has proposed a similar scheme for Darwin, Cairns, Townsville and Karratha. Katter’s electorate might be in for some federal funding largesse.

Others are suggesting the proposals are to redress a “market failure”. Demand for potential agricultural and mining output is being restricted by under-developed infrastructure up north. Aside from the tax concessions, overseas investors will be pleased to see proposals for the removal of the threshold at which bids are scrutinised. Alternatively, scrutiny could be overlooked if the investment is in the form of a joint-venture with an existing enterprise.

Big mining ventures are the most obvious winners out of a northern special economic zone. Companies would press to bring whole workforces to the NT using the much-abused type 457 visas. Aboriginal interests have been side-lined steadily by Labor and Coalition governments, reaching their current low point following the Northern Territory Intervention in 2007.

Exciting though the proposals are for mining transnationals, they are never enough for some people. WA businessman Ron Manners sits on the board of Gina Rinehart’s “Australians for Northern Development and Economic Vision” organisation. He says the 20 percent company tax might be low enough to lure local investors but overseas investors would be looking for an even better deal. Having got themselves (and a disenfranchised Australian working class) into this bidding war, Kevin and Tony may have to sharpen the pencil.

Next article – How much have we learned since March 2012?

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