Jeff Kennett is on a predatory, competitive prowl _ again. This time he is competing with the ACT to get the Australian headquarters of the French-based company Thomson CSF, which is at present in Canberra. Thomson chose Canberra because it was close to the Civil Aviation Authority, the government organisation it has most dealings with. Kennett wants to tip the balance by giving Thomson a range of incentives, which really amount to freebies, to move to Melbourne. They include lower payroll and land tax and help with infrastructure and training. It is parochialism at its worse.
It may be good for Victoria vis a vis the other states and territories, but it is not good for Australia. The money resulting from Jeff’s freebies will end up in France. Well done, Jeff. It takes competition too far. Competition can result in great efficiencies and it usually results in cheaper, better service for consumers. Now, if those consumers are foreign-owned companies, squeezing the best deal out of state governments, it is hardly of any benefit to Australia and ultimately is self-defeating. This is not being xenophobic. Foreign companies like Thomson provide employment for Australians and improve our standard of living with investment. However, Jeff’s carrot means that a company might relocate, causing disruption to the lives of Canberra-resident Australians currently employed by Thomson or Canberra-resident Australians who have contracts with it. This is done so that the Victorian economy might grow a little. The overall Australian economy loses, however, because the extra profit generated by the tax breaks goes to France.
Are we to have an auction among the eight states and territories to see who can give away most to get a company to locate with it? This will defeat part of the purpose of attracting foreign investment. Thomson won its contract to install the air-traffic system at its tender price, presumably with the present Australian and state tax regimes factored in. Thomson is already located in Australia; no further attractions are needed. The Commonwealth Grants Commission should put a stop to this nonsense by subtracting from the grant of any state the cost to the national economy of poaching existing foreign companies, and indeed Australian companies come to that.
That would then shift the efforts of state and territory governments to where it should be: on generating new business _ both Australian and foreign. Of course, that requires more work and more imagination. It requires more than a crude auction of special deals (or as Kennett puts it, “”on a case-by-case basis”) _ which engenders an environment ripe for corruption. It requires policies that are generally attractive to business _ and that is not restricted to the almighty dollar. Singapore, for example, may have low company tax, but when it canes the son of a US businessman, hangs a Filipino maid and censors the media, the attractions wear thin. Good schools and hospitals, good recreation facilities, a good natural environment, getting rid of unnecessary regulation, and generally efficient electricity, water, sewerage systems are more important in attracting business as special tax breaks _ and they are better for the country in the long-run. It requires a good balance of public infrastructure and efficient delivery of services.
The efficiency argument was put in the Hilmer report. And it was Kennett who first cried for compensation through the grants system if the states were to implement the Hilmer reforms. The reforms would result in some loss to state revenues because they recommended commercial charging for utilities; whereas at present the states use them as tax milch cows. However, the Hilmer reforms would overall add about 5 per cent to GDP by the end of the century because they would remove inefficiencies. It is hypocritical, therefore, for Kennett to poach a business and not expect to cop a cry for equalising compensation through the grants process. As a single incident, the Thomson move may not amount to much.
The worrying thing, though, is the mentality it displays. Why engender new business if you can pinch someone else’s? Why train your staff if you can pinch someone else’s; why do the hard groundwork of making a place generally attractive when you can do a special deal? Several years ago, mining executive Hugh Morgan and others promoted competitive federalism which had a minimalist (defence and foreign affairs) central government and six competing states. There is a lot to be said for cutting duplication between tiers and for competition to produce an attractive environment overall for both business and business employees _ one that goes beyond next year’s bottom line.
However, if this results in a series of special deals to grab a headline because you have attracted a named business, the nation will be the poorer. Whatever Kennett attempts to do, it is up to the other states and territories not to join in and to ensure that come grants time, Victoria does not prosper by its destructive action.